Uproar over super-rich tax plan
A ‘super-rich tax’ proposal being considered for inclusion in next month’s budget has triggered a wave of concern and anxiety among those who would be affected.
The proposed wealth tax was exclusively reported in the Sunday Times last week.
As concern grew, the government began weighing the pros and cons towards finalising the tax threshold and modalities of levying this tax, official sources said
One issue faced is that the definition of super-rich is not clear. Some Treasury officials were of the view that the number of declared wealthy tax-payers is too small to make a substantial difference to the country’s fiscal deficit.
Many senior government officials have already opposed the move, saying it is more important to widen the tax base and improve compliance than tax a small group.
Of Sri Lanka’s 20 million people, 897,000 are tax payers including 530,000 who are subject to Pay As You Earn (PAYE) deductions by their employer.
These rates were now low enough to ensure compliance, the sources said.
An official of the Department of Inland Revenue (IRD), discussing the proposed tax, says the only way to do this is to reactivate the practice of calling for wealth declaration along with annual returns from tax payers to identify the super-rich.His view however is that ensuring tax compliance is more important rather than populist taxes.
Several economists noted that with Sri Lanka becoming a service economy made up of self-employed and professionals working in legal, healthcare, education or information technology , income tax payments had to be a social obligation without any harassment.
Economist and parliamentarian Dr. Harsha De Silva says that Sri Lanka has one of the most inequitable tax regimes of Asia where direct tax is only 20 per cent while indirect tax makes up 80 per cent. Direct taxes must be at least twice as much as what it is now and all efforts must be made to get to that ratio, he said. “Rich people are getting more than their fair share of benefits in this country but it is now quite clear that they, not all, but by-and-large most, are not contributing their fair share. So if the rich are to make sure they continue to enjoy one of the lowest tax regimes in this part of the world they must also meet their obligations,” he said.
Rohana Upendra Kuruppu, an economist and well-known academic in the textile field, said the government should not consider those owning one or two houses or a few acres of land as super rich persons.
They should impose this tax on persons with a monthly salary or income of Rs. 1.5 million and over, he said, adding that there is a category with this kind of income.
Expressing concern on the government’s intended move, a leading businessmen involved in trading told the Business Times, it is better to tax business enterprises on profit rather than going after the rich.
Another entrepreneur engaged in spice exports noted that wealthy persons should pay taxes voluntarily. However the government should lower tax rates and eliminate or substantially reduce tax exemptions, he said.
Many wealthy persons were of the view that the government will use this tax to target political opponents. A justifiable taxation cannot be expected under the present system which will definitely favour government supporters opening additional income avenues for them on one hand while taxing them on the other, they warned.
Tilak Gunasekera, President of Ceylon Motor Traders’ Association (CMTA), who is also the CEO and Executive Director of Sathosa Motors Plc, said the classification of super-rich will become a problem for the government and the process of identifying the group should be free of political influence.
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