Sri Lanka’s income tax reforms will draw investors: senior accountant

ECONOMYNEXT – Sri Lanka overhauling its income taxes with a new law was a step in the right direction levelling the playing field for investors, which can potentially improve the lives of the poor, a senior accountant said.

"The government should not give into pressure but continue with tax reforms, remove unnecessary subsidies and liberalise trade, because this will attract investments and also improve the lives of many people," Reyaz Mihular, Managing Partner at KPMG, accounting firm said.

The previous income tax code was archaic, complex, and had too many exemptions and loopholes, he said.

"We have done as much sticker tape plaster work with the old one. So getting a new (Inland Revenue) Act was the right thing to do. There is also the fact that the new act rationalizes the tax system," Mihular said.

"Foreign investors who consult us don’t ask about tax rates, they’re more interested in stable policies. It’s difficult to have stable policy when citizens feel entitled for free services or businesses expect special treatment."

However, taxpayers complain the new income tax code has increased rates.

"Some people who had paid income taxed at 12 and 16 percent are now paying at 28 percent and they’re crying about it.

"But the fact is that Sri Lanka is still one of the third or fourth cheapest tax destinations in the world. Nobody talks about that," Mihular said.

He said that Sri Lankans need to change their attitude about paying income taxes.

"We have this sense of entitlement where the government must provide everything for free. This is not the kind of attitude that will take the country forward."





Mihular said the new income tax code attempts to address social imbalances by reducing government dependence on indirect taxes which don’t discriminate among income groups and hurt the poor the most.

Subsidies are also heavily misused, often benefiting high income groups.

"This is why introducing pricing formulas for fuel and energy is a good thing," Mihular said.

"Because the government needs to plug its spending," he said.

However, increasing fuel prices can lead to higher transport costs and in turn higher commodity prices and increased cost of living.

"This is why subsidies need to be controlled and better targeted, so that poor people are not hurt.

"This is the same reason why those who can afford to pay for higher education should be allowed to do so, instead of granting universal free education and limiting options for many children in the process," Mihular said.

There have been also calls for urgent reforms of the central bank so that currency depreciation and inflation will end and reduce calls for subsidies, and people can survive with real salaries.

Fixing the central bank and its unstable soft-peg will allow people to pay as taxes, what is now destroyed as currency depreciation and inflation.

Critics say Sri Lanka’s feudal style tax privileges where ordinary working classes are charged large taxes for vehicles including motor cycles the political class who pass the laws pay nothing and bureaucrats who devise the taxes also pay little, also has to change to re-build a just society.

(COLOMBO, 28 September 2018)


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