Tax rupees at work
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Several years ago signs sprang up in Colombo during road construction/pipeline laying work funded by a multilateral agency that read: “Your tax rupees at work.”They were meant to show people that the taxes paid by them were utilised ‘honourably’ by the state. But is that the real thing? Does the government use taxes frugally and for just causes? The simple answer is no, if you consider the level of corruption and mismanagement in a plethora of projects and tenders.
The Business Times had an apt caption to a picture last week showing a near empty roadside shop selling belts, saying that while the government wants people to tighten their belts in these dark days, buying a belt itself has become a costly commodity!
And this was what Ruwanputha, a young economist, alluded to during a Thursday morning conversation. The young man occasionally gives me a practical, easy-to-understand guide to economics, sifting through the maze of economic jargon.
“Looks like we have to further tighten our belts, going by President Ranil Wickremesinghe’s comments on television on Wednesday night. His position is that there are darker days for Sri Lankans and we have to face the inevitable music,” he said.
“Yes but we are already struggling – particularly the middle class. How much more can people survive in the current struggle,” I asked.
“Well there will be more bitter pills to swallow when the 2023 budget is presented in November. The President’s position is that Sri Lanka has little choice and the International Monetary Fund (IMF) bailout will help the country access other sources of funding. Increasing direct taxes is also an IMF remedy,” he said. After a long discussion on other economic issues, the conversation ended.
The latest round of taxes ensures that everyone who earns more than Rs. 1.2 million a year is taxed compared to Rs. 3 million earlier. Raising corporate taxes to 30 per cent, meanwhile, will have a ripple effect in the economy.
It also comes at a time when food inflation is 95 per cent, while average inflation was 70 per cent last month. This means that if you are earning Rs.100,000 a month, that value could have dropped almost by three times, making it just worth 30,000 rupees! So to make ends meet, people have to do two or three jobs, in a scenario where retaining your job itself is a struggle these days as more and more companies, particularly SMEs, bite the dust.
The problem with taxes is that it is ad hoc and there is no set pattern. Consider the drastic tax cuts in late 2019 by then President Gotabaya Rajapaksa. The government lost Rs. 600-700 billion in revenue and that dubious decision led to the economic crisis that the country is facing today. Take today’s decision: The taxes have been reversed to rake in that lost revenue but will it succeed when individuals and companies are struggling to survive? Wouldn’t a gradual tax hike softening the blow have been a better proposition? The tax hikes also reflect the lack of a national policy on taxation, a point raised in this column last week. Ad hoc taxation is bad for business.
According to current trends, taxation is based on 80 per cent indirect taxes like VAT etc., and 20 per cent direct (personal) tax. Indirect taxes are a burden on the poor and vulnerable groups as they pay the same taxes as the rich.
Sri Lanka for years has been trying to establish a system of 60 per cent indirect and 40 per cent direct taxes without any success. Such a move will cushion the blow on vulnerable groups particularly at a time when people are either starving or skipping meals.
Okay…..if the people are taxed, are these taxes used for the right purpose? How many state-owned enterprises (SOEs) are making huge losses swallowing precious tax money paid by the people?
Apart from these losses that governments, present and past, have been unable to prevent largely due to political considerations – SOEs being job creators for cronies of politicians – what about large-scale corruption, a situation that the IMF and the World Bank have repeatedly referred to?
Consider the mounting number of corrupt deals in the government using tax money – COVID-19 vaccines, fuel tenders and many, many more.
Last week the Business Times reported how the Auditor General’s Department has more than 200 audit reports on corruption but is unable to take action against the wrongdoers due to the absence of the National Audit Service Commission which doesn’t function anymore.
Sri Lanka lost billions of rupees from the Central Bank bond scam with the culprits still at large. That corrupt deal pales into insignificance when compared with the sugar scam a few years ago which deprived the government of tax revenue of Rs. 16.763 billion. Is this how our tax money is being used?
The Ceylon Chamber of Commerce last week said the Government should show greater restraint, accountability and transparency on government spending.
It said there is a widely-held perception that the tax revenue is not being utilised fully for the benefit of the people. This is a fact.
As I was winding up the column, my attention was drawn to the margosa tree conversation. “Petrol mila pahala bahinawa eth diesel mila adu koroth witharai ahara wala mila adu wenne (Petrol prices are coming down but only if diesel prices are reduced will food prices come down),” said Kussi Amma Sera.
“Paan piti wala mila adu wuna hinda, apita podi sahanayak hamba-wei (Maybe with flour prices reducing we would get some relief),” noted Serapina.
“Api ithin aanduwa gena dannawa-ne. Mae mila-ganan apahu ihala yanna ida thiyenawa (Knowing the government, these prices will go up again),” said a worried Mabel Rasthiyadu.
In an article below, Damien Fernando says government servants earning over Rs.100,000 should be taxed like everyone else.
He suggested that taxes should be innovative and focused on user-pay (paying for services) just like payment for passports and a higher fee for one-day issue and the toll on highways.
A small tax on education in an equitable way, tax on the use of other roads, increasing the property tax and a small tax on medical consultants which the user pays, among other innovative ways that ensure an equitable system of taxation, were his views.
Some may disagree with these proposals. However, the message is that the Government seriously needs to think out of the box in taxing the people.
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