Responsible opposition
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Sri Lanka’s parliamentary opposition often seeks special debates in Parliament to discuss issues of importance. Some of the recent debates were the economic crisis, a no confidence motion against Health Minister Keheliya Rambukwella (which was defeated) and fresh revelations on the 2019 Easter Sunday terror attacks.However, these discussions end up in shouting matches, wild accusations and rhetoric rather that bringing substance to the table. Nothing is achieved at the end of a discussion. This has been the practice for many years and the public has got tired of these debates which end in a whimper.
The recent tax changes in the country’s tax structure that have caused a lot of dismay have also been lambasted by the opposition but without any proposals for a tax structure that would ease the burden of the taxpayer.
It is in this context that recent suggestions on tax proposals by opposition legislator Dr. Harsha de Silva, a trained economist, need to be taken seriously and are a welcome addition to the tax debate which has engulfed the country.
Titled ‘Releasing Tax Burden on Working Professionals: A Mechanism to Address the Brain Drain’, Dr. de Silva said recently that the doctors’ union, the GMOA and the Professional Trade Union Alliance consisting of 24 trade unions, presented their concerns on the impact of the incumbent tax structures on professionals. During these discussions the GMOA and the Professional Trade Union Alliance submitted alternative tax structures with the intention of lessening the tax burden.
“We examined the alternative tax structures they proposed. However, while evaluating the data and models presented, certain issues pertaining to the data and calculation methodology were identified. Therefore, we modified such issues and presented new and alternative tax structures,” he said. Credit should go to the professional bodies and Dr. de Silva’s political party for developing an alternative tax structure that would relieve the burden on the taxpayer but also meet the same revenue targets under the current tax structure introduced by the government. But is the government listening or willing to consider these proposals?
While I was engrossed in these issues and the alternative tax proposals, the phone rang. It was Ruwanputha, a young economist, calling on this Thursday morning.
“I say…..Harsha’s tax proposals seem very practical,”
he said.
“These are tax proposals presented by professional bodies and fine-tuned by Harsha,” I said.
“While many professionals left the country last year due to the economic crisis, this year the brain drain has largely been due to the high tax regime,” he said.
“Many young professionals felt the tax burden was unfair and costly resulting in finding jobs overseas,” I said, adding that hundreds have migrated for better prospects overseas.
Among the worst affected sectors by the brain drain are IT and the tourism industry. Hundreds of IT specialists have gone abroad, while in the tourism sector, one hotel lost at least 15 skilled kitchen staff including chefs last year.
SriLankan Airlines said recently that it was planning to recruit 80 new pilots in the next 12 months owing to an outflow of talent while Sri Lanka is struggling with a shortage of air traffic controllers to man the country’s airports. Out of a cadre of 150 controllers, the country is down to 80 staff with another 20 planning to go abroad, joining their compatriots now working overseas.
At this point, my attention was drawn to the conversation by the trio under the margosa tree. “Giya avuruddey wagey naeme den meda peradiga apey sahodara sahodariyo geval-walata mudal evanawa. Eka hondai (Unlike last year, many of our brothers and sisters working in the Middle East are sending money home. This is a positive move),” said Kussi Amma Sera.
“Giya avuruddey aarthika prashna nisa kattiya kanassallata pathwa hitiyata. Eka hinda thama mudal nila marga walin lankawata evvey neththey (The problem last year was the economic crisis and people were worried about money they send through official channels),” noted Serapina.
“Eh mudal lankawata avey nila novena marga walin (Most of last year remittances came through unofficial channels),” said Mabel Rasthiyadu.
Worker remittances in January-September 2023 reached US$4.3 billion, a near 69 per cent increase from $2.6 billion recorded in the same period of 2022.
In Dr. de Silva’s proposal, the first slab of Rs. 150,000 per month would be taxed at 6 per cent and realise revenue of Rs. 3.3 billion annually, while at the highest rate of taxation (36 per cent) on income above Rs. 350,000 per month the realised revenue is Rs. 151 billion. The argument made in these proposals is that readjusting the tax slabs and rates would bring the same revenue when compared with the current tax structure.
The government’s tax proposal envisaged revenue from PAYE for the year 2023 at Rs. 68 billion, later raised upwards to Rs. 100 billion. “Based on information received from the Inland Revenue Department (IRD), as of September 2023, Rs. 107 billion has been collected under PAYE. Based on data received from the IRD, a compliance rate of 70 per cent will generate a revenue of Rs. 125 billion in 2023. This expectation can go up to a maximum of Rs. 178 billion with full compliance,” Dr. de Silva notes.
He said the evident discrepancy in collection and initial estimation of the PAYE and PIT (personal income tax) justifies the fact that there is extremely limited voluntary compliance of PIT; forceful extraction of tax from PAYE and a flawed incentive tax structure.
He said the revenue expected from PAYE based on recent calculations, provides manoeuvring room to adjust the tax structure to provide relief to the working population and ensure that the revenue targets of the Treasury are met.
The exodus of skilled professionals is, as stated earlier, largely due to the country’s acute economic crisis last year coupled with the high tax regime this year. Many have gone to West Asia, Europe and North America in search of better prospects. While the cost of living would be higher in those countries, so is the ability to earn decent salaries that fit one’s lifestyle.
The small and medium scale sector in particular has suffered the most from last year’s economic collapse resulting in a bankrupt nation, with many small companies folding up or struggling to survive. This year the high taxes, largely due to the government desperately seeking to increase its revenue streams, resulted in many professionals going abroad.
As I wound up my column, Kussi Amma Sera brought in my second mug of tea while I was reflecting on the country’s economic hardships and realising that there are no quick-fix solutions.
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