IMF expresses concern over income tax reduction

International Monetary Fund (IMF) expressed concerns over the recent budget proposal to reduce personal income tax rates, and described it as an act of giving away the money government badly needed.

The outgoing IMF Resident Representative Dr. Koshy Mathai said the government could have brought more administrative measures to increase taxation revenue through professionals instead of cutting the income tax rates.

“We fully agree with the idea of retaining talent in the country, reversing brain grain and all that. But we would have preferred that executed through administrative measures. May be an upfront licensing fee on these professionals, or a withholding tax,” he suggested.

Sri Lanka’s income tax as a percentage of GDP remains at a paltry 2 percent. Sri Lanka’s existing 24 percent personal income tax rate is already among the lowest in the world.

IMF has been continuously pointing out the weak tax revenue record of Sri Lanka which stands at around 11.5 percent of GDP (in 2012), lowest in the region.

“This sort of administrative measures perhaps could increase taxation through professionals without simply giving away money in terms of reducing rates. Because after all the 24 percent personal income tax rate is already extremely attractive compared to many destinations in the world,” he noted.

The budget 2014 proposed to tax employment income received by professionals at a maximum rate of 16 percent, reducing from the previous maximum of 24 percent, a measure hailed both by the professionals and the academia.

Meanwhile the University of Colombo Finance and Management Faculty Dean Professor H.D. Karunaratne welcoming the proposal recently said that this move would definitely help attract some Sri Lankans working overseas back to the country.