The state banking sector came under criticism of the Committee On Public Enterprises (COPE) when it was revealed that they continued to pay their employees payee tax since 1997 violating the tax law, the Inland Revenue Act and the principle of equal treatment, a Parliamentary source said.

The source said COPE Chairman Senior Minister D. E. W. Gunasekara has instructed the Auditor General to submit a report about this ‘violation’ of the tax law when all other employees in the public and private sector who earn over Rs.300,000 per annum or Rs.25,000 a month are mandatory to pay the payee tax and it is deducted from their monthly salary.

“The state banks had adopted another policy following a collective agreement signed between the powerful Ceylon Bank Employees Union (CBEU) and the state bank management. One leading state bank has paid Rs.2,114 million on behalf of payee tax of its employees in 1997 – 98 alone,” the source said.

The source added that the legal departments of the state banks and the Finance Ministry also came under scrutiny of the COPE as they apparently had let the state banks violate the tax law and the Inland Revenue Act without taking action against this exercise.

“On the one hand the banks have shown the payments as expenditure which has contributed to decrease the annual profit thereby diminishing the Treasury income. The action has also contributed to reduce the amount of taxes payable to the Treasury by paying a huge amount of bank funds as payee tax of their employees,” the source pointed out.
 
The source said the top management of the state banks may have kept silent as they are the ones who benefit most from this act as the monthly salary of many of the top management exceeds Rs.500,000.
The issue here is that this is against the tax policy and the tax law. The employee tax is meant to be paid by the employee but not by the employer. Secondly it violated the principle of equal treatment to tax payers as only the bank employees enjoy this unlawful privilege.

In short, the signing of the collective agreement with the clause to pay the payee tax by the employer is ultra-vires.
 
The collective agreement between the CBEU and the Banking Management has been signed during the Chandrika Kumaratunga regime in 1997. The payment of payee tax by the state banks continues to date.

The source pointed out that the COPE is attempting to calculate the full amount of money paid by the state banks on behalf of their employees payee tax. He speculated it would be a minimum of more than Rs.20 billion for the last 13 years. (Sandun A. Jayasekera)