Excessive taxation could undermine economic equity, warns legal expert

•  President’s Counsel Dr. Shivaji Felix raises concerns about how taxpayers are burdened
• Argues excessive taxation reduces citizens’ spending power, potentially conflicting with principles of economic fairness
• Stresses importance of aligning tax practices with rule of law

President’s Counsel Dr. Shivaji Felix raised critical concerns about Sri Lanka’s Inland Revenue practices, suggesting they may place undue burdens on the taxpayers, without delivering equivalent benefits. 

While addressing the 26th Annual Tax Oration hosted by the Institute of Chartered Accountants of Sri Lanka, he argued that excessive taxation reduces the citizens’ spending power, potentially conflicting with the principles of economic fairness. 

Quoting the Organisation for Economic Cooperation and Development, Dr. Felix referred to taxes as a “compulsory unrequited payment”, suggesting that the citizens see limited returns on their contributions, which can challenge the fairness of the tax system. 

Dr. Felix stressed the importance of aligning the tax practices with the rule of law, calling for a system that not only generates revenue but also fosters economic growth without imposing excessive strain on the populace.

Drawing on prominent legal scholars, he argued that for the tax policy to be fair, it must adhere to the rule of law. 

This principle, he noted, is crucial to prevent the arbitrary state actions that undermine societal fairness and erode public trust. Excessive and frequently changing tax policies, he pointed out, may discourage foreign investment and destabilise the economy, further underlining the need for stability in tax legislation.

Dr. Felix also criticised the specific aspects of Sri Lanka’s Inland Revenue Act of 2017, which imposes high penalties for overdue taxes at 1.5 percent monthly, compared to a mere 0.5 percent interest on the delayed refunds. 

He termed this discrepancy “unfair and burdensome”, adding that the inefficiencies in the withholding tax system often result in double taxation, compounding the challenges faced by the taxpayers.

He stressed the need for tax policies that support economic justice while respecting the rule of law, emphasising that sustainable prosperity cannot be achieved by overtaxing the nation’s citizens.