cover image: Restoring Efficient Tax Collection Methods: Witholding Tax and Pay-As-You-Earn

20.500.12592/s2mxj8

Restoring Efficient Tax Collection Methods: Witholding Tax and Pay-As-You-Earn

19 Jun 2022

Pay-As-You-Earn (PAYE): The PAYE tax collection method is one that makes it mandatory for most employers to deduct the tax due on the salary of employees and remit that tax directly to the government on a monthly basis. [...] The combined effect of abolishing the PAYE tax system, increasing the eligible income threshold, and reducing the taxation rate, led to both an increase in the cost of tax administration and a reduction in tax payment compliance. [...] The Sri Lanka Economic Policy Group attempted to isolate and identify what share of the decrease in income tax revenue was due to the removal of the PAYE collection method and what share was due to the change in tax eligible income threshold and taxation rate. [...] Exhibit 3 presents the percentage of increase in income tax revenue due to income earners graduating into higher income brackets for each year and the subsequent impact on the share in the loss of income tax revenue due to PAYE removal. [...] To calculate the taxes that are collected despite the withdrawal of WHT, we take the total reported tax payment each year on income streams that would have been subject to WHT, and calculate the proportion of that, which would have been otherwise deductible due to the WHT collection, based on the assumption about the marginal tax rate on that income.
economy sri lanka, public finance, taxation, verité research

Authors

Verité Research

Pages
8
Published in
Sri Lanka