There is no debate that the Government must start taking the tax issue seriously, or the rising opposition against increased income tax rates, and that it has to expedite the existing measures aimed at dealing with the issue. Responses such as “tax hikes are necessary to revive the economy”, “the International Monetary Fund’s (IMF) programme for Sri Lanka recommends tax hikes” and that “the Government will look into revising tax rates in the future” are not answers that could alleviate the anger expressed by professionals and high-ranking public officials.

As The Daily Morning reported, the IMF has informed a group of local trade union representatives on 24 March that the IMF will not oppose changes to the tax system in the future, provided that the new measures do not harm the given tax revenue targets. It has reportedly further stressed that it does not interfere in matters such as taxes with regard to the amounts to be collected, from whom, and the relevant percentages. After the meeting, the trade unions that attended the said meeting noted that the Government now has an opportunity to amend the tax revisions, and also to provide relief to professionals in a manner that would not harm the achievement of the set targets. Some trade unions also expressed concerns that the Government is focused on achieving tax revenue targets in the easiest possible way, i.e. via the Pay As You Earn (PAYE) tax.

While there are various opinions about the trade unions’ opposition, especially protests and strikes, the Government cannot deny or underestimate the fact these trade unions possess a great deal of influence. While the professionals that oppose tax hikes are top-level professionals whom the country cannot afford to lose, high-ranking public officials that have joined them are involved in the provision of the most essential services including health, education and export-import related services. In fact, the country saw the impacts of these professionals’ opposition during the token strikes they staged during the past few weeks. Therefore, the Government must take into account not only how essential tax hikes are, but also how essential the services that get disrupted due to anti-tax hike protests are. It has to pay attention to ensuring that tax hikes are not only economically beneficial, but are also sustainable. Continued protests in the public sector, the brain drain of professionals and decreased State income are not challenges a crisis-affected country like Sri Lanka could handle for a long time.

Now that a positive answer appears to have come from the IMF’s side, which the Government claims is the biggest concern when it comes to amending recently implemented tax reforms, it is time for the Government to hold more reasonable and receptive discussions with trade unions. The Government should hold talks with the IMF and concerned trade unions with the aim of ensuring that income taxes are sustainable and do not result in the country losing professionals, and most importantly, alternative income sources actually help the country achieve its revenue targets and do not create another spate of protests. However, these are matters regarding which the Government has to take decisions extremely carefully, given the pressing need for increased tax income, the conditions of the agreements that Sri Lanka has entered into with the IMF, the trade unions’ concerns, and also the country’s overall situation and long-term economic objectives.

What the Government, the IMF and also trade unions could compromise in this regard may be limited and may not be beneficial to all concerned parties equally. However, times are such that compromises that could be made, should be made, and the Government, as the intermediary between the IMF and the public, should give up its stringent stance with regard to tax reforms wherever possible.