Politics

Taxes to go up as cost of war takes its toll

The year started with the government riding high on military gains and of course the LTTE faced with a superior conventional army thrusting forward shrunk to a limited space taking with them a large civilian population.

The army’s thrust has now reached a crucial phase having cornered the Tigers to the no fire zone and the final foray has to take into account the fate of the thousands of civilians  who are bound to be caught in the cross fire. The restraint shown by the army is both due to the certainty of civilian casualties and the mounting pressure from the international community for a ceasefire.

The international community for its part has been critical of both the government and the LTTE in this regard. President Rajapakse’s recent announcement calling on the LTTE leader to surrender has to be taken in this backdrop.

Be that as it may the government was on overdrive last week to face the global recession the full impact of which is now weighing on the country’s finances. The economic pundits in the Finance Ministry have been burning the midnight oil looking at additional taxes as a means of mitigating the impending cash crunch.

Road show a flop

The first road show complete with all the bells and whistles to lure in foreign exchange through the Sri Lankan expatriate community which to boot was marketed as a ‘patriotic fund,’ fell woefully short of the targeted figure of US $ 600 million with only a fraction of it trickling in. Despite the lukewarm response the pundits in the Ministry are planning a second trip of a similar nature and this time to countries such as Malaysia and those in the Gulf. Desperate times it seems call for desperate measures.

When the economy is in trouble it is the tax payer who eventually picks up the tab. The UPFA government in this instance too turned to taxing the public in an indirect manner to boost rupee earnings to bridge the widening deficits in government spending. The Nation Building Tax is to be increased to 3% from 1%. Another bill introduced in parliament envisages the writing off of taxes in default of government entities.

This includes corporations, GOBUs, GOBUs turned into corporations under Sec. 2 of the Conversion of GOBUs (Act No. 22 of 1987), ministries, government departments, Co-op Societies and Co-op Rural Banks. This is a scary piece of legislation. It envisages the writing off after ‘review by the Commissioner General of Inland Revenue.’

‘Taxes in default’ suggests that these are taxes that have been accumulated  by these government departments but not remitted to the Inland Revenue Department. So the public has already paid but due to various reasons, mainly inefficiency of these entities, they are unable to pay these dues.

Erosion of trust

The UNP government in 2002 introduced a tax amnesty but President Chandrika Kumaratunga withdrew this bill and allowed the Department of Inland Revenue to lose out on the declared files which led to a severe erosion of trust with regard to future government proclamations by the tax paying public. Entities like the troubled CEB and Mihin Air could very well seek refuge under this umbrella and pile up further tax defaults.

Last week’s debate in parliament not surprisingly focused on the state of health of the Treasury. It was left to Dr. Sarath Amunugama to defend a weak case given his government’s aversion to borrow from traditional low cost sources and thereby incurring greater costs, in its early days. So now it is back to the IMF.

Amunugama seemed to lose his cool when UNP MP Ravi Karunanayake kept up the heat by repeatedly questioning the balances in regard to foreign debt and the need to burden the masses with additional taxes. His outburst was out of character with his usually calm disposition. MP Karunanayake wanted to know the amount of loans taken, the due dates, the status of the now withdrawn Gazette on public servants, whether the IMF has imposed prior conditions and if so whether that was the reasoning behind the Gazette.

Argument

Dr. Amunugama skirted around all these but lost it when Karunanayake asked why the President stopped salary increases of government servants through a Gazette notification.

The US $ 200 million equivalent currency swap between Sri Lanka and Malaysia falls due next month. Taking that into consideration and given that it is most likely that the IMF first tranche would be around June this year (around US $ 400 million), the foreign reserves to serve imports would take a further beating in the short term.

Recall that the government is still in arbitration with Citi Bank and Deutsche Bank over the infamous oil hedging deal. If the ruling goes in favour of the two banks, which seems a most likely scenario, the consequences would be dire for the government. The country’s solvency margings would plummet. Firefighting to get over each financial obstacle would be at the cost of well planned, long term gains for the nation. 

The buzz in political circles last week was the discussion between Norwegian Minister Erik Solheim and K. Pathmanathan alias ‘KP,’ the LTTE’s chief international procurer and now head of international affairs. Eyebrows were raised as to who arranged it, how was it done and the political purpose of this exercise.

It must be noted that there was no furor created over this issue in the government controlled press or the electronic media. Why? The NFF was muted if not silent. So were the JHU and pro war lobby. Juxtapose this if it happened when a UNP controlled government was in power? Elementary Watson, elementary. It was some arm of the government or someone close to the powers that be who arranged this, though this column doubts whether the military establishment was made aware of this manouvre.

Silent

The Norwegian Ambassador Tore Hattrem, the person widely believed to have been used to broker this, was pictured in the government press a couple of days subsequently, seated besides President Rajapakse in animated conversation. No furor again.

Meanwhile the Western Provincial Council election campaign entered its final phase. For the ruling UPFA candidates it is a matter of ‘preferences’ with the party confident of victory whilst the perceived front runners are vying for pole position to push President Rajapakse to appoint him/her as chief minister.

The feeling amongst the UPFA candidates, though with some justification, is that the war victories are sufficient to win this council as well with ease. For the UNP it is a case of winning Colombo city which they have held consistently. The city’s majority consists of the minority communities and whether the SLMC going it alone will split the UNP vote is yet to be seen.

The UNP candidates counting several Muslims amongst them feel otherwise. Once again an election related killing was reported last week. A JVP cadre, Gallage was shot dead proving that killing is now ingrained in this so called “thrice blessed” land.

Challenge

In heavy weight boxing it is the title holder who picks the challenger. Ranil Wickremesinghe on Thursday (9) surprised title holder Mahinda Rajapakse by challenging him to a debate. Irked by the constant barrage in the state media and in parliament that the LTTE was made stronger militarily during the ceasefire period, Wickremesinghe threw the gauntlet. With the civilians taking a beating in the final phase of the war President  Rajapakse is being pilloried by the international community hence he will duck this issue. Wickremesinghe has though scored some mandatory points with this. Last week this column stated that MP Lakshman Seneviratne pointed to Irwin Weerakkody and Bodhi Ranasinghe as those involved in selling the UNP press. It has now been revealed that the two mentioned above had nothing to do with it butit was businessman Noel Selvanayagam who handled it.

Meanwhile the lawlessness in the country continues unabated with the likes of Labour Minister Mervyn Silva having a field day creating one controversy after another. Why President Rajapakse continues to protect such politicians has baffled law abiding citizens, leading to the rumour mill working overtime. Perhaps the ‘wild’ rumours are indeed factual in the absence of positive action by the President.

Whilst the investigation into the killing of the Editor in Chief of this newspaper draws towards an inevitable blank, the international community has stood up and recognised his contribution to the profession. Adding to a growing list of pothumous awards UNESCO was to last week award the World Press Freedom Prize to Lasantha Wickrematunge. Who is Lasantha, a top government official was to ask in an interview recently? Well the rest of the world seems to know.