A Tax Tale of Two Countries

    Jun 08, 2022 @ 07:15 PM / by Pat Jurgens

     

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    AIRINC Today at the Benivo Show: The View From The Top

    Today’s The View from the Top show update is a nod to Charles Dickens famous novel. We will be looking at how two countries have used tax policy in hugely different ways in response to economic challenges.  

    181.Frankfurt.Germany

    Tax Relief in Germany 

    The new German government agreed to several tax measures providing relief to taxpayers. These are intended to offset the high cost of energy due to the Ukraine war with Russia.

    The relief package includes:

    • 3-month temporary reduction in the energy tax on fuels,
    • Ending the levy on renewable energy
    • One-time ‘Energy Cost’ cash payment of EUR 300 payable to all working persons
    • EUR 100 child allowance payment in addition to the basic child benefit.
    • Discounted public transit passes for three months to encourage public transport.  

    Of interest to Global Mobility tax professionals, employees are now eligible for an increased standard allowance of EUR 1,200 and the tax-exempt amount has been increased to EUR 10,347. Tax rates are unchanged, with a top marginal rate approximately 47% (including the solidary surcharge but excluding church tax). Overall, the individual tax relief is not significant for most employees – probably about EUR 200 per year.  

    These individual tax changes are retroactively effective from January 1, 2022. Employers will want to implement these changes for payroll and hypothetical tax purposes as soon as possible.  

     

    144.Colombo.SriLanka

    Tax Hikes in Sri Lanka 

    The Sri Lanka government announced several tax proposals at the end of May to be implemented in the next few months. The country is experiencing an economic crisis with high inflation (reported May inflation was 40%) and the government defaulting on foreign debt. It needs to increase tax collections and is seeking a bailout from the International Monetary Fund (IMF). Numerous tax hikes are proposed, including increases in the corporate tax rate, Value Added Tax, a gaming levy, and a telecommunications levy. 

    Of interest to Global Mobility professionals, several tax changes are proposed that impact individuals and employees.  

    • The personal allowance will be reduced from LKR 3 million to LKR 1.8 million 
    • Tax rates and brackets will be revised, from the existing range of 6% to 18% replaced by the proposed range of 4% to 32%.  
    • Re-imposing mandatory Pay-As-You-Earn withholding tax on wages. PAYE requirements had been eliminated in 2020 as part of a tax cut program. This meant employees were expected to make provisional tax payments. Reverting to PAYE will help accelerate tax collections.  
    • If the proposals are implemented, the effective date will be October 1, 2022. The tax hikes come just a couple of years after tax cuts were implemented in 2020. Those tax cuts only worsened the government’s budget deficits.  
    • For inbound assignees to Sri Lanka, the increase in the top rate from 18% to 32% could be a large hit to mobility tax accruals. Employers will also want to ensure they are prepared for the mandatory PAYE withholdings from payroll.  

    The current economic situations in Germany and Sri Lanka are very different. Germany is making small changes to provide financial relief to their taxpayers. Sri Lanka has a much more dire situation that requires imposing a higher tax burden on their taxpayers to address their economic crisis.  

     

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    Topics: International Tax, Tax, International Tax Summaries, Assignment cost estimator, International Tax Guide, Benivo, Long-Term Assignment, Germany, Warsaw, Expatriates, Sri Lanka

    Pat Jurgens

    Written by Pat Jurgens

    Director, Global Tax Research and Consulting Pat joined AIRINC in 2006, and directs AIRINC’s research and statistical analyses of international tax policies and supervises the production of our hypothetical personal income tax products. He is responsible for the international income tax guide and tax calculator products at AIRINC and consults with clients on tax equalization policy matters. Pat has 32 years of experience in the area of expatriate taxation and global mobility consulting. Prior to joining AIRINC, he spent 18 years with PricewaterhouseCoopers’ International Assignment Services practice, providing tax compliance and consulting services to multinational companies and their assignee employees. He received his B.S. in Business Administration (Accounting) from the University of Colorado. Pat is a Certified Public Accountant and a member of the AICPA and MSCPA societies.