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Sri Lanka higher PAYE tax rates come into effect

ECONOMYNEXT – A new income tax which requires workers to pay a higher level of taxes on employment income, with an exemption of transport allowances remained and the maximum rate boosted to 24 percent from the current 16 percent has come into effect from April 01.

Under the old rates a person earning 100,000 rupees and a transport allowance of 50,000 will pay 1500 as taxes.

A transport allowance of up to 50,000 for a car and petrol was tax free.

Under the new tax rates, the employee would be deemed to be earning 150,000 and will be taxed at 2000 rupees a month.

A person earning 150,000 rupees and a transport allowance of 50,000 would be taxed 5,501 rupees a month.

Under the new system he would be deemed to be earning 200,000 and taxed at 6,050 a month.

Up to about 100,000 rupees there would not be a big change in the tax liability as the tax free threshold has been raised to 100,000 rupees a month from 62,500 rupees.

The new administration boosted subsidies and state worker salaries in 2015, and the central bank printed money, busting the rupee from 131 to 155 to the US dollar pushing up inflation.

The inflation index has risen over 16 percent since then, with fuel prices yet to be adjusted to account for the currency collapse and rising market prices.

The higher inflation generated by the central bank causes so-called bracket creep, where people pay higher income tax on for lower real incomes.





As a result it has been a practice to adjust income tax slabs.

This is the first time in recent memory personal income tax slabs have been pushed up amid rising inflation.

The highest personal income tax rate has also been pushed up to 24 percent from 16 percent.

The new administration is also charging value added tax from healthcare in an unusual harsh measures not practiced even in developed nations. (Colombo/Apr02/2018)

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