An open Forum on “Taxes in Sri Lanka – Value for Money?” organized by Friedrich Ebert Stiftung (FES) in Colombo this week ran into some embarrassment when a part of the audience expressed the view that the exercise was totally futile and a mere waste of time as issues of this nature that are discussed must be addressed to the policy makers and there were none to do so. The available few, it was noted, were evading the crucial issues.
There were four panelists: Prof W.D. Lakshman, Chairman, Presidential Commission of Taxation; Dr Rohan Fernando, Executive Director, Aitken Spence PLC; N R Gajendran, Senior Partner, Gajima and Co and K D J Christopher, President, Workers Organization for Tax Relief. Ms Anita Dias Bandaranaike, Retired Assistant Governor, Central Bank acted as the moderator.
It all began when Prof Lakshman left the forum when the open discussion commenced, although he gave prior notice at the outset that he would be leaving the forum early. During the 10 minutes allotted to him, he apparently had not adequately contributed to the topic. Some of the members of the audience indicated that the forum and the discussions were an utter waste of time, money and energy as no one took cognizance of the vital issues that were enumerated.
Prof Lakshman said that he was present at the forum as a private citizen while a tax officer from the Inland Revenue Department who was in the audience also said that he was present in his private capacity and do not represent the department.
A number of members in the audience pointed out that policy makers must consult the people on matters concerning the people and taxation is a major issue concerning people.
Mr Gajendran in answer to a query doubted whether the tax payer gets value for money and said that people should know what happens to their tax money. There is nothing that can be shown as to what is done with the taxpayer’s money and if at all they have to show – it’s for the ministers and other politicians who swallow chunks of public funds.
At the outset Joachim Schluetter, Resident Representative, FES Sri Lanka making an introduction to the forum said that only 8% of the 8 million people working in Sri Lanka pay personal income tax and thus personal and corporate income tax accounts for only 19% of the state revenue. He said that there were indications that many more individuals and businesses should be liable for income tax.
He said that although the government policy is to reduce the consumption of alcohol and tobacco, it cannot forgo the excise taxes provided by these sectors that contribute 14% to revenue.
He pointed out that even with some tax rates as high as 35%, taxes could not even cover the government’s day-to-day expenses, as the size of government has expanded by moving deeper and deeper into debt, without rationalizing or reducing wasteful expenditure. In 2009, taxes provided Rs 619 billion of state revenue of 702 billion, whereas the government spent Rs 824 billion on servicing its debt.
Dr Fernando said that whether there is value for money that they pay, very few people and a few corporates pay taxes in this country posing a huge disadvantage for those who pay taxes and a huge advantage for those who do not pay taxes.
He said that he represented a public listed company and its affairs are conducted with due transparency. There are certain ethics, rules and regulations governing the payment of taxes. He said that all their activities are monitored and not only the company but also its employees have to pay taxes at every level.
He said that as a listed company they are at a huge disadvantage as they have to on the one hand pay all the scheduled taxes and on the other they lose their best employees to some of their competitors who are not paying taxes as they can offer their products at a lesser prices and hire employees at higher remuneration where a part of that would not be taxed. He said that some of these corporates and many individuals do not pay tax.
He said that government servants should also be taxed and noted; “I am sure it will augur well in this country, if there is an equitable tax structure for everybody”. He said that the government expects to double the per capita income in about five years’ time, but if these vital tax issues are not addressed, taxpayers would suffer immensely. He said that Sri Lanka should have a unified simple affordable and transparent tax system like in Singapore.
Mr Gajendran took a different stance and said that there are certain positive features in Sri Lanka’s tax system that are not found anywhere in the world. He said that there is no capital tax, wealth tax or gifts tax and if a person does not have an income tax file and if the person has an income of Rs 1 million, the tax people would not ask anything. But whether these principles are implemented or not is a different matter.
He said that there are philanthropists who spend very large sums of money on social welfare, but they are very reluctant to pay income tax as they know what happens to that income tax they would pay.
As the interim report of the Presidential Tax Commission was handed over in November, some of the members inquired from Prof Lakshman before he left whether any comments could be made, but Prof Lakshman declined.
Leslie Devendra, a trade unionist in the audience inquired that a certain Colombo District MP moves around with six Monteros (jeeps) and wanted to know how much tax that person is paying.
Hussain Hashim, Chairman, Malship (Cey) Ltd in the audience indicated that the entire system is corrupt from the top like government politicians. He said that these politicians do not realize what is happening in the country and do not take notice of the difficulties faced by the people, but they work according to their whims and fancies.
He said that taxing only the private sector is grossly unfair. There should be an equitable tax net and it should be applied to all the government servants and private sector equally.