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ECONOMYNEXT – Leader of Sri Lanka’s leftist Janatha Vimukthi Peramuna (JVP) Anura Kumara Dissanayake says a JVP-led government will move the tax threshold to monthly salaries of 200,000 rupees from the current 100,000 and cap progressive taxation at a maximum of 24 percent.
Dissanayake made this remark in an interview with the YouTube channel Hari TV on Monday January 30.
“We will definitely reduce this tax,” he said.
The JVP-led National People’s Power (NPP), also led by Dissanayake, is confident of sweeping electoral gains at the upcoming local government polls, and political analysts say the party has become increasingly populist in its rhetoric to widen its once niche base.
Though no polling data exists at present, analysts point to anecdotal evidence of the party gaining significant ground following the collapse of the previous government led by ousted President Gotabaya Rajapaksa after an unprecedented wave of public protests. Sri Lanka’s ongoing currency crisis, the worst in decades, has been blamed in part on the tax cuts made by the Rajapaksa government in 2019.
The JVP’s much-discussed anti-corruption stance has also helped consolidate its position as a viable alternative, particularly in comparison to an increasingly lacklustre main opposition, the Samagi Jana Balawegaya (SJB).
Opposing President Ranil Wickremesinghe’s International Monetary Fund (IMF)-backed fiscal reforms is another way to grow the NPP’s appeal as high income-earning public sector workers and some professionals ramp up protests demanding a revision.
Sri Lanka’s cash-strapped government has imposed a Pay As You Earn (PAYE) tax on all Sri Lankans who earn an income above 100,000 rupees monthly, with the tax rate progressively increasing for higher earners, from 6 percent to 36 percent.
A person who paid a tax of 9,000 rupees on a 400,000 rupee monthly income will now have to pay 70,500 rupees as income tax, the latest data showed. This has triggered a growing wave of anti-government protests mostly organised by public sector trade unions and professional associations.
Even employees of Sri Lanka’s Central Bank recently joined a week-long “black protest” campaign organised by state sector unions against the sharp hike in personal income tax, even as Central Bank Governor Nandalal Weerasinghe said painful measures were needed for the country to recover from its worst currency crisis in decades.
The government, however, defends the tax hike arguing that it is starved for cash as Sri Lanka, still far from a complete recovery, is struggling to make even the most basic payments, to say nothing of the billions needed for public sector salaries.
Economists say Sri Lanka’s bloated public service is a burden for taxpayers in the best of times, and under the present circumstances, it is getting harder and harder to pay salaries and benefits.
Sri Lanka’s new tax regime has both its defenders and detractors. Critics who are opposed to progressive taxation said it serves as a disincentive to industry and capital which can be invested in business. They call for a flat rate of taxation where everyone is taxed at the same rate, irrespective of income.
Others, however, contend that the new taxes only affect some 10-12 percent of the population and, given the country’s economic situation, is necessary, if not vital, at least for a year or two.
Critics of the protesting workers argue that most of the workers earn high salaries that most ordinary people can only dream of, and, they argue, though there may be some cases where breadwinners could be taxed more equitably, overall, Sri Lanka’s tax rates remain low and are not unfair. (Colombo/Jan31/2023)