Trade union calls for radical change in taxation policy in 2014 budget
As a prelude to preparing the budget for 2014, the government has called for proposals from the public and the trade unions being an organised segment of our society, have responded by listing their demands, a key trade union said.
Whilst the Ceylon Federation of Labour (CFL) associates itself and supports the position of the unions it wishes to highlight the urgent need for trade unions to call for a radical change in the governments taxation policy in the interests of the working people, the poor and the economically vulnerable.
In a media statement, the CFL said the basic structure of the development policy which came from 1977 remains the same to date with the Mahinda Rajapakse government that came to power in 2004 deciding to follow the same policy framework with some policy reforms at the initial stage to minimise the adverse effects of neo-liberal policies introduced since 1977. These reforms are indeed not a reversal of the existing economic system but aimed at minimising the adverse trends. The market-oriented policies in which export orientation of economic activity occupies a central place, has come to be valued by the government to a great extent as the key to developmental success. Pressures of globalisation and policy influences of international organisations promoting free trade in the world – the WTO, the IMF and the World Bank – are very strong on the government. This is largely evident in the government’s taxation policy, the CFL said.
The general thrust of the government’s taxation policy has been such that a heavy burden falls on the lower income earners through indirect taxes on basic food items. There are high levels of taxation on basic commodities, while direct income taxes that fall on the affluent bring in a relatively low amount of revenue. Senior Ministers of the likes of Dr. Tissa Vitarana and D.E.W. Gunasekera have time and again pointed out the regressive nature of the government’s taxation policies without success, the union noted.
What is being forgotten here is that the taxation policy reflects the country’s economic policy as mentioned above. The one cannot be disentangled from the other. The economic policy pattern of the government is at the root of the problem that results in taxes affecting the least affordable sections of the people.
The corporate and personal income tax rates are kept at a lower level than the average, the union said.
Sri Lanka’s tax/GDP ratio is said to be around 12.4 per cent when the bench mark for middle income countries is twice at 25 per cent. Tax revenue which was Rs. 12.2 billion in 2007 came down to Rs. 6.3 billion in 2011. More than 80 per cent of the government revenue is obtained from taxes on goods and services and import taxes. Income taxes amount to only 17 per cent of total revenue.
“It is widely acknowledged that taxation has been used almost every where to adjust income distribution patterns produced by the play of market forces. Sri Lanka has practiced such a policy in the early seventies resulting in the country recording a gradual decline in the degree of income inequality until 1975. This equalising tendency got reversed during the post 1977 period of liberalized markets. Today inequality is at its historical highest and the challenge is how best to ensure equitable income distribution,” the union said.
The statement noted that the CFL believes in fair and adequate taxation, so that public goods and services can be provided effectively, efficiently and equitably. By fair the CFL means that individuals and entities that can afford to pay should pay more. Those who can least afford to pay should pay least. Direct taxes are fairer than indirect taxes because different rates of income tax can be set to fit different levels of income. Unlike direct taxes, indirect taxes are the same for all irrespective of the income level of the consumer and are therefore regressive. Sri Lanka has raised less revenue from direct taxes. In contrast to India, Kenya, Malaysia and Thailand, Sri Lanka has relied excessively on indirect taxation. Unlike Sri Lanka other countries have expanded their direct tax revenue proportion over time significantly, the statement said.
“Given the regressive nature of indirect taxation, Sri Lanka’s tax structure is detrimental to the achievement of social and economic justice. The rich and the wealthy can find ways and means (ruses) to avoid paying direct taxes whereas indirect taxes are harder to avoid paying.
The ill-gotten dirty money of the new rich that promotes mafia style power is threatening and undermining democracy in the country. Lack of action on the part of the authorities to ferret out this money has meant a sharp increase in inequality. As the spending power of the weakest members fall, tensions in society grow leading to simplistic, extremist ideas to flourish,” it said.
These harmful effects of the post 1977 economic model must be fought. A reasonably high level of direct taxes is inevitable for several reasons;
(i) To face the budgetary problems that the country faces.
(ii) To guarantee the economic security of the people (this means making sure that all people can have a decent life)
(iii) To enhance and further build the social infrastructure (increased funding for health and education and social security for all citizens)
Even though the primary concern of the government is to achieve a rapid economic growth rate in the coming years and to double the ‘per-capita income’ by 2016 the country needs to take concrete and comprehensive measures to reduce the over dependency on indirect taxes and address the equity concern by way of Zero rating and exemption under VAT, the statement said.
The major consumption basket (such as food, milk powder, pharmaceuticals etc.) of low income groups should not be taxed indirectly.
The fight to erase income inequality with redistributive social spending has to begin in earnest. The trade unions should press the government to break away from the current taxation regime which places heavy burdens on the least affordable – the wage earners, fixed income recipients, the pensioners, the poor and the economically vulnerable, the CFL statement added.
| TUs seek wage increase in budget
The Joint Trade Union Alliance recently presented 21 proposals to the Treasury urging that they be considered in the 2014 budget. They are: |