ECONOMYNEXT – A hike in Sri Lanka’s bank deposits is a tax credit that can be deducted when a person files an income tax return and it is not an increase in the final income tax, Deputy Finance Minister Anil Jayantha said.
“This a tax credit that can be deducted when a tax return is filed,” Minister Jayantha told reporters in Colombo.
“If a person who is below the 150,000 threshold had the 5 percent tax deducted, they will usually not request a refund, and will end up paying the tax.
“A person who was below the threshold and earned 10 to 15,000 in interest should not pay the withholding tax.
“We will introduce a mechanism for them not to be charged.”
There were also large depositors who paid only 5 percent tax and did not have a tax file, he said.
If they filed a return, they can set the WHT on deposits against their income tax liability.
The withholding tax increase is an attempt to increase compliance and improve tax administration he said.
With holding taxes give advance cash to the government and improves cashflows, and reduces the lumpy nature of income tax payments.
Unlike value added tax which are paid when people spend the money on the goods and services they want, income tax appropriates people’s earning before they get chance to use their own earnings for the benefit of their family.
There was a backlash against income tax hikes in the last International Monetary Fund program and some professionals migrated out, leading to a talent drain.
Sri Lanka has a history of suddenly raising taxes under IMF programs after the central bank prints money to push up inflation or growth after getting its technical advice to ‘modernize’ monetary policy.
As a result, the countries keep going to the IMF. Bolivia is now experiencing Sri Lanka style troubles. The country has gone to the IMF 20 times. (Colombo/Dec27/2024)
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