The present government’s income tax policy to attract an effective tax rate of 30% would require a salary above Rs. 500,000 per month. Probably 90% of the working population draws less than 500,000 per month.
This government is now amending the income tax laws to impose a 30% income tax on EPF/ETF. This tax will apply on all of EPF/ETF income without any tax relief. Therefore, even an employee earning a monthly salary of Rs. 30,000 will be liable to bear the tax of 30% on their savings on EPF/ETF. ‘Is this justified against low income workers?’ asked SJB, Parliamentarian Eran Wickramaratne issuing a special statement today (30)
The government declared the economy bankrupt and entered into an agreement with the International Monetary Fund to obtain a loan of US $ 3 billion. Restructure of the country’s debt is a condition involved.
Foreigners invest in bonds of small countries looking for more income, absorbing the risk factor. Having already profited from the high interest/income, restructuring of said loans does not bear significant consequences to the investors. The government has already declared bankruptcy and have stopped repaying foreign debt, including bonds. Although it was initially announced that the foreign bond will be restructured, the government recently postponed the discussion with foreign investors for the second time. However, it is foreign debt that is best restructured.
Instead, the government has prioritised domestic debt restructuring. This is an injustice to the people of the country. The value of their investments has already taken a hit from inflation and devaluation of currency.
If the government does not act wisely in relation to the restructuring of bonds, Wickramaratne, a former banker and economist says that the government will not be able to successfully resolve the financial crisis.
All MPs of the present government supported this motion for domestic debt restructuring. But, the opposition vehemently opposed to local debt restructuring as it is not a good strategic move. The debt restructuring is not equitable in terms of local and foreign bond holders. It is also not equitable between EPF holders as opposed to private individuals, businesses, banks and primary dealer who have been unfairly favoured. It is to be noted that the EPF/ETF has been unfairly targeted in the process of domestic debt restructuring.
At the end of 25 – 30 years of employment, the EPF holder bears an accumulated reserve with low interest. It is estimated that the monthly return will cover between 20% – 35% of an individual’s cost of living in retirement. Proposed 30% tax on EPF will further reduce income.
Eran Wickramaratne declared that the Rajapaksa – Ranil rule, makes the poor, poorer and the rich, richer. On the other hand, cronies are given rebate, concessions and tax exemption. SJB disagrees with the proposed government policy of imposing 30% tax on EPF/ETF.