At an evening meeting in the presence of 30-40 people, economist Nishan de Mel captured the attention of the audience with a, one would call it, “wholesome talk’ on policy-making in the new regime, the relationship between the President and the Prime Minister, and the proposed Right to Information (RTI) law.  One statement stood out [...]

The Sunday Times Sri Lanka

Working in Harmony


At an evening meeting in the presence of 30-40 people, economist Nishan de Mel captured the attention of the audience with a, one would call it, “wholesome talk’ on policy-making in the new regime, the relationship between the President and the Prime Minister, and the proposed Right to Information (RTI) law.  One statement stood out clearly in his 30-minute discourse at the monthly meeting of the Sunday Times Business Club at the Kingsbury Hotel: That the public service will continue to be bureaucratic, inefficient and inept even if changes in government brings forth competent and able administrators. Improving the efficiency of the public service is more important that changing heads – even the best of the best – at the top, was his point. And to illustrate this, he related a real-life Indian story of how a woman had applied for a job in a local government institution and didn’t get even an acknowledgment for months. She continued to write seeking an answer to no avail. Then citing provisions of the Indian RTI, she demanded an answer or vowed to file action. Within days, she received a letter of appointment!

The moral of the story is that if public officials are not held accountable, appointing the most efficient administrators to run a system that is ingrained in a culture of bureaucracy, corruption and inefficiencies won’t work.  Referring to the need for both the President and the Prime Minister to work in harmony, he said under the 19th amendment the prime minister recommends the names to a cabinet which the president then appoints. The president’s power lies in authority to change portfolios. So they have to work together and cannot act alone, if the system is to work. Citing this as “the importance of horizontal negotiations”, De Mel said: “The president and the prime minister must agree on policy or there would be instability, uncertainty and (major) reversals.”  While so far the relationship between the country’s two leaders have held sway or appears to be, the same cannot be said about the prime minister and the finance minister.

Rapid changes are being made in ministry decisions to the extent that if one looks at the 2016 budget and its changes the public is unsure whether the finance minister is ‘coming or going’. This is another example of the inconsistent policy making that is taking place. Maybe the changes are essential but the message that investors are getting is that whenever a policy is announced there are likely to be changes.  Such developments have been well documented in Business Times editorials over and over coupled with the concern that that no foreign investor will look at Sri Lanka (despite all what the politicians say at investment seminars, public platforms, etc) in a positive light – not due to the politics but the inconsistencies.  In the meantime the economy, however much government authorities and the Central Bank (CB) governor would beg to differ, is in dire straits. This is due to huge unpaid bills spilling over from the former regime.

The present government has to share some of the blame with high spenders like the Rs. 10,000 wage increase to the public sector (which saw many clamour for new cars rather that invest productively as the government expected which has added to the debt, in the absence of sufficient tax revenue.  Foreigners have been selling bonds with US$1billion in official foreign reserves going out in just three months ending February, while this week the CB said it was seeking to raise $3 billion in bonds. On another sticky wicket, the dollar hit the Rs 150 per $ level with some estimates saying it would reach Rs. 160 in the next six months. A galloping dollar is inevitable given the haphazard dollar management by the past regime and will make essential imported goods costlier to the consumer.  Then again, some of these economic issues pale into insignificance given the events that have been unfolding over the past few months (read: inconsistencies).

There has been uncertainty in the private sector over VAT, Capital Gains Tax and other revenue collection measures announced in the November budget given the ‘stop-go-stop’ approach in decision-making.  Only a few circulars were issued by the Treasury to the Inland Revenue Department (IRD) giving effect to budget proposals. Even the ones that were issued were either held in suspense in implementation or reversed.  Example 1: A Treasury circular directing the CB to instruct finance companies to offer a 15 per cent interest rate on deposits of Rs.1.5 million to senior citizens, appears to have disappeared. That is the only interpretation that can be given considering that one CB official confirmed they had received the instructions but the next week was contracted by another official that no such circular has been issued.

Example 2: On Monday, March 28, the IRD Commissioner issues a 2-page circular (a copy of which is on the Sunday Times website titled “Income Tax – Implementation of the Proposals on Income Tax Revision of Proposals made to the Amendment of the Inland Revenue Act No. 10 of 2006, by Budget 2016”. It is widely circulated among corporate lawyers, audit firms and tax consultants who rush to prepare documents. By Wednesday, it is in the hands of many – sent on Facebook, email and other means of communication. It is also on the IRD website. On Wednesday evening a decision is made by a higher authority to withdraw the circular. On Thursday it is removed from the website.  In another development, on Wednesday evening, the Registrar of Companies (RC) gets a letter from the Deputy Secretary to the Treasury – just a day before the unsure deadline – that the effective date of budget proposals pertaining to increased annual fees and fees for winding up has been postponed till June 31.

This begs the question as whether this letter has any legal validity as far as the public is aware. For instance how can a non-existence proposal be validated by a letter? All budget proposals are given legal status by either a gazette notification, IRD circular or Treasury circular. In this case the RC as of two weeks ago was yet to get clear instructions, and many people have crowded the RC office trying to either file a new registration or close one in anticipation that the budget proposals would be effective from April 1.  Apart from investors, companies and professionals, citizens of this country also need to plan ahead and cannot do so with such uncertainty on policies.  In this context and the so-far reasonable relationship between the president and the prime minister being an example, the government must work in harmony with the people not against it.

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