Anti-tax strikes threaten to bring Lanka’s ailing economy to standstill

ECONOMYNEXT –Trade unions representing medical, banking and other sectors in Sri Lanka are on strike at significant cost to the cash-strapped island nation’s ailing economy, demanding that an IMF-backed tax hike be revoked.

Broadcast media reported that patients visiting OPD clinics at a number of state hospitals in Anuradhapura, Polonnaruwa and elsewhere were inconvenienced as doctors, who are among the highest-earning professionals in the country, refused to report to work on Wednesday March 01 as part of trade union action against a controversial progressive tax regime.

The trade union action included strikes, token strikes, sick leave and other measures. Some 40 trade unions representing the state sector and some private entities were engaged in the campaign around the island against the 6 to 36 percent personal income taxation on people earning over 100,000 rupees a month.

Wednesday’s strike is the latest in a series of campaigns launched by trade unions demanding that the government withdraw the new tax policy, which the government says is vital at least for the time being while Sri Lanka recovers from its worst currency crisis in decades.

Sources close to the government recently claimed that the International Monetary Fund (IMF), whose broad approval for a much needed 2.9 billion US dollar loan has yet to be given, had recommended that Sri Lanka’s income tax threshold be lowered to 45,000 rupees but the government negotiated to keep it at 100,000.

The tax hike has been met with stiff resistance from various professional associations and trade unions, with low-intensity demonstrations held in Colombo and elsewhere since January, demanding its withdrawal. These professionals include doctors, university lecturers, banking sector employees and others who earn significantly more than a vast majority of the public. Some doctors collect substantial earnings through private practice.

Wednesday’s strike and protests was the biggest anti-tax agitation held yet. Banks, both state and some private, were closed in Galle, Hatton and other cities, according to reports.

“Stop the brain drain,” was a prominent slogan at one of the anti-tax protests held on Wednesday, “brain drain” being one of the key arguments used against the tax hike.

The Government Medical Officers Association (GMOA) has been at the forefront of the trade union action. GMOA secretary Dr Haritha Aluthge told reporters on Wednesday that there is a danger of more and bigger campaigns being launched in the future without warning.

“We ask the government to listen to the concerns raised by professionals and the people,” he said.

Sri Lanka’s new tax regime has both its defenders and detractors, both equally vociferous. Critics who are opposed to progressive taxation said it serves as a disincentive to industry and capital which can be invested in business. They argue that a flat rate of taxation is implemented where everyone is taxed at the same rate.

Others, however, contend that the new taxes only affect some 10-12 percent of the population and, given the country’s economic situation, is necessary, if not vital.

Critics of the protesting workers argue that most of the workers earn high salaries that most ordinary people can only dream of, and though there may be some cases where breadwinners could be taxed more equitably, overall, Sri Lanka’s tax rates remain low and are not unfair.