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EDITORIAL - Plug the loopholes

22 February 2015 06:57 pm - 0     - {{hitsCtrl.values.hits}}

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he budget presented by the new government last month drew a lot of praises. Media termed it a Robin Hood budget, implying that it was designed to tax the rich to feed the poor.  The government announced a lot concessions to people such as tax cuts on 13 food items, which the government identified as essential items, though the essentiality of some of these items remained debatable.
On the other hand, the government proposed a series of one-off taxes on companies with deep pockets. The most controversial was the super gain tax, a retrospective levy to tax the companies which earned profits in excess of Rs.2 billion for the 2014 tax year.



 During the post-budget forums, the new ministers of the government maintained that some companies were in possession of “ill-gotten” money which they earned through bad business practices during the last five years and the government was doing the right thing by taxing them. Though this argument was full of flaws, it appealed to the masses. Hence, on the surface, this budget seemed perfect.
But the problem is, it is not. As the investor and self help author Robert Kiyosaki who gained wide acclaim for his book ‘Rich dad and poor dad,’ said, the rich would somehow find a way not to pay the taxes. And exactly the same thing is going to happen in Sri Lanka. At the outset, it looks like the rich owners are going to pay the taxes. But is it really the case? No. They will somehow fully or partially pass the tax to the people.



For example, the owners of the company who will be impacted by the super gain tax will halt bonuses and salary increases to its employees, arguing that the company cannot take the tax hit without such measures. The employees of this company are the very people the government wants to help through its budget. Hence ultimately, the taxes imposed by the budget would be borne by the people who elected this government.
 Another example is that some companies have already stalled the year-end dividend payments to its shareholders. One would argue that shareholders mean the owners of a company and they should be taxed. But what about those minority shareholders for whom the only relief they get from the owning of shares of a company, is dividends?



 The intention of introducing taxes on people and institutions with money by the government is undoubtedly good. That is what needs to be done. But the government should also plug the loopholes to make sure that those who the taxes were intended for ultimately pay these taxes.  Otherwise, most of the people friendly measures proposed in the interim budget of the new government would end up being counter-productive.  

 
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