(Daily FT) Main Opposition SJB MP Eran Wickramaratne on Wednesday alleged that the 30% tax on EPF was unjust as members end up paying more than some in the corporate sector.
Speaking in Parliament on the debate to increase taxation on EPF/ETF from its current 14% to 30%, Wickramaratne said that it was discriminatory, given that even the current 14% tax on EPF exceeds the 30% tax on the corporate sector. The EPF is taxed on its gross revenue, whereas the corporate sector is taxed on its net revenue.
The MP referring to an article by former Deputy Governor of the CBSL W.A. Wijewardene said that the people have been deceived to believe that they are being taxed at a concessionary 14% on EPF and other superannuation funds.
The EPF is a compulsory saving and the individual employee has no choice; had there been a choice, EPF members are better off managing their portfolios for a higher return over 30-40 years than what they would get paying 14% on gross income of EPF.
EPF is not a voluntary saving, but enforced on even plantation workers who earn a daily wage of less than Rs 1,000. The approximate number of plantation workers was 400,000, now 150,000. There are about 2.5 million active EPF account holders and 90% of its members earn less than Rs. 100,000 per month, the current tax-free threshold. If all members are afforded an opportunity to manage their own savings, they are liable to pay less tax and they earn more than the dividend paid by the EPF fund at the time of their retirement.
The present Government policy of taxing the EPF is highly unjust. The Domestic Debt Optimisation programme suggests that members of the EPF over 16 years will avail a 9.1% return. The current market return is 11%. Accordingly, superannuation funds and the EPF are being treated unequally, against the provisions of the Constitution where Article 12 (1) envisages all are treated equally and equal protection of the law for the equally placed people.
“Banks are engaged in financial businesses, individuals and primary dealers are doing business but are not taxed under the DDO, but the low-income members of the EPF are taxed at an exorbitant rate in an unjust manner,” said the MP stressing on the need to protect the low-income earners who contribute to the EPF.
Recalling the history of the EPF fund, he said that when the EPF was introduced, it was mentioned that there should be no tax on the EPF fund. He emphasised that tax exemptions should be for the poor and tax obligations should be on the wealthy. There is no justification, making only the poor pay this tax.
Quoting a study by Verite Research, Wickramaratne said that 14 countries which needed to restructure their debt have restructured only the banks, which is justifiable. Out of the said 14 countries, 09 have included private creditors. Only two have restructured Social Security Funds. But, not a single country in the world have restructured only the Social Security Fund as is being done by the Sri Lankan Government to its EPF/ETF targeting the poor, leaving behind the businesses, individuals and the banks who have more returns on their investment than that of the Social Security Fund, clearly contravening the provisions of the Constitution.
The SJB MP also stressed that chapter 27 of the Constitution, envisages that the directive principles policy shall guide Parliament, President and the Cabinet of Ministers in the enactment of laws and the governance of Sri Lanka to establish a just society. But the Government’s Domestic Debt Optimisation (DDO) program highlights the Government’s discriminatory principles and that the Government has no interest to serve its citizens equitably and in a just manner, which is deplorable.