• A cross-section of the society shares with ‘The Daily Morning’ a litany of daily woes stemming from the tax reforms, inequitable taxation, and the domino effect of tax hikes   

As the country is facing an unprecedented economic crisis, the recently introduced tax revisions on progressive taxation have resulted in excessive tax cuts which are aimed at the salaries of middle- and high-income earners. The tax hikes have brought about the risk of the relocation of middle-class professionals and skilled workers to Australia, Canada, and several other European countries. While direct taxes, which depend on personal income or salary, have resulted in an increase in brain drain, indirect taxes have affected many individuals who are primarily daily wage earners. Indirect taxes depend on the goods and services that the customers utilise, where there is a similar tax pay for everyone, irrespective of their income. 

Progressive and regressive taxes affect the lives of high- and low-income earners differently – where progressive taxes impact the higher-income groups more than low-income groups while the regressive tax system levies an equal percentage on goods and services purchased regardless of the income of the buyer. Hence, regressive taxes disproportionately impact low-income, daily wage earners.

The everyday battle to make ends meet

Three-wheeler driver W. Kumarasiri is a daily wage earner from Piliyandala who supports a family of four from his daily earnings. He pointed out while speaking to The Daily Morning that he is unable to find his daily earnings, as his usual customers hire his three-wheeler only for essential or urgent travels. 

“Since there is a massive tax cut from the salaries of my customers, they are unable to afford three-wheeler rides as they used to. Most of them choose to travel by bus whenever possible. I get a hire or two only when it is absolutely necessary for them to make the journey by a three-wheeler. In the morning hours, I used to earn a minimum of Rs. 2,500 from passengers that commute to work daily. But now, I only earn about Rs. 300, as most of them walk or travel by bus or train. We are helpless, as we also cannot accept rides for the old rates.” 

He added that even though they are not directly affected by direct taxes, they are indirectly affected by them due to being daily wage earners. Apart from that, there is a direct impact from indirect taxes on low-income groups due to the hike in prices of daily essentials which consumers are currently required to purchase at thrice the previous price. 

Most three-wheeler drivers sustain their families solely with the daily income they earn from three-wheeler hires. “We struggle to buy food items on a daily basis and when the monthly electricity bill is issued on top of that, it is extremely difficult to make ends meet. I somehow manage it as I do not prefer borrowing money from others. As I do not consume alcohol or cigarettes, it has saved me a certain amount of money. Before the crisis hit, we used to purchase fish and eggs daily. But now, we have resorted to buying only fish sufficient for a single day in the week and therefore, there are weeks that go by without any animal protein consumption due to the recent price hike. Now, we will have to manage with one vegetable and rice for our main meals. 

“Monthly salary earners are able to purchase goods for a month at once from whatever is left of their salaries after direct taxes. But, we cannot do so as we have to manage our expenses on a day-to-day basis. Each day depends on the number of hires, and each day is different. I have two children who are still schooling. The prices of education supplies have increased due to the tax increase too. Even a photocopy costs approximately Rs. 25, unlike before. Now, we cannot even consider saving money for our children’s future. It is sad to say that we used to live a good life as a family, doing the same job, not too long ago,” Kumarasiri highlighted while reminiscing the comfortable life he led with his family prior to the economic crisis, adding further that although he has a source of income, his family’s expenses have ballooned to thrice his earnings. According to him, indirect taxes affect many aspects of his life and expenditure, unlike direct taxes. “The prices of imported spare parts for my three-wheeler have increased at a very high rate. There is a three-fold price increase in spare parts. The service maintenance for the vehicle is also unaffordable now, as the prices of fuel have increased. I have to spend roughly Rs. 4,500 for oil, which used to cost just Rs. 2,000 before. As a result, I have postponed the monthly maintenance service for a few months now.”

Children: The true victims of poverty 

Mother of four daughters, Renuka Perera is a Samurdhi beneficiary from Panadura who manages her family’s expenses from the wage earned by her husband who is a daily wage labourer. “My husband used to run a timber-based business, but after the Covid-19 pandemic, we lost our business. Post-pandemic, he is working as a labourer. I too am unable to work as I have to look after my daughters. One is studying for her General Certificate of Education Advanced Level Examination this year, one is in university, one is in Grade Seven, and the youngest is five years old.”

Poverty has become a major factor that keeps children belonging to low-income groups away from school.

“We have not received the Samurdhi payment for the past three months. Losing that has made our lives even more difficult than before, as we live off a daily wage. My children have now stopped attending school. Their attendance entirely depends on whether their father is able to secure some work within the day. As a result of high transport costs and our inability to provide food for school, they tend to skip school. Their education is hindered as a result of the sharp price rises in essential food items due, in turn, to the increase in taxes. When condiments are considered, the prices have increased three-fold. We had to borrow money from a neighbour to pay for the increased electricity bill last month. I believe that even though we do not pay the direct tax cut, there is an equal burden and effect on us through indirect taxes,” she said while sharing her woeful plight with The Daily Morning.

The Rapid Needs Assessment conducted by the Save the Children organisation highlighted that last year (2022), low-income families in Sri Lanka are resorting to negative coping strategies, such as borrowing money, selling assets, and skipping meals just to fulfil their basic needs.

Housemaid T.M. Nirosha, who is the sole breadwinner in a household with two kids who are still schooling, expressed her views to The Daily Morning with regard to the unbearable cost of living. “My income is spent on all the expenses for my two sons. My monthly income is often fully spent within the first two weeks of the month after the increase in taxes. As a single mother, I am struggling to buy them school supplies and food items rich in nutrients. I often request financial assistance from others to pay electricity and water bills. As a single wage earner, these current times are extremely difficult times for my family.”

Bringing about change through farsighted thinking 

Founder and Partner of Gajma & Co., a chartered accountant firm, and tax consultant N.R. Gajendran, speaking to The Daily Morning noted that when the total taxable income of the country is considered, the disparity of the income gained by direct taxes and indirect taxes has been prevalent for many years. “Almost 80% of our country’s income is made up of indirect taxes. If the country intends to establish macroeconomic as well as social stability, a higher proportion of the income should come mainly from direct taxes. But, this mismatch cannot be resolved overnight. Since direct taxes have been distinctively increased recently, the proportions might differ from what existed before. However, this too has caused major disruption, as it has made talent retention in the corporate world a strenuous task and has severely affected the purchasing power of consumers as well. Further, many foreign firms too are moving out of the country due to the present crisis.”

Sri Lanka is currently experiencing a mass exodus of professionals belonging to middle-income groups, especially due to major tax cuts. These professionals include university lecturers, doctors, engineers, hotel managers, and professionals from many other categories.

“When the tax hike in liquor and cigarettes is considered, the imposition of taxes is carried out without any proper analysis and research with proper predictions. As far as the Government is concerned, these tax increases will not be durable. This can result in consumers moving to unhealthy alternatives that are cost-effective. Proper, timely decisions should be taken, which can, in turn, implement policies with long-term benefits to the country. Sri Lanka needs a competent set of individuals that can bring about this economic change in the country,” Gajendran remarked. The hike in indirect taxes of basic commodities has resulted in the country’s high inflation, as the increase in market prices leads to a rise in the cost of living, which has a visible impact on consumer prices. 

“There are individuals that evade taxes as well. As the top levels of society are corrupt, it is automatically being portrayed that it is acceptable for freeloaders in society to evade taxes. That will result in an inequitable burden on low- and middle-income groups which are the vulnerable groups,” he added, noting that most groups in our society are unaware of the burden of indirect taxes, as it is not as prominent as direct taxes. 

While direct tax cuts have severely affected the middle-income class, indirect taxes have affected vulnerable groups such as children and low-income families the most. As no proper focus has been given to the country’s economic and political turmoil yet, public frustration can give rise to public unrest. Above all, the majority of Sri Lanka’s farming, fishing, and plantation sector communities are the direct victims of the current economic collapse, which can certainly lead to illicit and unethical means of income generation and earning as well.