President and Finance Minister Ranil Wickremasinghe has proposed that income tax also apply to those earning Rs 100,000 (€282) a month. The country is facing 70% inflation, and the economic move could impoverish the middle class. Discouraged by the economic situation, many workers choose to go abroad.
Colombo () – The tax increase proposed by the government could force professionals to emigrate. Under the new tax regime, everyone who earns more than 100,000 rupees a month (282 euros) will have to pay taxes. Corporate tax has also increased, going from 24% to 30%.
As of December 2019, former President Gotabaya Rajapaksa had removed many taxes. For his part, the current president and finance minister, Ranil Wickremesinghe, proposed new rates in an attempt to double the ratio between taxes and gross domestic product (GDP) by 2025 (in 2019 it was 12.7%) in order to get out of the economic crisis. On the one hand, many analysts believe that the tax proposals “look more like an impulsive measure to increase government revenue in the short term.”
Others consider that “increased tax revenue is essential after Sri Lanka declared default in April of this year”, due to the impossibility of complying with the payments of the sovereign debt. The country “is seeking the support of the International Monetary Fund for loans and reforms.”
According to the proposal presented in recent days, a person who earns at least 100 thousand rupees per month will have to pay taxes, the amount of which will depend on the additional amount received. This means that the annual threshold for not paying taxes has been reduced by 60%, to 1.2 million rupees (3,380 euros), when before it was 3 million (8,450 euros).
Asanka Tennakoon, CEO of a major tech company, commented: “The sharp increase in personal income tax rates would hit middle-class families, discourage employment and have a negative impact on people’s lives. people, in a context of high inflation. This could increase the brain drain.”
A financial analyst, speaking on condition of anonymity, said that the 2019 tax system will no longer be the same “The higher tax rates were affordable at that time, since the cost of living was lower and inflation was 6-7%” . Currently, “many professionals are leaving the country due to a prolonged economic crisis because untrained deputies dictate to trained professionals what to do with a non-participatory decision-making process.”
Shenuka Amarasinghe, CTO (Chief Technology Officer) of a technology company based in Colombo and the United States, said that she and her husband work in the information technology sector and that they were “seriously thinking about emigrating, as we are already overwhelmed because of home and car loans, as well as the high cost of living. It is true that “in developed countries more taxes are paid,” she adds, “but then benefits are obtained, instead here we are paying taxes so that public sector institutions that are in deficit can function.”
Sahan Munasinghe, an economic analyst, also explained to that “the 30% tax rate could be a disincentive for investment. Sectors that enjoyed preferential tax treatment would be disproportionately affected, although it could be argued that creating a level playing field is a positive measure.
