Medical doctors and taxation of individuals | Sunday Observer

Medical doctors and taxation of individuals


The purpose of this article is to consider certain claims made by medical doctors for preferential treatment for income tax purposes. Before dealing with the relevant issue, let me thank Mr. Naomal Goonewardena (an eminent lawyer and qualified Chartered Accountant and above all a compliant tax payer) for his article published in the Sunday Observer (Business Section) dated 17th June, 2018, under the title ‘Professionals and tax matters’. Further, I, wish to quote below one paragraph from that article which may help me to proceed with this article.

“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”.

Free-ride by some professionals

This free ride was fully arranged by none other than the ‘Rajapakse - Jayasundara fiscal scheme’, introduced in 2014. Before 2014 ,all individuals normally paid income tax at progressive rates subject to a maximum rate of 24%.

By the enactment of I.R. (Amendment) Act, No. 8 of 2014, they created a special class of professionals for income tax purposes under section 40C(2). This creation of a special class of professionals among the professionals was highly illegal but such actions were the norm of that administration. Not only the creation of this special class of professionals but granting them special privileges re-income taxation was ultra vires.

Under section 40C(1), if such special professional was employed, his employment income was taxed subject to 16% maximum instead of 24%, w.e.f. 01.04.2014. Then, they created another super class within this special class of professionals, under section 59F, as follows- If such super professional was providing professional services, (not in the course of employment) the relevant taxable income from such services were to be taxed at the following rates, w.e.f. 01.04.2014.

This rate schedule has created serious anomalies not only in relation to normal individual tax payers but in relation to such special professionals who were employed vs. engaged in a business of providing services. Further, the tax slabs of Rs. 24M. and Rs.10M. violated all norms of income taxation.

A normal individual including a professional who was not in this special class would have paid income tax under the following rates -

They did not enjoy those massive slabs of Rs. 24,000,000 at 12% and Rs. 10,000,000 at 14%.

Even within this special class of professionals there was a discrimination against the professionals who were employees. Such professional employees were taxed at 4% to 12% under the above mentioned normal tax rates and the balance was taxed at 16%. They also did not enjoy those massive slabs of Rs. 24,000,000 at 12% and Rs. 10,000,000 at 14%.

Other benefits given to these super professionals Special qualifying payment allowance Under section 34(2), the repayment of capital of a bank loan on or after 01.04.2014, subject to a maximum of Rs. 600,000 per year, considered as deductible qualifying payment, if such loan has been utilised to construct a house or purchase a house. (Not necessarily the first house)

This concession was not available to any other individual income tax payer.

Fifty per cent (50%) concession to banks on interest received on such loans -

After giving all this lavish concessions to so-called super professionals, a concession has been given to banks which provide such loan facilities by reducing their tax rate by 50%. This subsidy was meant obviously for a reduced interest rate !.

In this situation, the other professionals who were discriminated could have taken action under Article 12(1) of the Constitution, on the basis that they have been treated differently from others, and that they have been differently treated from persons similarly circumstanced without any reasonable basis.

Now, these medical doctors are leading the band wagon against the new Inland Revenue Act. After enjoying filthy tax concessions for a number of years, now they claim that a privilege enjoyed has been denied. It was not at all a reasonable privilege which should have been continued, specially in consideration of the present ‘Yahapalanaya’ in operation !.

Fiscal Policy and Revenue Collection -

Recent pronouncements by relevant authorities gave the impression that they will take every step to increase the direct tax revenue. There were a number of measures incorporated in to the New Inland Revenue Act for this purpose.

In many areas, the New Act creates a different situations breaking away from the systems existed previously. Every citizen of Sri Lanka, not only medical doctors and others behind them (top level officers in administration, Judiciary, Ministers, Members of Parliament etc.

who hope to achieve their tax objectives through these medical doctors) should understand this requirement of direct tax revenue, in the long run if they want to enjoy their massive benefits. It is an urgent requirement for social justice in our country.

If the individuals earning millions and millions did not pay their due share to the Government how can the country achieve its revenue targets and ultimately achieve a satisfactory fiscal consolidation?

I am not going to discuss about tax evasion methods adopted by certain individuals (including some medical doctors) in this article. We will have to wait and see whether the relevant revenue authorities will take action to safeguard the revenue base and collect the correct tax without any fear or favour.

In conclusion, I want to emphasise that the decision makers should allow fiscal experts decide on fiscal matters and let the revenue administrators do their job without unnecessary interference s. Otherwise, our country will continue to suffer from wrong decisions taken, for ever.

The writer is a Tax and Investment Consultant and a Lecturer on Taxation