The parliamentary Committee On Public Enterprises (COPE) was highly critical of the state banks when it was revealed that they were violating the tax law, Inland Revenue Act and the principle of equal treatment by paying the paye tax of employees, a parliamentary source said yesterday.
He said COPE Chairman and Senior Minister D.E.W. Gunasekara had instructed the Auditor General to submit a report about this violation of the tax law while other public and private sector employees earning more than Rs.300,000 a year or Rs.25,000 a month had their pay payee tax deducted from their monthly salary.
“The state banks have adopted another policy following a collective agreement signed between the powerful Ceylon Bank Employees Union (CBEU) and the state bank managements. One leading state bank has paid Rs.2,114 million as payee tax which had to be paid by its employees in 1997/ 98 alone,” the source said.
He said the legal departments of the state banks and the Finance Ministry came under COPE scrutiny as they apparently allowed the state banks to violate the tax law and the Inland Revenue Act without taking action to prevent such action.
“On the one hand the banks have shown the payments as expenditure which has contributed to decrease the annual profit diminishing the Treasury income. The action has also contributed to reduce the amount of taxes payable to the Treasury by paying out bank funds as payee tax of their employees,” the source said.
The source said the top management of the state banks may have kept silent as they are the ones who benefited most from this act as the monthly salary of many of the top management exceeded Rs.500,000.
The issue here is that this is against the tax policy and the tax law. The employee tax is meant to be paid by the employee but not by the employer. Secondly it violates the principle of equal treatment to tax payers as only the bank employees enjoy this unlawful privilege. In short, the signing of the collective agreement with the clause to pay the payee tax by the employer was a wrongful act.
The collective agreement between the CBEU and the Banking Management has been signed during the Chandrika Kumaratunga regime in 1997. The payment of payee tax by the state banks continues to date.
The source pointed out that COPE was attempting to calculate the full amount of money paid by the state banks on behalf of their employees as payee tax. He speculated it would be more than Rs.20 billion during the past 13 years.
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