Columns

• New VAT Bill this month; threshold increased toRs 50 million a month
• Two major parties reach consensus on amendments to VAT
• Clause on retrospective effect maybe challenged in Supreme Court
• Basil goes ahead with secret plans to form new party; SLFP convention today will be a turning point

Kurunegala was all excited and decorated yesterday for the 65th SLFP convention which is expected to be a turning point in the party’s history. Tight security was also in force and journalists were not allowed to go into the convention area. Pix by Pushpakumara Jayaratne

By Our Political Editor
A Bill to enforce the enhanced Value Added Tax (VAT) will be introduced in Parliament later this month.
At their weekly session last Tuesday, the ministers examined a cabinet memorandum, the prelude to the presentation of a new Bill by Finance Minister Ravi Karunanayake. It will conform to the Supreme Court (SC) ruling on a similar previous Bill that it did not signify to Parliament approval as required by law. In an earlier order, the SC ruled that the way the VAT was introduced was illegal. It was argued before the court that an illegal action cannot be righted through retroactive legislation.

At their last meeting, ministers discussed the contents that will form the new Bill, which also appears to be hit by some bad omen. Following consultations between the two major partners of the Government, the United National Party (UNP) and the Sri Lanka Freedom Party (SLFP), there was agreement on a new threshold. “This will apply to both the wholesale and retail trade,” Finance Minister Karunanayake told the Sunday Times. All other proposals, he declared, would remain the same except for changes already announced. He added that the new Bill would be gazetted soon after it received ministerial approval.

Among ministers who called for a corrected cabinet memorandum were Patali Champika Ranawaka, Anura Priyadarshana Yapa and Susil Premjayantha. Earlier, business ventures that had a turnover of more than Rs 12 million a month or Rs 33,000 a day were required to pay VAT. Enhancing the threshold to Rs 50 million a month, is the result of countrywide protests by small time traders that they would face bankruptcy. The call for enhancing the limit was made by the SLFP. Other than that, almost all other proposals will remain the same.

The cause for the postponement of the discussion until Tuesday next on Karunanayake’s cabinet memorandum is the result of a bureaucratic error. If the beginning of a sentence spoke about an increase in the threshold to Rs 50 million, in the second paragraph, it had referred to the existing Rs 12 million. There were arguments on which of the two was correct.

An outstanding issue over the proposed new Bill also remains. Having lost considerable revenue due to these slip-shod drafting and inability to stick to laid down procedures, the Government wants to seek the passage of the new VAT Bill with retrospective effect. In such an event, it would require a two third’s majority. The constitutionality or otherwise of the new Bill too, the Government expects, would probably be challenged before the Supreme Court as the Constitution discourages retrospective legislation.

The new VAT scheme’s chief architect is Prime Minister Ranil Wickremesinghe. In March, he submitted a nine page Cabinet memorandum in which he recommended “policy proposals.” One such proposal, he said, was that the Budget 2016 had proposed to implement two rates – 8 % and 12.5 % instead of a single rate of 11%. Implementing such complex multi rates in taxes could result in a shortfall in revenue target further deepening the crisis. Therefore, the safer option was a single VAT rate of 15 per cent. The extensions on imposing VAT on telecommunications, private education and private health will be removed. Furthermore, VAT will also be imposed on selected retail and wholesale goods excluding the essential items, Wickremesinghe pointed out. His assertions came as the Government was then negotiating an extended fund facility with the International Monetary Fund (IMF). The latter had sought an upward revision in the VAT rates.

There are about 77,000 registered to pay VAT. Only 35 % are active. Of that only 15,000 pay VAT. The threshold for VAT has been reduced over the years. In 2013, those who were required to pay were ventures with a turnover of Rs 500 million for three months. In 2014, it was reduced to Rs 250 million for three months, in 2015, to Rs 100 million for three months and in 2016, it was further reduced to Rs 3 million per quarter.

The stage for today’s convention, with flags and railings

The VAT increase is perhaps the most critical issue the National Unity Government has faced. Even the Central Bank bond issue that rocked the Government last year pales into insignificance simply because VAT hits the people directly in the stomach. The new Bill to enforce it again comes at a time when there were questions over whether payments already made for telephone bills, both mobile and land line, would be refunded. This is besides payments made to known outlets for goods and services. This is on the grounds that the enhanced VAT rate is being charged from consumers although the tax is not in force consequent to the Supreme Court rulings. That the move would become a subject of a hot political issue when the Government holds local elections next year is most likely. However, the SLFP ministers have found some grace in enhancing the threshold to Rs 50 million. They are poised to vote in favour of the new Bill when it comes up on Tuesday.

Like the new VAT Bill, where positions of the two major Government, parties differed, there are similar positions in other areas too. Some of them are resolved through dialogue while others linger on. For the SLFP, the priority consideration has been the consolidation of the party. This has remained elusive for its leader, President Maithripala Sirisena so far. This was from the time he was elected. He has not been successful in uniting the group that is backing former President Mahinda Rajapaksa. The group no doubt includes some parliamentarians who have come under investigation for bribery or corruption.

Sirisena-Gota talks
Ahead of today’s SLFP annual convention in Kurunegala, Sirisena has been listening to views from many factions in the party. Some such meetings were unimaginable in the past. Milinda Moragoda , a one-time UNP minister and later UPFA mayoral candidate for the city of Colombo, facilitated a meeting for the President with former Defence Secretary Gotabaya Rajapaksa. A well informed source said their conversation covered a broad spectrum of views.

The source was emphatic that Sirisena did not commit himself to any position or agree to any suggestion. He listened. Gotabaya Rajapaksa was of the view that an SLFP with a broader representation should have within its fold a member or more from the Rajapaksa family. There was a suggestion that either he or former Speaker Chamal Rajapakasa would be receptive to be within that fold if other members of the family were not harassed through ongoing investigations, the source pointed out. Sirisena remained non-committal to the proposal, the source added.

Some political observers opined that the overture, if accepted, would have not only consolidated Sirisena’s power and position. It also would have, if the necessity arose, enhanced his strength in Parliament. However, the move runs counter to Sirisena’s pledge that instead of a two year arrangement, they (the SLFP and the UNP) would together continue the full term of governance. Just weeks ago, both Sirisena and Premier Wickremesinghe renewed their pledge when they addressed the UNF’s first anniversary in office meeting in Matara. This notwithstanding, no one can blame Sirisena for making efforts to bolster his own party so he does not find himself in a ‘not negotiable’ position during a crisis situation.

Days after the Maithripala Sirisena – Gotabaya Rajapaksa meeting, in what seemed a surprise development, the Commission to Probe Allegations of Bribery or Corruption (CIABOC) indicted Gotabaya Rajapaksa and eight others. They stand charged with causing Rs 11.4 billion loss to the Government by permitting Avant Garde Maritime Services (Pvt.) to operate a floating armoury. Indicted together were three former Commanders of the Sri Lanka Navy – Somatilleke Dissanayake, Jayanath Colombage and Jayantha Perera. Under the 19th Amendment to the Constitution the CIABOC is an autonomous body,

Others were retired Major General Palitha Fernando, a one-time Military Liaison Officer of the Ministry of Defence, one-time Additional Secretary to the Ministry of Defence Sujatha Damayanthi, former Army Special Forces officer Major Nissanka Senadipathy, Chairman of Avant Garde and Karunaratne Banda Adhikari. They have been noticed to appear in Courts on September 30 before the Colombo Chief Magistrate. The Avant Garde Maritime Services (Pvt.) is also the subject of a separate investigation by the Criminal Investigation Department (CID).

Why is Mahinda calling Ranil?
It is no secret that Gotabaya Rajapaksa favoured groups within SLFP supporting his brother Mahinda to be conciliatory towards Maithripala Sirisena, the leader of the SLFP. However, both Mahinda and brother Basil, were in favour of the UNP faction of the Government. As reported earlier, Premier Wickremesinghe maintained a personal rapport with Mahinda Rajapaksa. Wickremesinghe has explained that he had to respond to calls from Rajapaksa since he was only extending a courtesy to a former President. Recently, Sirisena was to politely ask Wickremesinghe why Mahinda Rajapaksa was making some requests to him when they should have been directed to the President. The query was over a request made by Rajapaksa for security personnel during travel abroad and for four tyres for his official vehicle.

Resolutions at SLFP sessions
The SLFP is holding its sessions in Kurunegala today. UPFA General Secretary Mahinda Amaraweera told the Sunday Times five different resolutions would be adopted. They would include one on international relations, another on current political developments, on the economy and on reconciliation.

State Minister  Lakshman Yapa Abeywardena also said said several resolutions would be passed at today’s Convention. These include resolutions related to economic policy, international relations, reconciliation and restructuring of the party.
Regarding economic policy, the Minister stated it was the SLFP’s view that the country’s economy should take a middle path. It should be neither ultra liberal or ultra leftist, would include SLFP’s opposition to privatizing profit making state institutions. Regarding loss making institutions, the SLFP’s position was that they should be restructured but the Government should have a majority stake when it came to public-private partnerships managing these institutions.

A resolution to thank President Maithripala Sirisena on behalf of the party for cementing cordial relations with various countries and enhancing Sri Lanka’s status on the international stage would also be put forward.
Regarding the current political situation it will refer to the SLFP restructuring programme. A resolution will be presented regarding the party’s forward agenda. It will propose that the party undertake a restructuring process in the coming year.
A resolution related to the reconciliation process would also be presented, he said.

Countermoves by Basil
As a counter to today’s sessions in Kurunegala, the pro-Mahinda group is planning a public rally Organised by Basil Rajapaksa, it will be focused entirely to demand that the Government should conduct local government elections soon. An effort is being made to match the crowds that attend today’s rally in Kurunegala. Basil Rajapaksa has already embarked on the task of forming a political party. The exercise is being kept a closely guarded secret. A lawyer has been named to act as Administrative Secretary. The name of the party, obtained from an already registered one, is likely to be used. Basil had advised party higher ups to maintain secrecy over the new party until today’s SLFP annual sessions end.

The formation of the new party was decided upon by a Committee named by Mahinda Rajapaksa. It was headed by Basil Rajapaksa and comprised Dullas Allahapperuma, Pavithra Wanniaratchchi, Rohitha Abeygunawardena, G.L. Peiris and Mahinda Yapa Abeywardena. The new party will form a broad common front with political parties opposed to the Government.
With the SLFP convention today, a new chapter dawns for the party. It would have to become stronger in the coming weeks and months if it hopes to win the local elections. On the other hand, the divide has come for the party. A faction will back Mahinda Rajapaksa. Which of the two sides would grow stronger remains the important question. Whoever wins the battle, the UNP appears to be reaping the benefits.