It was the usual moan-and-groan conversation about the International Monetary Fund (IMF) and, this time, its ‘interference’ in tax matters that set the stage for this week’s discussion. Auditors, accountants and  tax advisors all appear to be in opposition over the new Tax Bill. For once, they are on the side of the Inland Revenue [...]

The Sunday Times Sri Lanka

“Gaana … gaana”


It was the usual moan-and-groan conversation about the International Monetary Fund (IMF) and, this time, its ‘interference’ in tax matters that set the stage for this week’s discussion.

Auditors, accountants and  tax advisors all appear to be in opposition over the new Tax Bill. For once, they are on the side of the Inland Revenue Department (IRD), which – so it seems – is lock, stock and barrel not in favour of the so-called IMF Tax Bill.

Still I thought to myself, this is not a big issue until I was jerked from a position of irreverence by Kussi Amma Sera’s singing in the kitchen.

“Gaana, gaana, gaana,” she sang while making the morning cup of tea for the household. “Mokakde gaana kiyanne?” I asked.

“Aye  Mahattayo, IMF Ghana bill ekek genawa, neda. Meyke ara Gaana …Gaana Hindi ad eka waagey,” KAS replied with a snort of disgust.

If KAS was discussing tax matters with her kitchen ‘poli-tiks’, then this must be a  bigger issue, I realised. Since last week’s Sunday Times editorial was also on this issue, I sought and obtained the Editor’s consent to discuss the issue, even though it would appear repetitive and flogging a ‘dead’ horse.

Furthermore, despite the brouhaha, the government seems determined to go ahead with the IMF proposals, sneaking it in – it appears now – as amendments rather than through an entirely new bill.

About to dig up more on the IMF and the proposed Tax Bill, I was jolted once again by the loud ringing of the home phone.

“Machan, I am just fed up with these tax people,” said a friend who runs a motor vehicle sales centre.

“Why,” I asked. “These tax fellows are snooping around almost every day checking whether I have paid the taxes or what my liability is. How can you do business with the tax man on your doorstep like this,” he said, adding that he was quitting the business also because, “there would be double and triple taxing in the new Tax Bill leading to double trouble for all of us”.

It appears that prior to strong opposition to the new bill – in fact at a meeting of a trade union from the IRD which was graced by President Maithripala Sirisena on Thursday, the union president said officers were unhappy with the bill – the IMF had pushed strongly for a new bill to improve collection, simplify the process and broadbase the tax base.

While the motives were fine and the objectives in line with local thinking, local experts were of the view that such changes can come through amendments and thus there was no reason for a new Act. They were also opposing the demarcation of the IRD into two departments – revenue and administration.

The IMF however, was flexing its muscles and last month’s postponement of, IMF Managing Director Christine Lagarde’s intended visit to Sri Lanka is believed to be linked to the dispute over the bill. The official version of the postponement was couched in diplomatic niceties, “… unfortunately, due to an unforeseen change in her schedule, she will not be able to visit the country at that time,” an IMF spokesperson was quoted as saying.

The proposed IMF-draft bill is chapter and verse similar to the tax laws it had proposed for Ghana. While Sri Lanka’s GDP per capita is US$3,279 (2013 figures), Ghana’s is only slightly over half that at $1,858. Then while Sri Lanka’s GDP is $67.18 billion, Ghana’s is $48.14 billion. So the question is:  Why foist tax laws on Sri Lanka which has a higher growth and standard of living than Ghana?

The tax debate was becoming infectious because the very next call was from my friendly economist ‘Athayrole’.

Athayrole: “So what do you think about the next Tax Bill?

I (FS): “I know a little bit from what is reported. But I must confess that I am as bemused as the public.”

Athayrole: “Do you know that there could be double and triple taxation of individuals?”

FS: “It cannot be. However for that matter aren’t we taxed twice even now – income taxes and indirect taxes through goods we consume? Even the beggar on the street pays a tax if he consumes taxable goods.”

Athayrole: “All kinds of things are happening. Sections 7 to 13 which deal with exemptions are to be removed. These exemptions are provided to international organisations like the UN and international NGOs and locally a host of organisations like the universities, Tea Board, Institute of Chartered Accountants, science and research organizations, Sri Lanka Tourism, the Monetary Board of the Central Bank, Board of Investment, etc, etc, etc.”

FS: “So shouldn’t that be a good thing? We are paying taxes while a select few are among the privileged to be exempt? Isn’t that unfair?”

Athayrole: “Wait and see. This is only the tip of the iceberg. All those tax-free agencies that deal with the public would now raise their fees, if fees are charged, and many things will flow once the exemptions are removed.”

FS: “I hear that these exemptions are being removed as a part of the policy of removing excessive tax incentives and ad-hoc concessions and that a new authority will provide such a concession on a case-by-case basis. Isn’t that a good thing?”

Athayrole: “What if the so-called authority is politically biased in approving incentives? Also you haven’t heard that any income in foreign exchange earned in Sri Lanka for providing services will also be taxed.

FS: Ah what ….?

At this point KAS butts in, shouting: “Mahattaya, accountantlata  business nathivey. Eka hinda viruddai,” before I slam the phone down, annoyed by the disruption.

No doubt, the Tax Department needs a kick up their “..tts” to ensure proper tax collection and taxing of the rich and wealthy while most middle class citizens are subject to PAYE and also are taxed on goods and services.

Even in this day and age of new technology, filing tax returns are complicated and there is a need for a more simplified system. Apart from that the red letter notices from the IRD scares the hell out of you, as it did to another colleague, already a taxpayer but who was served a letter from the IRD saying he had to pay taxes and that if he had a tax file, to inform the department!

As far as ordinary Sri Lankans are concerned, the tax system here is in a mess and most likely to become messier with the IMF prescriptions and formulae.

Furthermore, should Sri Lanka rely on IMF prescriptions for everything and in this case, taxes, when the country has some of the best tax experts in this region? Eventually as KAS says, we will be left singing ‘Gaana… gaana’, which is also an Indian ringtone.

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