Finance Minister Mangala Samaraweera told a press conference on July 21 that everyone over the age of 18 years should have a taxpayer number “regardless of whether he or she had to pay taxes or not.” State Minister of Finance Eran Wickramaratne chipped in saying that “everybody must pay tax.”

The Sirisena government is planning to undertake sweeping tax reforms as a part of belt tightening exercise. But the Inland Revenue Bill has met with a hurdle. The country’s apex court will not approve the bill in its present form. The Supreme Court has told the Parliament Speaker Karu Jayasuriya that the proposed legislation is unconstitutional. Judicial imprimatur is a requirement under the constitution for a bill to get parliament’s nod.
The new revenue bill tabled in Parliament last month gives wide ranging powers to the tax authorities to crack down on tax evaders. It also seeks to widen the tax net.
The Speaker told the lawmakers Friday August 4th that the Supreme Court informed him that it would not approve the bill in its current form.
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The Inland Revenue Bill was drafted factoring in the reforms suggested by the International Monetary Fund (IMF), which is lending $1.5 billion. Only last month the lender of last resort released the third instalment of the loan after holding up the payment for months over Colombo’s failure to meet its bailout conditions.
Finance Minister Mangala Samaraweera told a press conference on July 21 that everyone over the age of 18 years should have a taxpayer number “regardless of whether he or she had to pay taxes or not.” State Minister of Finance Eran Wickramaratne chipped in saying that “everybody must pay tax.”
The government proposals include:
* Every resident or non-resident’s annual income, whether from employment, business, investment or other sources and starting at 600,000 rupees per year or 50,000 rupees (about $US300) per month will be taxed. This starts at 4 percent on annual incomes of 600,000 rupees and climbs to 24 percent for 3,000,000 rupees or more per year.
While the average monthly income for workers is around 15,000 rupees per month, state employees and bank workers, as well as some private sector workers, receive around 50,000 rupees or more per month. Many workers also have second jobs in order to cope with Sri Lanka’s rising cost of living.
* All pension funds, including the Employee Provident Fund (EPF), above a total lump sum pay out of 2,000,000 rupees will be subjected to taxes of 5 to 10 percent. Almost all other payments, including employee compensation, termination allowances and other imbursements will also be taxed. While some corporations and the banks previously paid their employees’ taxes, these workers will lose this benefit under the new system.
* Corporate taxes for industries such as agriculture, exports, tourism, information technology, and education will be dropped to just 14 percent.
* Taxes for other businesses will be just 28 percent, which is also low compared to other taxes in South Asian countries, such as India and Pakistan where it is 30 and 31 percent respectively.
* Taxes on dividends, interest, life insurance, and shares transactions on the Colombo Stock Exchange are expected to remain low under the new laws.
Finance Minister Samaraweera wants to change the current ratio of direct and indirect taxes from 20 and 80 percent to 40 and 60 percent respectively. This is because tax receipts are only 12 percent of GDP. The budget deficit was 5.4 percent of GDP last year; IMF has advised the government to bring down the deficit to 3.5 percent by 2020.
Sri Lanka is reeling under massive foreign and domestic debts, declining exports and remittances, and faces a growing balance-of-payments crisis.
Put simply the Inland Revenue Bill is a part of the austerity drive ushered in by the Sirisena government. Trade unions at the Inland Revenue Department held a one-day strike on July 10 against the projected tax laws.
The Inland Revenue Department Commissioner General will be given extensive powers under the bill, including the appointment of private individuals, corporate entities or non-governmental bodies to collect taxes.
Under the new tax laws, “tax officers may no longer be required to give reasons for rejecting assessments” and the finance minister can “increase income tax rates without parliamentary approval.”
The Supreme Court has reportedly found two proposals unconstitutional. One of these provisions empowers the tax chief to prevent any individual from leaving the country if that person was suspected of tax fraud. The second proposal allows tax authorities to share information with the Attorney General (AG) for criminal prosecution purpose.
The court has, however, given two options – amend the draft revenue bill to be in conformity with the laws of the land or hold a nation-wide referendum.
Government may take recourse to the first suggestion, namely changes in the bill. Referendum is a difficult proposition in the given volatile political milieu.

– POREG TEAM