… till the cows come home!
View(s):‘Talking till the cows come home” is how one stockmarket analyst pithily described the state of play in Sri Lanka. “There is a lot of talk but nothing moves,” he said explaining that inconsistent decision-making on taxation is one of many reasons why the stock market is lackadaisical and there is no renewed interest ever since a new government and a new President were installed last year. The same applies to every economic and business sphere where the common grouse is that nothing is happening on the ground. Budget 2016 is the biggest disappointment with a stop-go approach in terms of implementation of taxes while other taxes (Value Added Tax-VAT) are being enforced outside the budget.
With the government split into two sections – the United National Party (UNP) and its partners, and the Sri Lanka Freedom Party – disagreements in decision-making and even appointments are coming to the fore while conflicting views are being publicly aired. The stock market often reflects the health of an economy. If the market is in the doldrums that’s because the economy is not doing well. Apart from confusion as far as taxes are concerned, rising interest rates where commercial banks are seen aggressively competing against each other, uncertainty over Capital Gains Tax though the authorities had agreed to impose a Share Transfer Tax (instead of Capital Gains) and political uncertainty are clouding a market that many investors expected to boom after the advent of a new government with a fresh mandate and a promise of being transparent and accountable.
There are many issues investors are concerned about. Infighting at the Parliamentary Committee on Public Enterprises (COPE) seen last year just before parliamentary elections over the tainted Treasury bond has once again surfaced this time with disagreements over whether former Central Bank Governor Arjuna Mahendran was responsible for the bond issue which saw the government losing millions of rupees. Last year just as COPE was preparing to present its report, the President dissolved parliament, scuttling the report which was then leaked to the media by opposition parliamentarians amidst objections from UNP members who said the report was incomplete. Protests have been mounting over the increase in VAT in many towns.
Apart from the increase, its implementation along with Nations Building Tax (NBT) is raising questions and is the subject of a fundamental rights petition in the Supreme Court where MP-petitioner Wimal Weerawansa complained that these taxes were being imposed in spite of not being either gazetted or approved (as required) by parliament which has the authority over the country’s finances. For many years now, the government has followed the practice of enforcing taxes through administrative means –Income Tax Department circular or media advertisement – until the gazettes and subsequent approval by parliament formalises the tax law. Last May, Prime Minister Ranil Wickremesinghe announced an increase in VAT of 15 per cent from 11 per cent earlier.
In tax circles, the usual confusion ensued on whether consumers were to be asked to pay this tax but since most people ‘fear’ the Tax Department, the 15 per cent tax has been implemented from May with one area being in health services and private hospitals drawing complaints from patients. The government has got away in the past with administratively enforcing tasxes but the verdict of the court is being eagerly awaited. If the ruling is in favour of the petitioner, what happens to taxes already enforced from May? Another bit of uncertainty for investors. There is also the ‘who is in charge’ dilemma. Is the Minister of Finance in charge of anything to do with finance or does the Prime Minister have the last word (the VAT announcement as one example)?
Add to that the President has also been making pronouncements on finance and in the past few days, he has been having intensive discussions on tax issues with traders and other concerned groups. During the tenure of the former regime it was either President Mahinda Rajapaksa or his all-powerful Treasury Secretary P.B. Jayasundera who called the shots on anything to do with finance. They made the decisions; no one else interfered in the decision making unlike today where many ministers are talking on economic issues and matters of finance and expressing their views, necessitating the need for the political leadership to set out guidelines and ensure that only those handling finance and the economy should be permitted to make public statements. Otherwise the confusion will continue.
The Friday Forum, a group of intellectuals concerned about governance, transparency and accountability, said in a statement on Thursday that the “credibility once lost is near irretrievable”. It said that the public was beginning to doubt that corruption, nepotism and the numerous other failings of the earlier regime, that were so convincingly exposed on election platforms, will be eliminated in a new era of good governance.
“We have not yet lost the opportunities created by the presidential and general elections of last year, a year that was a tribute to the Sri Lankan people and their commitment to democracy and good governance. There is little time left for persons holding high political office, and making decisions that impact on the people, to establish democracy and good governance.
They must fulfill the solemn promises on which they rode to power,” the forum said, reflecting a widely-held public view of serious cracks in the government and its promise of good governance. Some years ago, retired banker Rienzie Wijetillake floated the idea of a government run by a corporate-styled CEO who would brook no nonsense if senior management (in this case cabinet ministers) failed to deliver. Many people scoffed at the idea. However if a CEO was running the show in Sri Lanka with debt mounting, half the company managers would have been sacked. In corporate Sri Lanka, there is no place for humbugs, inefficiency and mismanagement. The same should apply to a government in whom the people have reposed their faith and trust to deliver what is needed.