Evaluation of tax policies of SLPP presidential election candidate

Tuesday, 5 November 2019 00:00 - - {{hitsCtrl.values.hits}}

By Nihal Hettiarachchi, FCA

SLPP: Income tax rate of manufacturing businesses will be reduced from 28% to 14%

Existing provision: Income tax rate of manufacturing businesses is 28% unless predominantly engaged in specified businesses or SME.

Presidential candidate

Gotabaya Rajapaksa

Comments: Large-scale manufacturing businesses would be benefited by the curtailment of tax rate by 50%.

SLPP: Economic Service Charge and Withholding Tax will be abolished.

Existing provision: Any person having relevant turnover in excess of Rs. 12.5 m per quarter is liable to pay ESC at 0.5% on the turnover. Withholding tax is currently deducted on investment returns and service fees at the rates specified in the First Schedule to the Inland Revenue Act.

Comments: Abolishment of ESC and WHT would lead to simplification of taxes in Sri Lanka. However, introduction of WHT from 01st April, 2018 helped the Inland Revenue Department to collect more revenue and broaden the tax net. This proposal would lead to a considerable revenue loss to the Government.

SLPP: A simplified VAT of 8% will be implemented in lieu of VAT (15%) and NBT (2%)

Existing provision: VAT and NBT are charged at 15% and 2% respectively.

Comments: Amalgamation of VAT and NBT will result in simplification of taxes. However, reduction of rate of tax by more than 50% will lead to a considerable revenue loss.

SLPP: WHT charged on interest will be abolished.

Existing provision: WHT is charged at 5% on interest. Comments: If WHT on interest is abolished, it will be taxable at 15% (as proposed) subject to tax slabs in the hands of individuals where currently it is not taxable again once WHT is deducted.

SLPP: PAYE that is charged on employment income of employees who are working in private and government sectors will be abolished.

Existing provision: PAYE is charged on employment income where the monthly employment income exceeds Rs. 100,000 per month.

Comments: All employees will be required to open tax files and submit income tax returns which would increase the administration cost of IRD. Further, this would lead to a revenue loss due to non-compliances.

SLPP: Tax free threshold income will be increased and maximum tax rate will be restricted to 15%.

Existing provision: Current tax free threshold is Rs. 500,000 and the maximum rate of tax is 24%.

Comments: This proposal would also result in a revenue loss to the government.