The International Monetary Fund (IMF) asked the cash strapped Sri Lankan government to impose taxes on all who receive monthly income of above 41,667 rupees as a prior condition for the $2.9 billion deal, two sources close to the negotiation said.
President Ranil Wickremesinghe government, however, imposed Pay As You Earn (PAYE) tax on all who earn an income above 100,000 rupees monthly. The move has triggered strong protest among high earning public servants who have demanded to reduce the taxes.
“During the discussions, the IMF asked to tax all income above 500,000 rupees. This means a person who earns above 41,667 rupee a month will have to pay PAYE tax. But the government set it for 100,000 rupees,” one source who has direct knowledge on the IMF discussion told EconomyNext.
Another source who has knowledge on the IMF discussions confirmed the global lender’s request.
The IMF was immediately not available for comment.
Sri Lanka’s unprecedented economic crisis has forced its government to impose high PAYE and personal income taxes from 6 percent to 36 percent depending on their income.
A person who paid a tax of 9,000 rupees on a 400,000 rupee monthly income will now have to pay 70,500 rupees as income tax, the latest data showed.
The upward tax revision and removal of all exemptions have angered high income earners in both the private and public sector. Successive Sri Lankan governments adapted a soft approach on taxing public servants due to political reasons.
However, the economic crisis has forced the current government to raise taxes, though the measures are hard to swallow, government officials have said.
( source : Economynext)