Death and taxes: inevitabilities of life

Benjamin Franklin, a founding father of the United States of America and a drafter and signer of its Declaration of Independence wrote centuries ago that “our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.” Though the inevitability of death and taxes has now assumed the garb of a hoary cliché, its validity remains unchallenged to this day. The Buddha said anicca vata sancara (all things are impermanent) many millennia before Franklin and it can be presumed that taxes, as we now know in the modern day, did not exist in the Buddha’s time.

With the New Year. and together with it the higher VAT (value added tax) kicking in, we Lankans battling an ever soaring cost of living and government’s demand, at the behest of the International Monetary Fund (IMF), for more revenue are now obsessed with taxes, both direct and indirect. According to Wikipedia Indirect taxes in the forms of excise duties, VAT and tariffs are the key contributors to the government tax revenue with 74% while direct taxes including income tax, Pay-as-you-earn tax and Economic Service Charge contribute only around nine percent.

Thus income taxpayers, including professionals, grumbling about the prevailing high rates of tax need to realize that the indirect tax burden falls on the entire population including the impoverished segments. We are in this context reminded of an anecdote published in the old Illustrated Weekly of India several decades ago of a market vendor woman telling a customer grumbling about income tax. “if I had your income, I’d be glad to pay your taxes.”

But income taxpayers do have a real grouse that the inland revenue authorities applying the tax squeeze on those of them on file, have over a very long period of time been hopelessly inept at widening the tax net and ensuring that those liable to income tax “render unto Caesar, the things that are Caesar’s.” Both illegal tax evasion and avoidance which is legitimate has been rampant for as long as the Income Tax Department of yesteryear and its successor, the Inland Revenue Department, have been in existence.

But despite the grand sounding titles bestowed upon its hierarchy, as elsewhere in the public service, delivery of revenue into state coffers or the closing of loopholes in the law enabling avoidance have been nowhere near what it should be. An official once titled Commissioner of Income Tax (or Inland Revenue) has now become Commissioner General, the Deputy Commissioners of the past are now Commissioners and so on and so forth.

At a news discussion hosted last week by the President’s Media Division (PMD), Central Bank Governor Nandalal Weerasinghe encouraged people to bring tax evasion to the notice of the authorities to help reduce their own taxes in the future. In effect, he was advocating “whistle blowing” as it is commonly called or ‘ratting’ as the victims may choose to label it.

The Inland Revenue Department, we are sure, must be receiving numerous petitions on tax evasion. As in the customs, it is very likely that informants are rewarded if information provided leads to successful assessment and collection. There is no doubt that whistle blowing and petitions are mostly triggered by reasons of personal enmity rather than any interest in the public weal. Alternatively, the informants are looking at the rewards they can get for themselves.

But the public is well aware that over a very long period of time, the political and bureaucratic establishments have scratched each other’s backs for personal advantage for themselves. One very good example was in the seventies when Mr. Ronnie de Mel was finance minister in the J.R. Jayewardene government, emoluments paid by the government was relieved of income tax. Member of Parliament too received the same benefit.

The justification for this measure was that public and private sector salaries were not on par and it was necessary to incentivise senior public service managers to remain in service and not take private sector jobs for better pay. This argument was riddled with holes. There were public service employees like planters in the various company owned estates who enjoyed very good terms which remained after the takeover.

But they too got the break of no tax on their pay and perks. Also, not all private sector employers pay their employees well. While many of the big companies do, most of the small one don’t.

It was the same JRJ government that did away with estate duty which the present government is planning to reintroduce from 2025 as an inheritance tax. Some employers, including in the state sector, pick up (or picked up) the tax tabs of their employees. There are numerous weaknesses in the existing tax system that requires immediate attention but no serious action in this regard is visible.

Time was when dividend and interest income was taxed at source. This is a convenient collection method but with the serious weakness that many retired persons, living on interest income from fixed deposits, got taxed although their incomes were below taxable thresholds. As everybody knows, getting money back from the government is like getting water out of a stone.

It was revealed a few days ago that the stupid proposal that all Lankans over the age of 18-years must have a taxpayer information number (TIN) or risk penalties running up to Rs. 50,000 is not being implemented. What State Finance Minister Ranjith Siyambalapitiya said was the penalty was not going to be slapped. But he did not say the proposed TIN registration for all Lankans over 18, probably an advance of the digitisation ambition, was being abandoned.

Most Lankans over 18-years old have National Identity Cards. Siyambalapitiya stressed that having a TIN did not mean those below the Rs. 1.2 million taxable threshold would have to pay taxes. They remain exempt. Why then was the empty threat made?