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5% tax on monthly allowance: Government undecided on Bandula’s proposal

18 Sep 2021

By Yoshitha Perera The Government is yet undecided on imposing a tax of 5% on persons earning over Rs. 100,000 as a monthly allowance, claiming that the idea was the opinion of Minister of Trade Bandula Gunawardana. Co-Cabinet Spokesman and Minister of Mass Media Dullas Alahapperuma told the press last week that the Trade Minister’s idea did not reflect the views of the Government or the Cabinet. “It was not a decision by the Government or the Cabinet. It was the Trade Minister’s personal view,” Alahapperuma said. Meanwhile, speaking to The Sunday Morning, Minister Gunawardana said that he had made such a proposal to aid in the operation of public services such as education and health during the Covid-19 pandemic. “There is a financial crisis in the country in the middle of the pandemic. There is a shortage of foreign exchange. Teachers are also claiming that they need a salary hike. Considering these situations, I proposed to the Government that we impose a 5% tax on people earning over Rs. 100,000 as a monthly allowance,” he said. The Minister further said that the revenue from the tax would be channelled to a “Community Preservation and Contribution Fund” for the benefit of the education and health services. “The tax must be introduced without changes to the salary limit and only on people earning a monthly allowance of over Rs. 100,000,” he explained. Gunawardana claimed that his comment was misrepresented by the Opposition and stressed that his proposal for the tax was only to apply to those who earned a monthly allowance above Rs. 100,000. He also pointed out that currently, there was no Pay As You Earn Tax (PAYE). However, the proposal was criticised by financial and economic experts. Speaking to The Sunday Morning, LINREasia Founding Chairperson and Advocata Institute Advisor Prof. Rohan Samarajiva said that instead of considering the 5% tax, the Government should re-impose certain taxes it reduced in 2019. “There was a properly conceptualised tax system which had certain objectives, such as bringing more people to pay tax and getting more people to open (tax) files, but this Government suddenly changed those plans in 2019. This is not a way to handle public policy,” he said. Prof. Samarajiva further said that the Government should first hold discussions with tax experts and develop a sound tax model without considering unsustainable and contradictory policies.


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