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EPF pays Rs 5.4 bn in taxes
*Workers, employers want tax free EPF/ETF to fund UBIS

Worker and employer representatives in the National Labour Advisory Council (NLAC) want the government to exclude EPF and ETF schemes from the tax net which could release millions of rupees that can be channelled into a much needed unemployment benefit insurance scheme.

According to the Employment Provident Fund’s accounts, as at December 2008 Rs. 5.4 billion has been paid out as income tax.

The Unemployment Benefits Insurance Scheme (UBIF) is being prepared by a tripartite committee comprising representatives from the Ministry of Labour, worker unions and the Employers’ Federation of Ceylon.

The UBIF proposes to pay unemployed workers about 50 percent of their last drawn salary for about 24 months until employment is secured and plans to draw funds from the EPF and ETF schemes.

The representatives on the NLAC said they agree these funds should be used to kick-start the UBIS in order to assist workers who had lost their jobs due to the adverse affects of the global financial crisis; but only as a temporary measure.

"There is an immediate need for the UBIS, which was mooted several years ago, so we have agreed that the EPF and ETF should be used to fund the scheme initially. But the EPF and ETF are monies belonging to workers and therefore, in the long term, the employers should be the ones to fund this scheme," said T. M. R. Rasseedin, General Secretary of the National Association for Trade Union Research and Education.

"But, in the instance where employers find it difficult to fund the UBIS, as is the case at present due to the problems everybody is facing due to the global economic crisis, the government should step in to fund the scheme," Rasseedin who is also a member of the NLAC told the Island Financial Review.

Director General of the Employers’ Federation of Ceylon, Ravi Peiris, said employers are not in a position to fund the UBIS given the contributions already made to the EPF and ETF and ‘high’ termination compensations that they are liable to pay according to the Law.

"The UBIS is a very good scheme to have but the employers are not in a position to fund this. It would be better if the government could fund it," Peiris told the Island Financial Review.

"There are massive taxes on interest earned on EPF and ETF and if the government can exempt these from taxes, then you will have the funds available for the UBIS," he said.

Rasseedin said the EPF and ETF schemes used to be tax-free.

"Every government since the ‘80s have been taxing the interest earned on the EPF and ETF accounts perhaps it is time the government considers to discontinue this," Rasseedin said.

The EFC in a letter to the Labour Ministry said it was unreasonable to tax EPF accounts.

"At the Sub Committee Meeting of the NLAC held on Thursday 9th July, it was revealed that both the Employees Trust Fund and the Employees Provident Fund were subject to government taxes in respect of their income generated through investment and other sources," the EFC said the letter.

"Firstly, when one looks at the objective of both these funds and the purpose for which it has been established, it is surprising to note that the income of these funds should be liable to income tax. The representative of the Central Bank who was present at the meeting informed us that during the last year EPF paid income tax to the tune of Rs.470 million.

(However, as stated previously, the EPF website, income tax for 2008 amounted to well over 5 billion rupees-parenthesis added)

"Secondly, there are other reasons as to why taxation of these funds is not proper. One important reason is that some members who contribute to the fund are taxed in respect of their employment income through PAYE tax and also at the time of obtaining of monies from the fund (EPF), if it exceeds over Rs.2 million. Therefore, the basis of taxation on the face of it does not seem reasonable," the EFC said.

Another member of the NLAC, Anton Markus, Secretary General of the Free Trade Zone and General Services Employees’ Union, said the unions have agreed to allow the EPF and ETF fund the UBIS as a temporary measure and also to kick-start the scheme in the face of funding constraints.

"We suggest, however, that all employees be benefited by the UBIS and not be limited only to those with more than 180 days of work a year," Markus said.

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