Storm over surcharge on superannuation funds

• Main Opposition SJB flays Govt. for imposing 25% one-off tax on profits of EPF, ETF and Retirement Gratuity Fund 
• Opposition Leader Sajith Premadasa alleges move akin to fleecing working class
• Urges Govt. to withdraw surcharge tax Gazette or remove inclusion of superannuation funds
• Reveals tax on EPF alone will net Rs. 65 b based on Rs. 250 b profit in 2020
• Alleges bankrupt Govt. resorting to shameless move to fund political programs
• Cabinet Co-Spokesman says no decision made to include funds
• Officials say it was Yahapalanaya regime which brought legislation to tax superannuation funds 
• Tax experts opine including funds in one-off surcharge tax was a blunder by those who drafted new Gazette 
• Surcharge tax was in 2022 Budget approved in Parliament in December

The Opposition yesterday slammed the inclusion of superannuation funds in the one-off 25% surcharge tax on profits saying it was robbing the working class, whilst the Government said no final decision was

SJB and Opposition Leader Sajith Premadasa

Finance Minister  Basil Rajapaksa

made and the original legislation was passed during the previous Yahapalanaya regime. 

The Samagi Jana Balawegaya (SJB) alleged the surcharge tax on Employees Provident Fund (EPF), Employees Trust Fund (ETF) and Retirement Gratuity Fund (EGF) was shameful as it is akin to Government pickpocketing the savings of the working class.

“Withdraw the Gazette immediately or exclude pension funds from the surcharge tax,” SJB and Opposition Leader Sajith Premadasa demanded from the Government in Parliament. 

He alleged that the Government was robbing the working class to fund political initiatives with the launch of 100,000 programs at grassroots level last week. 

Premadasa said EPF, whose assets are over Rs. 3 trillion, had made a Rs. 250 billion profit in 2020 and the 25% surcharge tax alone will amount to Rs. 65 billion. 

SJB MP Dr. Harsha de Silva tweeted “The government of @GotabayaR has for the first time in history of #SriLanka imposed a 25% tax on EPF and ETF profits. Plan is to extract Rs 70b from pvt sector workers for @PodujanaParty local government election campaign to distribute via Baiyya Pradeshiya Sabha fellows. Disgusting.”

The Surcharge Tax Bill, published in the Gazette on Monday, seeks to impose a retrospective one-time surcharge tax of 25% on persons and companies with a taxable income over Rs. 2 billion for the year 2020/2021 was . The Bill, proposed by Finance Minister Basil Rajapaksa, received Cabinet approval last week and the tax was a proposal in the 2022 Budget approved by Parliament.

Cabinet Co-Spokesman and Plantation Industries Minister Dr. Ramesh Pathirana told the post-Cabinet meeting media briefing yesterday that the Government has not yet decided to include superannuation funds for the one-off tax. 

However, tax experts said in the Inland Revenue Act No. 24 of 2017, the definition of a company was expanded to include provident fund, pension fund, pension gratuity fund, or a similar fund.

Pro-Rajapaksa officials scoffed at SJB’s antics in Parliament, saying the passage of the new Act (replacing the Act of 2006) and inclusion of superannuation funds for taxation was during the previous Yahapalanaya regime.

“The issue pertaining to funds like EPF, ETF being chargeable to surcharge tax is due to blunder made by the person who drafted the new Gazette and not due to a deliberate attempt by the policymakers,” opined a tax expert. He said most of the provisions in the surcharge tax act are a “cut and paste” from the Yahapalanaya regime’s infamous Super Gains Tax Act.

“In the old Super Gains Tax Act also the definition of a company was to be taken from the Inland Revenue Act of 2006. The definition of a company in the old Act was narrow and limited to Sri Lankan companies, foreign companies and public corporations. But in the new Inland Revenue Act of 2017 the definition of a company is wide and it even covers funds,” he recalled. 

“So when the drafter did the cut and paste job from old Super Gains Tax Act of the definition – which is ‘company means a company as defined in the Inland Revenue Act’, he failed to realise that the old Inland Revenue Act was repealed in 2018 and a new IRA was introduced – and in the new IRA the definition a of a company includes funds,” he added.