Open Letter to President Wickremesinghe: Rectify unfair PAYE tax, say Professionals

The tax bands are unrealistic in global terms, as they start at USD 260. Bands of USD 110 reach out to a maximum band well below USD 1000.

These figures are very much below the tax thresholds of countries with middle-income status.

Large-scale trading/business takes place without an official receipt being issued, denying the country not only VAT but also a large portion of personal income taxes.

We wish to highlight herein how the professionals have fallen victim to the ongoing socio-economic crisis currently experienced by Sri Lanka. We are of the view that these unfair PAYE Tax reforms proposed to be introduced are done without focusing on the predominant macro-level view of strengthening the country’s economy with taxpayers, who could easily afford to contribute. 

This would in turn enable the government to protect the professionals who form the backbone of the nation. As the Head of the State, we request your Excellency’s interference to fortify the professionals from this unbearable proposed PAYE Tax reforms and to provide the professions with facilities, benefits and tax exemptions that would encourage them to contribute to the development of the country or pay back the investment country has made on them, without forcing them to consider migration as their first option even unwillingly.
Among many reasons, many professionals, especially those who are starting their careers find it extremely difficult to uplift their lifestyles to suit their expectations. 

The income they receive is not sufficient to meet the basic needs of having their own house, or a private vehicle in a country where no suitable public transport system is available and schooling their children to expected standards. Despite these dire situations, during the last one-year period, due to the depreciation of the rupee, their real income has been reduced by almost 50%. 

Adding to this, inflation has increased the cost of living at least by another 75-100%. While the professionals contemplate on surviving in the short run with this double impact, the tax revision has come as a third major blow, unbearably impacting the professionals. 

Therefore, most of the professionals are demotivated and have started looking at greener pastures resulting in a brain drain in the recent past few months. It is observed that the skills drain will badly impact the country within a short period, especially in service industries including IT and Telecom areas, which brings in foreign currency revenues. A shortage of skills will lead to the withdrawal of main IT companies out of Sri Lanka or the downsizing of the operations. In addition, the skill migration will create a shortage of capable people to rebuild the economy and will badly impact the speedy recovery strategies of the government.

It is further noted that the tax bands are unrealistic in global terms, as they start at USD 260. Bands of USD 110 reach out to a maximum band well below USD 1000. These figures are very much below the tax thresholds of countries with middle-income status.

As professionals, we do not oppose direct taxing income, but we wish to reiterate that it has to be in a realistic threshold for personal income tax (PAYE). We are of the view that these tax bands have been prepared with very short-term goals and it appears that taking long-term impact into account has been purposely ignored without realizing the repercussions.

Further, it is understood that certain informal sectors in the country operate depriving a large volume of revenue to the Inland Revenue Department and it is speculated that such deprived tax net earnings to the government would have generated much higher income than the aggregate value of the amounts anticipated to be collected from the professionals under the proposed Tax reforms. 

It is not a secret that large-scale trading/business takes place without an official receipt being issued, denying the country not only VAT but also a large portion of personal income taxes. If proper regulations could be imposed by the Inland Revenue Department to divert these business tax streams into the tax net, the government will be able to spare the professionals who have become easy prey.
We further wish to humbly request your Excellency’s intervention to revisit the other indirect taxes which are cascading on the professionals as general citizens of the country as follows.

1. Increase tax qualifying equivalent to at least USD 500 per month and increase the tax bands to at least USD 500 each.
2. Tax policy should reflect the differentiation between income from employment and profit earned by business enterprises.
3. Tax ceiling for professionals should be reduced from the proposed 36% to 24%.
4. Tax percentage starting from 4% with multiples of 4 instead of the existing 6% with multiples of 6.
5. Considering the inflation and current value of money, increasing the tax-free threshold to 2.4 million per annum (200,000 per month).
6. A further relief of Rs. 600,000 (in addition to the existing personal relief) is proposed for professional allowances paid by an employer for the employment of members of professional bodies to retain the professionals in the country.

Considering the aforementioned facts and circumstances, we earnestly request your Excellency to issue an instruction to the relevant authorized officer/s in the Department of Inland Revenue to issue an amendment to the Inland Revenue (Amendment) Act No. 45 of 2022 reflecting our proposals. 
This rectification will enable Sri Lanka to retain its professionals who essentially contribute to the economic development of the country.

- A Group of Professionals