ECONOMYNEXT – Sri Lanka may discuss changes to a steeply progressive tax, an official had told trade unions, which was imposed on a lower threshold on top of steep bracket creep as the currency collapsed from 200 to 370 to the US dollar.
Sri Lanka imposed progressive income tax of up to 36 percent, on a threshold of 100,000 rupees a month with no deduction under an International Monetary Fund program after economic officials printed money and triggered a currency crisis.
The taxes are a temporary strategy to take the country out of an economic crisis, and the rates are lower than in some other countries, Director of Fiscal Policy at Sri Lanka’s Finance Ministry Kapila Senanayake had told a meeting of trade union officials.
However in countries with high income tax there are little or no import duties. In the US, where the International Monetary Fund is based, and income taxes are a key source of revenue, there is no value added tax and import duties are around 3 percent,
There is a possibility of making some changes after taking into consideration proposals of trade unions and civil society organization, Senanayake was quoted as saying by a statement from the President media office.
The Director General of Trade Unions at President’s office Saman Rathnapriya had told the meeting that after getting feedback a set of proposals will be submitted to the President for consideration.
Sri Lanka’s state workers including doctors and some state enterprise workers whose taxes were earlier paid by the agency they worked for are among the top protestors.
A series of protests and trade union actions are planned in Colombo by SOE workers earning high salaries and doctors.
Workers and executives of Sri Lanka Ports Authority, Ceylon Electricity Board, National Water Supply and Drainage Board, air traffic controllers, some banks and the Government Medical Officers Association are expected to engage in trade union activity.
Many salaried employees are also in difficulties after getting loans at low interest rates earlier and there have been complaints that very little money is left after paying taxes and higher loan installments, while some have claimed accounts have gone into overdraft.
Some had borrowed at low rates available when money was printed by economic officials.
Sri Lanka’s interest rates are also higher after economic officials printed money and created forex shortages.
Unlike indirect taxes where small amounts of money is taken from tax payers as they spend in line with a South Asian taxation principle outlined by Kautilya, income taxes devised in the West takes money from public and transfers them to rulers before any voluntary transaction take place.
Steeply progressive taxes are also popular among the American left (so-called progressives). Income taxes also destroy savings and future investments according to critics.