By Mandana Ismail Abeywickrema

Relief to the masses who are shouldering an unbearable cost of living seems to be a long way off with the administration resorting to imposing taxes over taxes to fill state coffers that are being depleted due to excessive expenditure.

The government has burdened the people — both rich and poor — with high taxes, which seem to have now become the main source of revenue for a government fast running out of international funding.

According to analysts, 95% of the government’s revenue is being collected through taxes.

"Of the Rs.102 billion earned as revenue in the first few months, Rs.97 billion has been earned through taxes. This is a government that even collects taxes from beggars on the streets," analysts said.

According to the Mid Year Fiscal Report for 2008 released recently, the revenue generated by the government between January and May this year has increased to 5.9% as a percentage of GDP while tax revenue was 5.4%.

The report states that the revenue generated through taxes has seen a sharp increase. Revenue collected through taxes that amounted to Rs. 153,945 million between January and April in 2007 has increased to Rs. 187,584 million during the same period this year recording an increase of Rs. 33,639 million.

According to the report, the total revenue generated by the government between the period January and May this year, stands at Rs. 261.4 billion, which is a 23% increase of the revenue generated during the same period last year. The additional revenue collected between the two periods amounted to Rs. 49 billion.

It has been regularly highlighted that the government’s excessive spending has dried up the state coffers leaving the government cash strapped with few or almost no funding alternatives to remedy the situation without pushing the country’s already high inflation even further.

Analysts have warned that it was just a matter of time before the government had to face the cash crisis head on as the problem has been simmering since the beginning of the year.

According to Economist, Dr. Harsha de Silva the crisis has already begun.

He explains that when the government earns a revenue of Rs. 750 billion, of which, Rs. 580 billion is paid as loans and interest payments, the state is left only with Rs. 170 billion.

The allocation for defence expenditure for the year also stands at Rs. 170 billion, which leaves the government grappling for funds to meet other expenses including salaries of the public sector employees (excluding members of the armed forces and police) and other welfare payments.

Dr. de Silva pointed out that excluding the members of the armed forces; the government faced a crisis in meeting the salaries of the remaining public sector work force.

The only options left for the government would be to borrow money or to print money; both actions would definitely drive inflation over the roof.

Realising that these were no longer options to resort to, the government has resorted to the next step — taxing the people.

With anything and everything already taxed to the hilt, the latest has been an Environment Conservation Levy (ECL) on several items that came into effect from August 1.

President Mahinda Rajapakse has imposed the levy in his capacity as Minister of Finance and Planning by special Gazette Notification No.1599/10 of July 22, 2008.

As a consequence motorcycles will be charged Rs.100 and petrol driven motor cars will be charged anything from Rs 200-Rs.500 and diesel cars will be charged between Rs 300-Rs 800, annually.

Electricity bulbs exceeding 40 watts will be charged Rs.3 each except compact fluorescent lamps.

Cellular phones, already heavily taxed, will be charged a further 2% on the value of service each month, with effect from August 15.

According to statistics, Sri Lanka has over 10 million mobile phone users with their average monthly bills amounting to around five dollars.

Therefore, if the monthly phone bill of each user is considered to be around Rs. 535, the new levy will bring in Rs. 107,000,000 per month to the state.

This makes the annual total around Rs. 1,284,000,000.

Mobile phone users already pay a 10% levy on their monthly bill to the government.

In addition Rs. 50,000 per annum in respect of each television, broadcasting and telephone tower is to be charged from August 1. In addition each transmitting tower used by a single user is to be charged Rs. 25,000 per annum. The Telecommunications Regulatory Commission has been charged with the responsibility of collecting this new levy.

The government has stated that the new Environment Conservation Levy to be introduced from August 15 is estimated to bring in a revenue of Rs. 500 to 800 million a year.

Central Environment Authority (CEA) Chairman, Udaya Gammanpila has said, "The motive of this levy is not to put more burdens on the consumer but to change their behavioral pattern when it comes to environmental awareness, whereby the levy itself taxes the polluter."

He has also stated that the Environment Ministry and the CEA cannot depend solely on the Treasury to fund their projects.

Gammanpila has further noted that he was hoping to use the money collected to set up recycling plants and collection of recycling material in the future.

"However, first we have to recognise consumer responses in order to assess exactly how much we can earn and how we could execute it in order to better the environment," he has said.

He has added that millions of mobile phones were disposed of each year without realising that their batteries were harmful to the environment.

"Furthermore, certain harmful chemicals are within CFL bulbs as well, so by taxing bulbs above 40W, we intend to encourage the recycling of CFL bulbs along with their use," Gammanpila has also said.

With electricity charges already being among the highest in the Asian region, the poorer sections of electricity consumers struggling to pay their bills leave alone buying the costly CFL bulbs, are now being told to pay Rs. 3 more by way of tax for an ordinary bulb with the new tax. That the regime is insensitive to the poorer sections is amply illustrated by the imposition of this new tax along with the host of other ‘environmental’ taxes.

While the government on the one hand is into imposing taxes to collect funds to fill the state coffers, it has now been revealed that only a part of cess collected from certain sectors since 2002 has been given to the relevant ministries.

Parliament was recently informed that cess collected from key sectors since 2002 until 2007 has only partially been accounted for by the relevant ministries.

This fact was revealed in parliament by the Chief Government Whip Dinesh Gunawardena in response to an oral question raised by UNP Parliamentarian Ravi Karunanayake.

Records show that 20% of the total amount of cess has been collected from the tourism sector while a further 20% has been collected from the tea industry. Seven percent has been collected from the coconut industry and 16% from the rubber industry while 28% had come from the levy imposed under the Export Development Act.

Karunanayake during the response to his question has charged that not sending the cess collected to the respective ministries amounted to fraud, to which Gunawardena has responded that no fraud has been committed as the funds were sent to the ministries according to the needs of those ministries.

Karunanayake had then said that the tourism industry had collapsed and that most of the hotels were in debt. Gunawardena had countered Karunanayake’s argument by stating that the tourism industry had suffered set backs from time to time but had bounced back each time.

UNP Parliamentarian Lakshman Kiriella who had joined in the argument has stated that since funds collected from the plantation sector have not been used for the sector, it could be used to provide the fertiliser subsidy.

It has now been reported that out of a total Rs. 15.1 billion which had been collected as cess from tourism, tea, rubber, coconut together with the levy collected under the Export Development Act from the year 2002 to 2007, only Rs 8 billion had been sent to the relevant ministries. What happened to the rest is yet to be explained. What is unfathomable is that with billions being unaccounted for, more taxes are being heaped on a public that is finding even bare survival a Herculean task leave alone paying environmental taxes.

It is therefore clear that bad economic policies coupled with mismanagement of public funds have led to the present crisis situation.