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Handunnetti warns of tax evasion due to higher rates

14 Oct 2022

 
  • NPP Econ. Council member says more taxes will be announced in Budget
  By Imesh Ranasinghe  National Peoples’ Power (NPP) Economic Council Member Sunil Handunnetti yesterday (13) warned that there could be a rise in tax evasion by the public, as the Government has introduced higher taxes at a point where people are unable to pay taxes. “If such a trend occurs, it would be justifiable, as the people are unable to pay such taxes,” he added. The Government will impose further taxes on top of the recently announced income taxes in the upcoming Budget 2023 in November, and the State risks the creation of a tax evasion movement if it does not implement proper ways to collect these dues, he added.  Speaking to the media yesterday, he said that the Government has brought in new taxes in October, only to add more taxes on top of these in the Budget that is set to be introduced for 2023 in November. “In the November Budget, they will impose a small tax, but it will be a tax on tax,” he said. Earlier this week, the Government gazetted the amendments to the Inland Revenue Act No. 24 of 2017, where the threshold for the annual personal income tax was reduced from Rs. 3 million to Rs. 1.2 million. Individuals with over Rs 1.7 million in annual income will be taxed at 6%, while the tax rate would increase by 6% for every Rs. 500,000 increase in annual income. He noted that the Government should impose taxes while paying consideration to how it could collect these dues, as the Government cannot conduct raids to collect these taxes if the people refuse to pay. Moreover, he said the new taxes have created an incentive for individuals who can afford an air ticket to leave the country. However, University of Colombo Department of Economics Economist and Lecturer Umesh Moramudali in a Twitter message said that “these tax changes will be applicable only to the top 10% of the country's income earners. According to the Household Income Expenditure Survey 2019, those who earn more than Rs. 79,000 belong to the top 10%.” Also, he said, even after taking into consideration the inflation adjustment, it can be roughly estimated that the tax will be applicable to the top 15% of income earners. “If we don't pay taxes, there are two options: 1) print money, which will lead to more inflation, eat away your purchasing power, savings, etc.; 2) The Government will borrow and accumulate interest, which will eventually need to be paid with either more taxes, more printing, or more borrowing.” said Economist Rehana Thowfeek via her Twitter account.


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