Experts say tax policies in urgent need of reform

Experts are urging the government to revise its outdated tax policy and start taxing public servants. They say it may not be politically palatable but something has to be done. Tax expert N. Gajendran told The Sunday Times FT that the government is looking to enhance revenue and public servants who don’t pay any taxes even though under the current system, half their salary is liable for taxation. On the principle of equity, even parliamentarians and provincial counsellors should be taxed on all sources of revenue attached to their employment.

"The government bears their tax and that means the people are bearing the tax burden," he said. "There is no physical payment by public servants on their salaried income." In the present system, tax free allowance applies to a minimum salary of Rs.25,000 but Gajendran said the tax free allowance should be increased to Rs.50,000.

He added parliamentarians, in particular, have an obligation because of the employment related benefits they receive. Parliamentarians and public employees have non cash benefits arising from their jobs such as vehicles that are added to their benefits. If employees receive vehicle permits and sell them, Gajendran said that should also be taxed.

Gajendran explained that this has not been done over the years due to the fact that when Ronnie De Mel was Minister of Finance, he exempted public servants because they were being paid poorly. "Times have changed and some are being paid well. Certain revenue department employees are also being paid fairly well. Poorly paid people shouldn't be made to pay taxes." Gajendran said no one will grumble if such a proposal is raised. "Even public servants and parliamentarians must know the pain and pleasure in paying taxes."

Gajendran also takes issue with the fact that the Commissioner General of the Inland Revenue is repeatedly putting press notices in the papers on default taxes, essentially waiving all penalties. He said that a waiver of a penalty is a discretionary power of the Commissioner General and should be done on a case by case basis on its merit. "It is not a good order to waive penalties across the board on all people who have defaulted. It is encouraging a default culture. What then is the incentive for those to pay taxes on time?"

Gajendran surmised that the Commissioner General could be waiving penalties due to revenue pressure but in his view, the Commissioner General does not have the authority to do so. "In the law, I don't think there is a super imposing power that has been ranted to him." Gajendran added that the tax laws in Sri Lanka are very good and described certain provisions as being exemplary. However, problems arise due to inefficiencies or over enthusiasm when the implementation is not in line with the law.
The Commissioner General of the Inland Revenue refused to comment despite several attempts to reach him.

Other experts say that the burden of increasing the tax revenue falls on those who are already paying taxes. “When the Inland Revenue Department speaks of increasing revenue year-on-year, it’s the same taxpayer who is asked to pay more as not many new taxpayers are coming into the tax net,” one specialist said.

On the other hand some taxpayers who carry the ‘Gold Card” status which implies that they are exemplary tax payers are being harassed with regular visits by tax officials. “The Gold Card means nothing because in a bid to collect as much revenue as possible officials of the department are constantly visiting our offices and asking us all kinds of questions,” a ‘Gold Card’ taxpayer said.