How Unfair Tax Policies Impact the Morale of Private Sector Workers



 Introduction

A country’s tax policy is crucial for its economic goals. It directly affects the economy. A country’s tax revenue comes from two sources: direct taxes and indirect taxes. Taxes on individuals' income are direct taxes. When collecting these taxes, it must be fair to both the country and the taxpayers. Currently, a large part of this direct tax revenue comes from people working in the private sector. Therefore, having a favorable tax policy for them is essential. The current absence of supportive tax policies for private sector employees creates challenges for Human Resources Management in Sri Lanka.

Discussion

According to the current tax policy, anyone earning more than Sri Lankan Rupees One Hundred Fifty Thousand a month must pay income tax. Private sector employees face challenges because they have to pay a large part of their income to the government as taxes.

The personal relief that can be deducted when calculating the taxable income of an individual, whether they are a resident in Sri Lanka or a citizen who is a non-resident, has been raised to Rs. 1,800,000 for any year of assessment starting from Y/A 2025/2026 (PN/IT/2025-01 Notice to the Taxpayers Amendments to the Inland Revenue Act, No. 24 of 2017., 2025).

Impact on the employees

 1. Decrease in monthly wages of employees - After a significant part of the monthly salary is deducted for taxes, the remaining amount is used for day-to-day expenses.

2. Higher cost of living - Their cost of living has gone up because their income has not increased in line with their expenses.

3. Reduced job satisfaction - Boredom at work comes from unfair tax burdens.

4. Reduced productivity.

5. Increasing brain drain.

Nearly every objection to the higher tax is coupled with an implicit warning that elevated tax rates could hasten the exodus of skilled workers from the nation, leading to severe repercussions as a result (Goonewardena N., 2023).

Organizational challenges

1. Recruitment challenges - Higher income taxes make it hard to find skilled professionals. Companies need to offer better salary packages to attract these workers.

 2. Retention problems - Unfair tax policies lead to skilled workers leaving and employees changing jobs. This increases turnover costs and lowers productivity.

3. Lost organizational productivity - Unhappy workers have caused a decline in productivity levels.

Solutions

A country must have an income tax policy that supports its development goals. However, the following suggestions can help ease the current high tax burden on private sector employees.

 

 

 

Government

Employers

Employees

Create more fair tax circulars. Set higher rates for higher-income earners. Provide lower rates or tax relief for low or middle-income earners.

Introduce non-tax allowances for employees, such as travel incentives, meal expenses, and medical incentives.

Improve Personal Tax awareness – understand deductions, avoid overpaying taxes

Expand the tax base by bringing the informal sector into the tax system. Focus on digitalization.

Provide training for employees on tax planning.

Diversify the income sources- Creating new sources of income beyond current jobs

Create transparency and trust about the tax system, the use of collected taxes, and progress on government projects.

Enhance retention strategies – career development programs, flexible work schedules.

Increase financial planning

Avoid sudden tax increases

 

 

 

Tax morale signifies the inner drive that individuals and businesses have to adhere to tax regulations, extending beyond the fear of audits or penalties. At its core, tax morale depends on the trust individuals hold in the Government. Although it is influenced by a sense of fairness, transparency, and civic duty, the trust that citizens have in the Government is the most significant factor affecting their voluntary compliance with tax laws (Ziyard R., 2025).


Conclusion

In conclusion, unfair tax policy brings significant challenges to the private sector employees, organizations, and finally the economy of the country. Today, in the private sector, employees do not agree with the burden of taxes due to the loss of their quality of life. When workers are required to give up a large portion of their income as taxes, their morale level declines. This leads to reduced job satisfaction, lower productivity, and increased stress. Finally, they are leaving their jobs to find alternatives, such as migrations. To overcome these issues, the government, employers, and employees need to work together.

 

References

Goonewardena, N. (2023) ‘Income Tax, Professionals and Migration’, Island, 22 January. Available at: https://island.lk/income-tax-professionals-and-migration/ (Accessed: 22 November 2025).

Inland Revenue Department of Sri Lanka (2025) PN/IT/2025-01 — Notice to the Taxpayers: Amendments to the Inland Revenue Act, No. 24 of 2017, 26 March. Available at: https://www.ird.gov.lk/ta/Lists/Latest%20News%20and%20Notices/Attachments/663/PN_IT_2025-01_26032025_T.pdf (Accessed: 22 November 2025).

Ziyard, R. (2025) ‘Enhancing tax morale in Sri Lanka: Path to sustainable compliance’, Daily FT, 16 October. Available at: https://www.ft.lk/columns/Enhancing-tax-morale-in-Sri-Lanka--Path-to-sustainable-compliance/4-783046 (Accessed: 22 November 2025).

 

Comments

  1. GihaniNovember 22, 2025 at 6:10 AM

    The article gives a good overview of the problems caused by unfair tax policies. It explains how employees, companies, and the whole economy are affected. The solutions are easy to understand and show how everyone can work together to improve the situation.

    ReplyDelete
    Replies
    1. Harshani WeerakoonNovember 23, 2025 at 8:46 AM

      Thank you very much for your valuable comment, and I also wanted to give a clear explanation about the unfair tax policies in Sri Lanka

      Delete
  2. Rukshan HewamallikageNovember 22, 2025 at 6:43 AM

    As someone working in hospitality, I see firsthand how unfair tax policies weigh on the private sector. In hotels, our staff are the backbone of service quality, yet many feel demoralized when a large portion of their hard‑earned salaries disappears into taxes without visible returns. It’s not just about numbers—it’s about dignity. When employees struggle to balance rising living costs with reduced take‑home pay, their motivation and pride in their work suffer. This directly affects guest experience, organizational morale, and ultimately the reputation of our industry. For us in hospitality, retaining skilled staff is already a challenge. If tax burdens continue to push people toward migration, we risk losing not only talent but also the warmth and human connection that define Sri Lankan service. What workers want is fairness and transparency: to feel that their sacrifices contribute to something meaningful. A more balanced tax approach would restore trust, uplift morale, and help us build a stronger, more sustainable private sector

    ReplyDelete
    Replies
    1. Harshani WeerakoonNovember 23, 2025 at 8:44 AM

      The hospitality sector relies on passion, warmth, and human connection. It's inspiring to hear someone support the dignity and well-being of its workers. Your call for fairness and transparency is not just reasonable; it’s essential. A fair tax system that acknowledges the efforts of dedicated staff would improve morale and help sustain the excellent service culture that Sri Lanka is known for.

      Delete
  3. Dilmini WanigasekaraNovember 22, 2025 at 7:04 AM

    Good Post! A fair and supportive tax policy is crucial not just for government revenue but also for employee motivation and retention. In Sri Lanka, not only private sector government sector employees often bear a heavier burden, and addressing this could improve productivity and overall economic growth.

    ReplyDelete
  4. niroshaniNovember 22, 2025 at 9:27 AM

    This blog explains how unfair tax policies affect private sector employees and organizations in Sri Lanka, and further uses of tables or graphs can help to clearly understand the impact of taxes.

    ReplyDelete
  5. Chamil Indrajith MuthukudaNovember 22, 2025 at 4:36 PM

    Changing tax policies is a factor that directly affects the development of the country. And a major challenge to the development of the country.
    A substantive and timely topic that reflects the injustice caused to the people by the tax policy of a country.
    Your efforts regarding the analysis given about the decline in employee morale are successful.

    ReplyDelete
  6. Nilanka HerathNovember 22, 2025 at 9:16 PM

    This blog provides a concise and insightful analysis of how unfair tax policies directly impact private sector employees and organizations in Sri Lanka. You’ve clearly explained the effects on morale, productivity, and retention, while also offering practical solutions for government, employers, and individuals. A timely and well-balanced discussion on an issue that affects many.

    ReplyDelete
  7. CHARUNDYA WICKRAMASINGHENovember 23, 2025 at 8:54 AM

    You’ve highlighted a very real and pressing issue. Unfair tax policies do not just affect individual employees—they create a ripple effect across organizations and ultimately the entire economy. When private sector employees feel that a large portion of their income is taken away, it directly impacts their quality of life, morale, and overall motivation.

    ReplyDelete

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