A salary slip said to be of an Inland Revenue Department (IRD) official was recently seen circulating on social media. The salary slip, which appears to be recent, had no tax deductions shown, even though the salary on the slip qualified to be eligible for Pay As You Earn (PAYE) tax/Personal Income Tax (PIT).
This led to outrage amongst netizens, as the public sector continues to absorb taxpayer money without contributing to tax revenue, even as the private sector, which has continued to sustain the economy, continues to do so through difficult times.
While The Sunday Morning made multiple attempts to contact the IRD last week in this regard, prior to the Sinhala and Tamil New Year holidays, the institution declined to provide any response. Repeated emails sent by The Sunday Morning too failed to receive any responses from the IRD, even at the time of going to print.
No way to avoid PAYE tax
The Sunday Morning was able to contact State Minister of Finance Shehan Semasinghe, who stated that all those eligible for PAYE tax should pay it and that there was no way a person could avoid it.
“It is very much understood that we have to broaden the tax net and ensure that all those who are eligible to pay taxes pay their correct tax amounts,” Semasinghe stated.
He added that until the Government sorted out the tax collection and profiles, there was a chance that the private sector may feel disappointment over the lack of participation from the public sector, therefore noting that it was everyone’s duty, particularly in the public sector, to ensure that all taxes were being paid without any attempts at evasion.
“Everyone should pay the correct amount of taxes. With the digitisation programme underway, most of the tax-related concerns will be sorted. The Government is very keen on digitising the IRD and necessary steps are being taken,” Semasinghe added.
COPE findings
According to Budget 2023, some State-Owned Enterprises (SOEs) are still paying the PAYE tax liabilities of their employees. This issue has been questioned by the Committee on Public Enterprises (COPE) and the Auditor General.
Hence, the Budget 2023 proposed to stop such payments, effective from 1 January, since such a tax should not be an expenditure to the entity (i.e. the SOE), although personal emoluments are paid under collective agreements.
It was also revealed to the COPE last year that the Ceylon Electricity Board (CEB) had paid Rs. 4.8 billion in taxes (PAYE/APIT) from its funds, without deducting it from the salaries of the respective employees during the period from 2010 to 2019.
IRD failing its responsibilities
Speaking on the matter, Rajarata University of Sri Lanka Department of Economics Prof. Dr. Geethani Bulankulama told The Sunday Morning that it was not unusual for a PAYE tax slip to show tax deductibles, however, the particular slip circulating on social media did not show any tax deductions, which she said was rather odd.
“Tax policies are for everyone, whether they are from the private sector or the public sector. The IRD’s responsibility is to monitor and collect taxes. Public sector income is a reported income, hence it is questionable how the PAYE tax would not become applicable to a public sector official whose income is within the PAYE tax brackets,” Bulankulama stated.
However, she noted that there were doubts as to whether this particular image of the salary slip was a legitimate one or whether it had been edited. She noted that if it was legitimate, it was an injustice to other taxpayers, as it showed that IRD officials received preferential treatment and were exempted from the PAYE tax.
“If that is the case, then the Government has to announce that selected sectors or departments are exempted from the PAYE tax. Make it transparent. Certain exemptions were announced recently, but IRD officials were not a part of these exempted groups,” she stated.
According to Bulankulama, the IRD’s responsibility is to have a clear database of the people who are eligible to pay any kind of tax, in order to ensure that no tax evasions are being undertaken. However, she stated that it appeared that the IRD was inefficient and that the department itself was avoiding the PAYE tax.
When tax policies are announced, the authorities have to ensure that these policies apply to everyone, she emphasised. “There are many irregularities and inefficiencies in tax collection in Sri Lanka,” she stated.
Tax statistics
Meanwhile, the Government has collected more than Rs. 25 billion through the Advance Personal Income Tax (APIT) just within the first quarter of 2023, the IRD noted in a press release.
According to the press release, the total revenue from APIT from January to March amounted to a total of Rs. 25,577 million.
In January, the department collected Rs. 3,106 million from the tax, while the revenue climbed to Rs. 10,540 million and Rs. 11,931 million in February and March, respectively.
The IRD said a gradual increase in tax revenue was thus observed in the first quarter of 2023.
PAYE tax is charged from only 2.6% of Sri Lanka’s total workforce of 4.64 million, while the Treasury is struggling to obtain the Rs. 100 billion estimated revenue under the tax.
According to State Minister of Finance Ranjith Siyambalapitiya, as per the latest statistics from the Department of Census and Statistics (DCS), only 120,925 are receiving a salary above Rs. 100,000 out of the total workforce of 4.64 million.
He said that about 2.2 million or 48% of the total workforce received a salary below Rs. 30,000.
The State Minister further noted that according to DCS statistics, 62,107 received a salary between Rs. 100,000-150,000, 28,227 received a salary above Rs. 150,000-200,000, and 30,591 received a salary above Rs. 200,000.