COPF questions rationale behind high income tax rate for Port City employees

By Yohan Perera 

The Committee on Public Finance (COPF) has questioned officials from the Ministry of Finance and the Colombo Port City Economic Commission over the high rate of income tax imposed on employees working in the Colombo Port City.  COPF Chairman MP Dr Harsha de Silva raised concerns as to why Port City employees are subject to an income tax rate of 36 per cent, while employees performing similar services outside the Port City are taxed at a rate of only 15 per cent.  The issue was discussed at a recent COPF meeting using a hypothetical example. Dr. de Silva pointed out that a consultant based in Ratmalana providing services to a company in Dubai would be liable for income tax at 15 per cent, whereas a consultant providing the same service to a company located in the Colombo Port City would be taxed at 36 per cent.  

“Port City was created for a specific purpose. It is supposed to enhance attractiveness and competitiveness. Will this tax rate serve that purpose?” Dr de Silva questioned.In response, officials stated that employees working in the Colombo Port City are not entitled to concessionary tax rates because they do not provide services directly to the Port City, but rather to their respective employers. As such, they are not eligible for tax concessions that are granted to investors, officials explained. However, Dr de Silva noted that the officials had failed to provide a rational justification for the disparity. According to the Colombo Port City Economic Commission Act, which was approved by Parliament this year, employment income earned by both resident and non-resident employees of entities that receive a regulation, license, authorisation, or other approval from the Commission after the Act comes into effect is subject to income tax.