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• Mahinda Rajapaksa sceptical, continues move to form new party, meeting today at Homagama
• VAT Bill soon with major revisions, implementation from October1 as Finance Minister works out November 10 Budget

By Our Political Editor
Lights are burning late at the Treasury these days. Finance Minister Ravi Karunanayake is meeting both his ministerial colleagues and senior officials to determine financial allocations and obtain their views on priority areas for funding. Thus, the contours of the National Unity Government’s second budget are taking shape.

Contrary to the wide belief, given credence through erroneous remarks from some Government politicians, the enhanced Value Added Tax (VAT) bill will not wait till budget time. It is to be introduced with effect from October 1. The only impediment, if there is one, is the time taken due to procedural requirements. A new draft Bill, now ready, will be gazetted after the Cabinet of Ministers approve it next Tuesday. Thereafter, it will be presented to Parliament for approval. The tax measures will now take effect only after the Cabinet and Parliament approve them. This is in keeping with the Supreme Court ruling on July 11 not to implement the VAT revisions until such time it is approved by Parliament.

The move to allow the VAT increase to take effect from October 1 raises an all important question. The Government appears to have heeded a second Supreme Court order that the increases could not be effected retrospectively. That also raises another question, that of payments already made by consumers for goods and services. Refunds for most of those payments cannot be claimed on the basis that there are no records. An example would be the purchase of tobacco products from retail outlets. However, there were also payments like those for telecommunication services or hospital charges which have been collected by those providing these services. Such money has been collected illegally if one is to go by the two Supreme Court rulings.

With the SLFP deciding to contest the next elections on the hand symbol, President Maithripala Sirisena and other party stalwarts including former President Chandrika Kumaratunga are seen symbolically raising their hands at the party’s 65th convention in Kurunegala last Sunday.

Ahead of the budget, the Government this week tabled amendments to the Appropriation law to increase borrowing limits and expenditure. At the end of the budget debate in December, party leaders have been advised that more parliamentary sittings are on the cards. This is for the passage of what is being described as urgent legislation. That is expected to include matters related to state owned enterprises running at a loss.

This time round, Prime Minister Ranil Wickremesinghe has been taking extra care of the new draft VAT Bill. He has had consultations with the Attorney General’s Department to ensure the provisions conform to the SC ruling after the Legal Draftsman has completed the draft. The AG has expressed the view that the new draft is consistent with the Constitution.

At Tuesday’s cabinet meeting, the Premier will submit a memorandum along with “a comprehensive note” on the Cabinet Memorandum placed before ministers on August 29 by Finance Minister Karunanayake. This is for the elucidation of the ministers who sought clarification or raised questions over some of the contents at the discussion that followed the four-page memorandum. Barring last minute changes, which highly placed Government sources said, were unlikely, the draft VAT Bill is to be approved. Facilitating this situation is the consensus which the two major Government partners, the United National Party (UNP) and the Sri Lanka Freedom Party (SLFP), have already arrived at on the proposals.

To achieve what the Finance Ministry calls “Fiscal targets set in the cabinet decision (dated March 4 – the date when the original decision was made to increase VAT rate from 11 to 15 %) the following revisions have been made in the new draft VAT Bill:

• To reduce the threshold of registration for VAT from Rs. 3.75 million per quarter or Rs. 15 million per annum to Rs. 3 million per quarter or Rs. 12 million per annum.
• To remove the exemption on specified projects other than housing projects.
• To impose VAT on Wholesale and Retail Trade

(a) Threshold for VAT liability on wholesale or retail supply of goods should be revised to Rs. 50 million per annum (i.e. Rs. 12.5 million for three months).
(b) VAT should be charged only on VAT liable goods.
(c) A deemed input credit system should be introduced on purchases made from persons not registered for VAT.
(d) Private health services other than diagnostic services, OPD services and dialysis.
(e) Telecommunication services.
(f) Tobacco products
(g) Powdered milk containing added sugar and other sweetening matter.

The Finance Ministry also wants to extend the enhanced VAT to the following areas:

•  To impose VAT at 15 % on Air Ticketing fee of air passengers moving from an airport in Sri Lanka to an airport outside Sri Lanka.
• To restrict the VAT exemption applicable on the supply, lease or rent of residential accommodation to projects of which the investment cost is not exceeding US$ 05 million. However, such supplies made by Strategic Development Projects approved prior to November 1, 2015 and by SDPs, and other projects where the sales agreement are entered into before October 1, 2016 will continue to be exempted from VAT.
• To increase the price rate of garments supply to the local market by BOI (Board of Investment) Companies to Rs. 75 per piece.
• To make the operating leasing liable for normal VAT and only the finance leasing should be liable for VAT on Financial Services.

The Value Added Tax is being imposed under the VAT Act No 14 of 2002. It was amended in the Budget 2016 and the rate was reduced from 11 to 8 % on supply or import of goods (import and manufacturing) and to increase from 11% to 12.5 % on the supply of services. This proposal was made in line with another proposal to increase the rate of Nation Building Tax (NBT) from 2 to 4% However, it was decided at the special cabinet meeting held on March 4 to increase VAT rate instead of increasing the NBT rate. It was also then decided to reduce the threshold of registration from Rs. 3.75 million per quarter or Rs. 15 million per annum to Rs. 3 million per quarter or Rs. 12 million per annum. The exemption granted to the Minister of Finance, for specified projects other than housing projects was removed. Also removed were the exemption applicable on telecommunication equipment and machineries. A formal announcement on the VAT changes is to be made after Tuesday’s ministerial meeting.

The Opposition parties have been lulled into the belief, bolstered by some Government politicians, that the increased VAT will not be effective till after the National Unity Government’s second budget on November 10. Hence, their attention has shifted to other areas, particularly matters political. One in particular are some assertions by President Maithripala Sirisena at the 65th anniversary rally of the Sri Lanka Freedom Party (SLFP) on September 4.

Among the highlights was a call for the SLFPers to unite and an assertion that the Kurunegala meeting was the first event in a process that would lead to the party forming a Government. He said, “The SLFP needed to begin a new journey with a new strength, new mission and a new strategy. I declare at this massive gathering of loving parents and children who come for this 65th anniversary celebrations as well as to all the leaders of the Party, I declare that this is the first salvo fired to establish an SLFP Government in the future.

“The Local Government elections will be held in the first half of the next year. We will contest all the Local Government institutions in the country under the ‘Hand’ symbol. I invite all the sister parties of left-wing and progressive political parties which are aligned and keen to be united with the SLFP for the upcoming Local Government elections to rally around the flag of the Sri Lanka Freedom Party, to win that election.

“I kindly and respectfully request those who – to whom I have given the right to sit as Opposition MPs in Parliament, even though they were elected to Parliament under the SLFP banner – to unite with us to strengthen the SLFP to form an SLFP Government in the future without speaking of splitting the party to form a new political force.

“The party must be clean. The party must be pure. Working people need to follow their conscience. They need to understand the sorrows of the powerless. They should be down to earth. Always, we have to understand that this party is represented by the common people.

“How many times have we been defeated? The SLFP was defeated in March, 1960. In 1965 the SLFP lost the election. In 1977 also the party was defeated. The SLFP lost the Presidential Election held in 1982 and 1989 too. In 2001 it was defeated at the Parliamentary elections.

“We need to talk about the moments of defeats and the moments of victories. I will clearly state that we need to understand what a party should do and should not do, similarly, what the party leaders should do or should not do…..”

Sirisena’s remarks were in marked contrast to what he said on August 21, just two weeks before. This was in Matara where he addressed a meeting to mark the first anniversary of the UNF Government, an event organised by UNP Foreign Minister Mangala Samaraweera. There he declared in the presence of Prime Minister Ranil Wickremesinghe: “….It is clear that for the next five years the government will work with consensus for the benefit of the nation. We will decide on how to govern the country even after 2020.

“I wish to emphasise that those who operated the white van culture, terrorised the people and swindled billions of rupees will not be able to form a government again.

“They are trying to form a party to topple (overthrow) us. We will wait and see. As we disclosed their corrupt acts during the January 8 presidential election, we will disclose all their secrets, if they form a new party. They will not be able to form a new government, but only be walking along roads…….”

As is clear, within just two weeks, there has been a marked shift in President Sirisena’s approach towards dissidents within his own party. At first he threatened to expose their secrets. If there were any, they did not surface. Then he offered the olive branch with two significant declarations – one that the party would contest the local elections under the hand symbol. The other is that the next Government would be from the SLFP. Significantly, ahead of those remarks some prominent pro-Sirisena SLFP ministers have declared there would be no disciplinary action against those not attending the Kurunegala sessions. This was in marked contrast to their May Day celebrations in Galle where members who did not attend were threatened with disciplinary action. Both approaches seem to have not worked.

The first, contesting under the hand symbol, no doubt, is intended to woo a large number of local councillors including chairmen who are disillusioned. They lost their positions as a result of their councils or sabhas being dissolved at end of term. In most cases, no extensions were granted. Will the SLFP dissidents accept Sirisena’s peace offer? Will they agree to contest under the hand symbol?

The answer came from their leader and former President Mahinda Rajapaksa when he spoke to the Sunday Times. “Local councillors may go their own way since they have been neglected. They have no choice but to form a new party and contest.” This is the first formal confirmation from the former President himself that a new political party is being formed as exclusively revealed in the Sunday Times of August 28. Rajapaksa said incompetent persons who were new comers were being groomed (by the current SLFP leadership) to become candidates at the local polls. “What do you expect those who have worked hard for the party to do?” he asked, and added that “they will be exposed. People will reject them.”

What about President Sirisena’s declaration to form an SLFP Government next and his appeal to the dissidents to unite, I asked Rajapaksa. He replied, “What has he done about it? He is in power. If those words were true, it is he who has to take the initiative. Who is going to join? The whole approach is wrong. They are making us unhappy. Just making statements will not help. He said one thing in Matara and now another in Kurunegala.” Rajapaksa is now embarking on a campaign to address rallies in areas where serving electoral or district organisers have been removed. The first such meeting took place in Homagama yesterday.

Yet, Sirisena’s conciliatory note has received some welcome response from SLFP intellectuals like lawyers, professionals and members of the clergy. They say his emphasis on the party for the next Government and contesting on the hand symbol was salutary. One of them said, “he has made clear he is not in the clutches of the UNP though he said their alliance would last the entire duration of the Government. We will have to see whether he sticks by this or will change.”

Another aspect of Sirisena’s remarks in Kurunegala is that it serves as a message to the UNP. However, the party appears conscious that it should consolidate its power base at the grassroots level. The UNP has launched a membership drive. At its largely attended annual convention at Campbell Park yesterday, Prime Minister and party leader Wickremesinghe emphasised the need to become stronger.

Last week’s reference in these columns to a meeting between former Defence Secretary Gotabaya Rajapaksa and President Maithripala Sirisena, a meeting facilitated by a one-time minister Milinda Moragoda, has drawn a response. Gotabaya Rajapaksa telephoned the Sunday Times to say he had not had such a meeting. Though Moragoda did not respond to this newspaper, he also told editors of other newspapers that he had not facilitated such a meeting.

The backdrop to these developments was a Progress Review Committee meeting held on July 12. This Committee is briefed periodically by different state investigation agencies like the Criminal Investigation Department (CID), the Financial Crimes Investigation Division (FCID) and the Special Investigations Unit (SIU) at Police Headquarters on the state of investigations in respect of alleged bribery, corruption and other malpractices. Chairing the Committee is President Sirisena. Its members include Prime Minister Wickremesinghe, former President Chandrika Bandaranaike Kumaratunga, Law and Order Minister Sagala Ratnayake, Regional Development Minister Field Marshal Sarath Fonseka and Megapolis and Western Development Minister Patali Champika Ranawaka. Also included is the Attorney General and his officials.

At the July 12 meeting, the Attorney General briefed the participants on the broad outcome of investigations into Avant Garde Maritime Services (Pvt) Ltd. This probe has been conducted by the Commission to Probe Allegations of Bribery or Corruption (CIABOC). The Attorney General was to point out that they were, in respect of one case, proposing to file indictments against those concerned for alleged bribery. This was to see Minister Ranawaka raising issue. He argued that he had reason to believe they should face criminal charges since the case involved the unlawful issue of firearms. The Attorney General was to then make a startling revelation. Though not known by many, a senior official in the Ministry of Defence serving the current administration, had renewed an agreement for Avant Garde Maritime Services (Pvt.) Ltd to continue to function thus conferring a legal status on it.

That was the reason why, the Attorney General said, that he had recommended bribery charges against Gotabaya Rajapaksa, former Defence Secretary, and three former Commanders of the Navy – Admiral Somatilleke Dissanayake, Jayanath Kolombage and Jayantha Perera. Others included Nissanka Senadipathi, Chairman of AGMSL, Sujatha Damayanthi, Additional Secretary in the Ministry of Defence, Palitha Fernando, a one-time Military Liaison Officer in the MoD and Karunaratne Banda Adhikari. The AG has said that the accused had given permission to Avant Garde Maritime Services Ltd. to operate a floating armoury between August 7, 2012 and January 8, 2015 in violation of laws by providing unlawful income amounting to Rs. 11.4 billion to this private company.

It was in this context that a high ranking source, whose credibility has never been in doubt in the past, revealed that Gotabaya Rajapaksa had met President Sirisena. “I don’t need Moragoda’s help to meet the President. I know him (the President) well enough to meet him without anyone’s help. And the president can call me direct. But I have not seen him for over a year,” said Gotabaya Rajapaksa. The Sunday Times also checked with sources close to President Sirisena. They said he did not meet Gotabaya Rajapaksa.

Gotabaya Rajapaksa went on to tell the Sunday Times that he believed President Sirisena was interested in bringing the Rajapaksas into the SLFP he leads because in the villages SLFP supporters are split — one section unhappy that the Sirisena-led SLFP is in alliance with the UNP in Government. However, which Rajapaksas was the issue. Mahinda Rajapaksa was a problem for Sirisena. Gotabaya himself was not a viable option because Sirisena feels the entry of Gotabaya would antagonise the minority vote base that Sirisena has acquired, and also not be welcome with the Western countries that are supporting the Sirisena-Wickremesinghe administration. Eldest brother Chamal was an option, but how far Chamal would want to go with the Sirisena group was a question unless Mahinda was included in the rapprochement.

The new draft Bill to give effect to the increase in VAT rates will no doubt draw public attention in the coming weeks. Even the opposition political parties will begin to raise issue. However, this time, it has won the approval of SLFP ministers who said they wanted to protect small time wholesalers and retailers. For the Government, the enforcement of the new VAT rates will be sine qua non to obtain the next tranche of the Extended Fund Facility from the International Monetary Fund (IMF) and move forward with the budget proposals. There are challenges both on the political and economic front.