Point of view : Professionals and tax matters | Sunday Observer

Point of view : Professionals and tax matters

I am a lawyer by profession and I also happen to be a Chartered Accountant (ACA), Management Accountant (ACMA, UK), and a Chartered Financial Analyst (CFA). My Income TaxNo. is 9346XXXX and my VAT No. is 40907XXXX 7000.

My income tax rate for the year of assessment 2017/2018 was 12% on the basis of being a Small and Medium Enterprise (SME)! In terms of the new Inland Revenue Act my maximum tax rate has increased to 24% with effect from 1st April 2018.

I have been watching in silence the continuing saga with regard to professionals and the payment of income tax. When the new income tax law was to be adopted it was challenged in the Supreme Court by several parties which included professionals such as the Bar Association of Sri Lanka. These professionals were contending that the definition of SME should not exclude professionals and that they should be taxed similar to SMEs at the rate of 14%. This challenge was dismissed by the Supreme Court without much difficulty. I could not believe that professionals at large who are very conscious of their social status would want to be equated to SMEs.

Notwithstanding the dismissal in the Supreme Court and various unsuccessful attempts thereafter, the professional lobby is at it again. The newspapers have shown calculations which are being given by the doctors with regard to patient fees and income taxes and they defy some basic principles. Firstly, income tax is a tax which is meant to be paid and borne by the taxpayer. Are they seriously contending that whilst the general citizens of this country pay income tax that they should have the right to pass on their income tax to the patients? Secondly, income tax is paid on ‘profit’ and not fees. Thirdly, the threshold for the payment of VAT and NBT is Rs. 12 million per annum and even though there are professionals who exceed that threshold the amount of such professionals (in any profession) is in my view not that great and therefore it is unlikely that VAT would be a major issue for any profession taken at large.

The marginal tax rates which have been applicable for individuals from the year 2000 to the present are as follows:

Based on the above, it can be seen that from the year 2011 onwards, professionals have been having an inordinately low tax rate at the expense of their fellow citizens. The reasons for giving professionals such low tax rates has been that it would arrest a supposed brain drain as propagated,very conveniently, by the professionals themselves whether in practice or in employment.

The following table illustrates the marginal tax rates for individuals in the countries which are often mentioned as being attractive for migration by these professionals:

Most of these countries also have a global basis for income tax which results in not only income in that country but also income which would be received from Sri Lanka being taxed at the aforesaid rates.

For example, interest on deposits attracts an unbelievably low 5% final withholding tax in Sri Lanka whereas the interest received on the Sri Lankan deposit would get taxed at the full rate in the respective country with perhaps a credit for the 5% deducted in Sri Lanka.

Migration

Based on the above, it is absurd for any professional to be citing income tax as a reason for migration. If you wish to migrate please do so and I think the ‘Tax Man’ in those countries will await you with open arms.

You would not dare to evade tax in those countries either since you will be summarily thrown out or put behind bars.

To the prominent anonymous consultant endocrinologist/diabetologist who has stated (CDN 11th June 2018) that “many lawyers, architects, tuition masters and business tycoons avoid paying tax to the Government and the Government does not have a mechanism to track them and tax them” I only wish to state that your statement is presumptuous and simplistic. It does not take into account that a large part of the taxable income of some professions are payments received from institutions and these are well tracked by Inland Revenue Department (IRD) since the payer is obliged to report such payments to the IRD.

I’m not aware as to whether it is the doctors, lawyers, or architects who can take the credit for being the largest tax evaders.

However, based on my professional training,pointing to other tax evaders and providing that as a justification for not paying your own taxes is an argument unworthy of a professional.

The professionals in this country have had a free-ride and the Government has very correctly restored their taxation to normal rates under the new Inland Revenue Act.

The least I can expect is to enjoy my right (human, fundamental or otherwise) and permit me to stand shoulder-to-shoulder with the other right-thinking citizens of this country to pay income tax at the highest marginal tax rate of 24%.

Naomal Goonewardena 

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