ECONOMYNEXT- Sri Lanka will raise the contribution by employers to the Employees’ Provident Fund (EPF) to 15 percent from the current 12 percent, and start a social security scheme for public and private sector workers who become unemployed, a government policy document said.
At the moment Sri Lankan workers contribute 8 percent of their salary to the EPF and the employer contributes 12 percent on top of the salary.
However, some employers reduce their contribution by giving employees ‘non-EPF’ money such as allowances by justifying them as company operating expenses.
The payouts from the EPF have been increasing in recent years as Sri Lanka’s workers are ageing quickly, reducing ‘captive’ funds available to bridge the budget deficit.
However higher salaries and expanding formal sector employment could boost EPF inflows.
The 2020-2025 policy said all firms will have to “to report the recruitment of new employees to the Department of Labour within one week.”
In 2018, inflows to the EPF grew 8.8 percent to 145 billion rupees from 133.3 billion a year earlier, while refunds to members and their heirs fell 8.1 percent to 108 billion rupees.
Net contributions were 37 billion rupees compared to 15.8 billion a year earlier.
The Rajapaksa administration’s 2025 policy document said “an insurance scheme for public and private sector employees who become unemployed” would be introduced.
There was no mention of the contribution rate for social security.
Both social security and higher EPF contributions would raise operating costs of formal domestic businesses and export industries, almost all of whom are in the formal sector.
However the collapse of the rupee from 2015 to 2018 from 131 to 182 to the US dollar by the central bank has reduced real wages of firms.
A new social security fund and higher EPF contributions will provide more resources to bridge the deficit.
Sri Lanka’s state revenues are expected to be under pressure after value added tax was slashed from 15 to 8 percent from December. (Colombo/Dec17/2019)