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Tax and equity

Professor G.L. Peiris has been hard at work in the USA promoting his draft equal opportunities legislation with the Clinton administration even as opposition to the proposals is acquiring greater momentum here in Sri Lanka with some of his own cabinet colleagues privately expressing grave reservations. It would surprise nobody that the professor talked to a receptive audience in Washington. The Americans are great believers in affirmative action and, as is widely known, have done much to help blacks, Hispanics and women to overcome effects of past discrimination.

But we are another kettle of fish here in Sri Lanka. We touched on this subject last week focusing largely on the matter of communal quotas for school admissions that have disturbed many and is likely to cause divisions in an area where no real problems exist. Our legal affairs columnist as well as another correspondent, representing the National Joint Committee, has also dealt with the problem. Both of them have more to say and will write further installments of their articles on this subject next week.

A reader’s letter The Island carried yesterday on tax and equal opportunity, brings us back to this subject. The writer urged that at this moment when equal opportunity legislation is so much in the public eye, it would be pertinent for the government to focus on the fact that there is no equity in taxation in Sri Lanka at present. Those paid from the public exchequer are not liable to income tax on their emoluments or pensions while private sector salaries attract income tax. This is a long standing grievance as a public servant earning say Rs. 20,000 a month will draw those emoluments free of income tax while somebody else drawing the self-same twenty thousand paid by a private employer will have income tax deducted under the pay-as-you-earn (PAYE) scheme which the ruling People’s Alliance solemnly declared it would abolish.

The correspondent from Avissawella, perhaps feeling the pain of just having sent off his September 30 income tax cheque, was surely giving vent to an acute sense of grievance shared with several thousand taxpayers who are neither public servants nor public service pensioners. His arguments are familiar as they have been urged for a long time. There are public servants, and politicians who draw substantial emoluments in addition to valuable perquisites of office, whose emoluments are tax free. Citizen Perera, for the life of him, cannot understand this discriminatory treatment given between Tweedledum and Tweedledee. The letter writer is especially angry because he understands that there are BOI officials (we think there is just one) whose monthly pay is over a lakh of rupees and that is tax free.

It must be said in fairness that there are very few officials who receive pay packets as fat as that. But there are some who do receive very substantial emoluments in addition to other valuable perks like government housing, official vehicles, frequent foreign trips and what our correspondent called a " host of other privileges.’’ He did not mention that the Rs. 144,000 per year tax free allowance permitted on earnings of resident Sri Lankans is also granted to the beneficiaries of tax free salaries. So somebody drawing twenty thousand rupees a month from government will on top of a tax free Rs. 240,000 a year also receive an annual Rs. 144,000 tax free allowance on other income he may also have.

The tax free perk was devised by Mr. Ronnie de Mel when he was finance minister in the context of the government’s inability to pay market salaries to senior public officials. Understandably, the government could not afford to lose capable and experienced officials to the private sector and instead of granting them a salary raise they were given tax free emoluments. The politicians, who do not allow a good thing to pass them by, also grabbed the perk. Since then salaries of public servants and elected officials have been raised quite substantially. The government has also time and again raised the minimum threshold at which a person becomes liable to income tax. Given today’s cost of living, Rs. 12,000 a month is not a substantial amount and the taxed middle class harbour a genuine sense of grievance about some people as their income levels are taxed and others are exempt.

It is indeed surprising that nobody has thus far raised this inequity before the Supreme Court by way of a fundamental rights action. But the judges who will hear such a case, if it is ever raised, are themselves tax exempt on their emoluments! We do not know whether the gentleman from Avissawella who brought up this question in the light of the proposed equal rights legislation will find a forum to canvass his grievance before either the Equal Rights Commission or the Tribunals intended to be set up under it. But it is time that the authorities realized that the right way to deal with everybody is to set a floor on income above which anybody, public servant or private individual, will be liable to tax and then tax them all equally.

But most people will not expect politicians and bureaucrats who are both beneficiaries of the present order to take something out of their own pockets and pay it to the national exchequer. There are other inequities too in the statute from which they benefit. Why, for instance are domestic servants and private chauffeurs, not entitled to EPF and ETF benefits? Because they are also employed by politicians and bureaucrats, the cynics will say.

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