A Treasury plan unveiled this week on the collection of all taxes accruing to local authorities is a source of concern. According to the plan unveiled by Treasury Secretary Dr P.B. Jayasundera, all local authorities are to channel its annual tax collections to the Treasury or Consolidated Fund, a pooled resource which is shared for [...]

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The Sundaytimes Sri Lanka

Treasury takes it all

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A Treasury plan unveiled this week on the collection of all taxes accruing to local authorities is a source of concern. According to the plan unveiled by Treasury Secretary Dr P.B. Jayasundera, all local authorities are to channel its annual tax collections to the Treasury or Consolidated Fund, a pooled resource which is shared for all government spending. Local authorities such as municipal councils, urban councils or pradeshiya sabhas receive most of their revenue from rates (taxes) on property.

There are some 330 local authorities made up 18 municipal councils, 42 urban councils and 270 pradeshya sabhas (town and village councils) which provide a range of public services like primary healthcare, public thoroughfare, community development and utility services like garbage collection, etc. Whether they provide all these services or some of it, and efficiently mind you, is a big question. All of us have problems with our local authority. Local authorities receive funding from the central government (Treasury/Ministry of Finance) for current expenditure mainly salaries, while everything else has to be obtained from tax revenue.

However the Treasury is of the view that this tax revenue is not properly utilized and hence wants to be the decision-maker in allocation of funds for use by local authorities. Thus once this tax revenue comes into the general coffers (consolidated fund), the Treasury will allocate what it believes is sufficient for each council to avoid over-spending or misuse. Some councils, as the case may be, are likely to lose out. For example council A which has a larger tax collection than council B, could get less (than its total collection) from the Treasury while the second council may get more than what it normally collects, based on the Treasury decision. However this is not the main issue; the problem lies in the Treasury/government being strapped for funds and desperately looking around for sources as spending skyrockets, revenue falls short of target and there are few new sources to tap. In this context, tax revenue from local authorities appears to be a good cash cow for the government to dip into. Estimated expenditure in the 2013 budget to be presented in parliament next month is Rs 2.5 trillion while revenue is estimated at Rs 2.0 trillion. Spending is rising with demands from all sectors – education, health, etc – and pressure on wages by university teachers, secondary teachers and state sector workers.

Revenue collections this year have been below 2012 targets and may even not reach the revised targets. Thus with all these funding issues, the tax pie from local authorities seems to be a natural grab for the Treasury, though how the Councils with a sizable opposition will react to this ‘usurping’ of its funds, is anybody’s guess. Some years back the Treasury ordered the tourism cess, collected by Sri Lanka Tourism essentially for tourist promotion work, to be deposited in the consolidated fund. Problems arose with the trade complaining that the government was using funds especially collected for promotion, for other purposes. The debate goes on and the end result is that Sri Lankan Tourism hasn’t had a single serious promotional campaign since the war ended. The same situation could apply to the Treasury collection of local taxes from local authorities where the lion’s share is retained by the government while a percentage of a local authority’s tax collection is received for its recurrent and capital spending – just like what Sri Lanka Tourism is facing. On the more positive side, the Treasury has also asked local authorities to review their assessment rates of which the computation appears to be archaic. The rates on property (assessment rates) that people pay to local councils are very small and hardly enough for these authorities to provide all services. Thus a re-look at the rate structure is not a bad idea though the revenue must be put to good use and tracked by ratepayers. This may be a mundane issue for urban dwellers and city folk, most of who are disinterested in the affairs of their local authority except garbage collection. But the wider picture of the Treasury grabbing a large slice of our purse (national taxes and now local taxes) is increasingly becoming very important for citizens to, not only hold their local authority accountable, but also the government. Furthermore how can a bunch of economists in the Treasury decide what level of services should be provided in towns and villages? People elect local authorities who have an obligation to the electors, not the bureaucracy. It also leaves room for suspicion: will the government re-allocate these funds to boost its popularity at local level?




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