With the implementation of the proposed Inland Revenue act, the VAT will be simplified and subsequently done away with, and indirect tax revenue is to be brought down, the finance ministry expects. Ministry sources say that as much as 80 per cent of state tax revenue comes from indirect taxes, pressurizing the majority low-income families, and the government intends ease that pressure and to raise the 20 pc direct tax revenue.
The new act proposes a tax system based on individual income, and there will be no increase of the taxes paid by all the masses as claimed falsely by some. Certain gangs that swindled assets during the Rajapaksa regime are behind a plan to sabotage the new act that will give relief to the majority low-income people.
Ministry sources also say the existing tax system is very complex. Haphazard amendments resulted in both the government and the public facing inconveniences that had been going on like a cycle in the past, with the VAT amendments being a case in point. Several times, amendments brought tax relief for many items it covers, but the low-income people did not gain any advantage, due to the prevailing situation in which giving relief and maintaining tax revenue both have to be balanced. The VAT reduction brought the taxes down on some goods only being consumed by a limited number of consumers.
The government takes the lead in economic growth, job generation and elimination of poverty, and at the same time it has to strengthen institutions, increase competition and maintain state financial stability and to modernize the tax policy by including policies on international trade relations.
In such a scenario, the proposed tax act will not burden the low-income people by the 14 pc PAYE tax on the agricultural sector, 14 pc tax on EPF investments, 14 pc tax on exports and the 14 pc tax on the hotels industry. Bringing banking, insurance, leasing, IT product exports, container re-exportation under the 14 pc tax are not direct tax burdens on the public and intends to raise direct tax income in the event of minimizing indirect taxes, the sources say. It is unfortunate that some say the new act is introduced on World Bank and IMF recommendations to burden the public. Whatever those falsehoods say, a WB report in June pointed out the new tax system should act as a security net for low income people. Therefore, the people should look at this with an open mind.