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Opposition to higher taxes comes from within Central Bank
- CB’s Executive Officers’ Union says new taxes are extremely burdensome and done with no proper analysis
- Adds raising taxes on income at a time when inflation running near 100% in indefensible
- Points out at already deteriorating living standard, brain drain and potential spillover effects on financial sector
- Demands action to clampdown on corruption instead of burdening hardworking families
- Warns of escalation in economic and social crisis unless tax policy is reviewed and provide redress
The Central Bank Executive Officers’ Union expressed its strong objection against the higher personal income taxes, which came into effect from the beginning of this month and condemned the manner in which they were implemented without a proper analysis.
In a letter to Treasury Secretary Mahinda Siriwardana, they expressed their strong displeasure over what they termed as an “extremely burdensome tax policy” and a petition had also been signed by more than 500 staff officers out of 600.
A copy of the letter had also been sent to Central Bank Governor Dr. Nandalal Weerasinghe.
The development is viewed as some quirk of fate, as it was Dr. Weerasinghe and Siriwardana, who also served as a former Deputy Governor before becoming the Treasury Secretary, strongly advocated tax hikes in their bid to fix the budget and to obtain the International Monetary Fund’s (IMF) support.
In fact, speaking at a post-budget forum in November, the duo strongly defended the higher tax rates even amid calls for their review, considering the repercussions on the country’s depleting talent pool and businesses, which were losing trust in the system.
In their letter, the union acknowledged the need to properly manage the budget deficit while enhancing government revenue but stressed that such revenue-enhancing policies must be bearable to taxpayers, who are already going through massive hardships stemming from the economic downturn.
“… higher attention should be paid towards suitable medium to long-term policies to rectify the anomalies that have been created throughout decades in the basic structures of the economy.
However, if such consideration is not paid, the existing economic and social crisis will escalate to an unprecedented level,” the letter pointed out.
In multiple observations made in their letter to Siriwardhana, the union showed that people today have to foot a higher income tax burden of between 06-36 percent for each Rs.500,000 rise in their incomes, after a Rs.1.2 million annual tax-free threshold, compared to 04-24 percent tax for every Rs.600,000 income bracket back in 2017, under the then IMF programme.
They said it was at a time when inflation was at mid-single digit levels but now inflation is racing near 100 percent, which in no manner could justify the excessive taxes that are being levied.
They also pointed out the deterioration in living standards, loss of professionals, due to migration and the spillover effects on the banking sector’s non-performing loans are coming out as a result of the further squeeze in the real wages, which has been lagging far behind inflation.
They further pointed out that the number of taxpayers hasn’t increased in line with the expansion of the economy during the last few decades, thus resulting in a large segment of tax evaders.
They also highlighted absence of a proper mechanism to pass on the benefits of high taxes collected to create benefits to the wider society. Making another valid argument, they said that it is regrettable that the government had failed to show the same urgency and swiftness it showed in raising taxes to clampdown on corruption in the system, which even after the IMF had highlighted this pressing issue.
Hence, they said it is a severe injustice meted out to the existing taxpayers operating in efficient sectors of the economy by having to bear further tax burden to maintain relatively inefficient state mechanism and thus expressed hope the current tax policy would be reviewed forthwith and bring appropriate amendments without delay.
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