Taxing the people
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Tax is a sensitive subject in Sri Lanka. The moment a government talks of a new tax, the public goes into overdrive to condemn it, the people get agitated and criticism flows across the public domain.
Don’t get me wrong. Taxing people and services is a right in any democracy to run an administration, as taxes are needed as revenue to provide important services like road-works, infrastructure, water, education, health and social welfare.
But for decades taxes have been abused by the governing systems so much so that several years ago signs sprang up at road construction/pipeline laying work funded by a multilateral agency that read: “Your tax rupees at work,” in an effort to be more transparent and accountable on using tax revenue.
They were meant to show people that the taxes paid by them were utilised ‘honourably’ by the state. But is that the real thing? Does the government use taxes frugally and for just causes?
Taxes were also the issue when Arthika, my nonsensical economist friend also known as good-for-nothing Somey, called on the landline on Thursday morning.
He spoke of the IMF-proposed imputed rental income tax from owner-occupied and vacant residential property to be introduced by April 1, 2025. The IMF has said the introduction of such a tax is critical to sustain revenue mobilisation efforts as a substitute for the property tax which was initially planned for 2025 but faced institutional impediments.
“I say, this tax proposed by the IMF on properties and rent income seems to be very unfair,” he said.
“There seems to be some misunderstanding over this tax. Nevertheless, it is still another tax heaped on the people at a time when they are struggling to survive,” I said.
“How can the IMF force something on the citizens of
Sri Lanka? The proposal should have first come from the government. This is what gives bad publicity to the government,” he said.
“The government seems to be backtracking with the President saying the tax would only impact the super-rich and just 10 per cent of the population,” I said, adding that the people are burdened with taxes with increases in VAT (Value Added Tax) and income tax. The President had said that this tax is aimed at high net-income earners, not ordinary income earners, assuring that it will not affect those earning a normal income.
Taxing the people is a legitimate exercise and there should be a willingness to pay by the population at large. However, the problem arises when tax revenue is abused by the state and the people’s trust in paying taxes fades away because of corruption.
Economist Nishan de Mel, in a tweet, said the proposed Property Tax as an ‘Imputed Rental Income Tax’ proposed by the government and the IMF has a serious problem: It has no known analytical basis for its design as an efficient and effective tax measure for Sri Lanka.
If the previous regime under former President Gotabaya Rajapaksa was instrumental in reducing the tax burden among the people, which cut tax income and created revenue problems for the government, the present regime is bent on over-taxing the people to pay for, often, uneconomic government spending.
VAT was the issue when Aldoris, the choon-paan karaya and his mobile bakery (tuk-tuk) came down the lane. Dishing out maalu-paans to the trio, he said the VAT increase has led to
rising prices. “Langadima apita oyage udey kaema ganna
beri-wewi (Very soon we won’t be able to afford your breakfast food),” said Kussi Amma Sera.
“Vat badde prashney thiyenney eka okkama nishpadana
walata saha seva walata balapana nisa (The problem with VAT is that it is enforced on all products and services),” noted Serapina.
“Ow, pohosath duppath okkotama balapanawa (Yes, and it affects both the rich and the poor),” said Mabel Rasthiyadu.
The manner in which taxes are viewed by the people came in a ‘Taxpayer Perception Survey’ conducted by the UNDP in
Sri Lanka and the Ceylon Chamber of Commerce, where it was revealed that trust in tax-related institutions is low.
The Ministry of Finance and the Inland Revenue Department (IRD) are responsible for formulating tax policy and collection and here it was revealed that distrust is higher than trust for all institutions. Eighty-four per cent of respondents (tax identification number holders – TIN) said corruption affects the willingness to pay tax.
The survey was based on general knowledge and perceptions about taxes, knowledge and perceptions about the
Sri Lankan tax policy, trust in tax-related institutions in
Sri Lanka and utilisation of revenue and satisfaction with services offered by the IRD.
It was revealed that individuals who have registered for TIN have a better understanding than the others. More than a third of respondents were unfamiliar with the tax concepts in general. Just over 20 per cent of respondents reported having a good knowledge of the tax system in
Sri Lanka.
“Those with a TIN are more likely to perceive direct taxes as fair and indirect taxes as extremely unfair. Only 39 per cent of the respondents see direct taxes as being fair,” the survey noted. The Sri Lankan tax system was perceived as complex, especially among those who have engaged with it. More than a fifth of the respondents were unable to comment on the complexity of the system.
The survey noted that the lack of transparency in how tax revenue is used, misuse of revenue by the government and lack of trust in tax collectors are the top three perceived reasons for evading taxes. TIN holders were more likely to cite weaknesses in the tax collection system than those who were not registered.
Satisfaction with government services and transparency in budget and policy formulation was perceived to be low. There were no respondents who thought budgeting and policy processes were very transparent.
As I wound up my column while sipping a second mug of tea, my reflections were on the people’s perceptions of paying a tax (on income) and services or VAT (a forced tax on the people) which today is based on the lack of trust in how tax income is used.
We are a long way from an era where people would gladly pay their taxes. That would only happen if there is a caring, responsible, accountable and transparent governing regime!
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