VAT and the Budget

When President Mahinda Rajapaksa presents his second budget for 2007 on November 16, questions are still bound to remain unanswered about the results of the investigations on the VAT scam.

Some suspects are in custody while others are absconding but little is known about the progress of the probe. The ongoing investigation has not only slowed down the pace of work at the Inland Revenue Department (IRD) but also provided all kinds of excuses for delays in VAT refunds.

As our story on the previous page says cheques have been signed, recipients given even the cheque number to prove that the IRD is ready to make the refund. The Commissioner-General has acknowledged to a chamber delegation that Rs 1.5 billion has been finalized for repayment but that the Treasury is not releasing the funds. But separately he says he has received the money from the Treasury and the refunds would be doled out. Which version should we believe?

If there is no money, the assumption is that the Treasury is cash strapped but this cannot be given that according to the Treasury Secretary revenue collections are more than on target. Then what is the problem; is it that Dr. P.B. Jayasundera doesn’t want to release the funds worried that corruption still exists or is it that he would prefer to release the funds after the investigation is over?

These are questions not asked by The Sunday Times FT but by the business community who is paying massive interest on borrowings to make up for the delays in the refunds. Hayleys alone has taken an Rs 65 million hit in its profits owing to interest payment on borrowings because the government owes them Rs 500 million in refunds.

Big business firms are somehow borrowing and managing. What about the smaller firms? Ironically Singer Chairman, Hemaka Amarasuriya says they are still awaiting refunds of the former defence levy … so much for the efficiency of the IRD or is it a department in a state of chaos?

Rajapaksa is expected to paint a rosy picture about the economy (ably guided by Jayasundera) and its progress despite the war. But figures and the ground situation show a totally different picture. For example the ‘excellent’ growth momentum doesn’t show up in the living standards of the average people.

Prices have skyrocketed. Former Finance Minister in the 1970s, Dr N.M. Perera’s gazette budgets are very much a part of our economy now. Most products are raised through gazettes like the 1000-plus items a few weeks back. This helps the government not to raise prices through the actual budget other than the usual taxes on cigarette and alcohol which are also increased outside the budget.

The budget generally gives direction on policy and infrastructure is said to be one of the key points in the 2007 policy with the intention of spurring growth and investment.

But questions abound over the government’s inability to be transparent, accountable and disciplined – particular in the number of ministries, cabinet positions and spending. And no one cares. With the UNP-SLFP MoU, more cabinet positions are in the making adding probably another inevitable first to our lists of achievements in the world – the largest cabinet in per capita terms! Spending – not only on defence – is sharply rising while inaction on the part of the government in tackling human rights issues, political victimisation like in the case of two senior government officials in the tea sector both of whom have been publicly recognized as honest and competent question the state’s ability to be honest and disciplined.

There would – as usual – be the hurrah boys from the business community to pay pooja to the budget after its presentation. On the other hand, issues about law and order, human rights, high costs of production would still remain issues unresolved.