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Shady deals from Ibis to Sathosa Both the two
main political parties that have ruled this country since Independence
seem afflicted by a peculiar desire to interfere with established
tender procedures, shamelessly violate pledges of transparency and
good governance and favour cronies who have contributed to party
coffers when it comes to the sale of state enterprises. The latest twist in the privatisation of Sathosa, where the Commerce and Consumer Affairs Ministry has called for amended bids after the original bids closed and two bidders had been short-listed, has been described as a joke. The bidders were effectively given only two days to respond given the intervening Vesak holidays and new conditions have been craftily slipped in giving rise to suspicions that the ministry already has a bidder in mind, just like those shady tenders where the specifications are rigged to suit a particular bidder. Why the mighty hurry now after so many months of delay? Why amend the procedure when two bidders had already been short-listed? And why the new conditions - the "preferable foreign collaboration" and the increase in the number of employees who would have to be absorbed by the successful bidder. The whole affair looks fishy. Why has foreign collaboration become so preferable all of a sudden? Aren't local supermarket chains good enough? What sort of magic does foreign supermarket chains have? Commerce Minister
Ravi Karunanayake, who has made a lot of noise about transparency
and good governance, has refused to comment about the call for amended
bids mid-way in the tender process - a most unusual procedure. The
explanation given by officials involved in the negotiating process
defending the decision to call for amended bids is rather weak. Surely they
would know that few in the corporate world would dare to publicly
raise objections about the affair, not wanting to antagonise those
in power and ruin any chance they might have of winning the bid. True, by revaluing the 40 percent stake in the state-owned supermarket chain that is offered for sale the government stands to earn more money. But that is a process that can go on indefinitely - six months down the road the ministry can claim the value of the chain has been further enhanced. And even if any of the disgruntled original bidders did want to complain, whom can they complain to? This is not
the first time that the government's privatisation deals have created
a stink. The infamous bus deal, in which the government wants to
sell a 39 percent stake in six bus companies to a British company
called Ibis with no known credentials in the transport business,
has still not been finalised and is being looked into by Prime Minister
Ranil Wickremesinghe himself. Sections of the government are clearly
unhappy with the way things went in this deal and it was partly
this that led to the revamp of the Public Enterprise Reforms Commission.
Now the National Lotteries Board has struck a deal with the Norwegian
government lottery, Norse Tipping, for an online lottery. Even President
Chandrika Kumaratunga herself has raised concern over the matter
- concerns that were brushed aside by the government. No tenders
seem to have been called in this case and the government seems to
be favouring the Norwegians, giving further credence to suspicions
that the peace facilitator turned mediator, has a hidden agenda
- to tie up lucrative business deals while promoting peace. Local
firms are known to be unhappy with this deal too. What has happened to the so-called transparency and governance that the government promised to honour as part of their election pledge? Past tax amnesty attempts have not succeeded Point
of View This underworld
economy, which is a burgeoning one, is a parasite. It nourishes
itself on state resources, uses the international banking system
and could contribute in a very large measure to the development
of the state and good governance. Sri Lanka has
helplessly watched and may have helped its own citizens, sons and
brothers operate in this underworld economy and accumulate wealth
and resources overseas, especially in the developed world. Now,
after years of waiting, the government has taken on small, floundering
and uncertain steps to harness this bottomless treasures chest of
diamonds, pearls, platinum, uranium, gold, silver, etc. This step
is the invitation to all those, who disdainfully, flagrantly and
habitually flouted the country's revenue laws, exchange controls
and import and export controls, to make a clean breast of their
crimes and enjoy immunity from the penal consequences that those
crimes deserve. This invitation
is the Amnesty Act No.10 of 2003 and the government is striving
tirelessly to encourage, induce or entice the miscreants to accept
and receive absolution from their sins. The newspapers bombard us
with notices, communiqués and all sorts of printed memoranda
publicizing the magnanimity of the government expressed in terms
of Act No. 10 of 2003. One of the
measures adopted is the introduction of Act No. 10 of 2003 called
the Amnesty, Exoneration or Immunity Law. In an effort to ensure
that it produces worthwhile results, the Ministry of Finance embarked
on a publicity campaign promising amnesty or exoneration of past
offences and immunity from liability or penalty. However, in order
to achieve the results, the Minister has to persuade, inveigle and
coax offenders or evaders to co-operate by complying with Act No.
10 of 2003. This campaign necessarily includes confidence building,
banishment of fears and dispelling of all doubts that may keep the
offenders or evaders away from co-operation. There have
been many attempts in the past to entice offenders or evaders, but
all attempts failed. The reasons were not that there were insufficient
inducements, but the discouraging factor was the fear of abuse by
the Revenue Authorities of the information furnished by them under
the amnesty laws. The way the
Inland Revenue Department has set about adapting the declarations
that would be under Section 2 for the purpose of transforming the
declaration into a basis for measurement of income and wealth is
unbelievable. This attitude adopted by the Inland Revenue Department
reminds one of self-immolation, walking defenceless into the waiting
jaws of a man-eating crocodile. It is not only
Section 2 that is being abused by the Inland Revenue Department,
but also the secrecy provisions of Section 6, which states "Any
authority empowered to administer the laws referred to in a Schedule
hereto and all other officers engaged in the administration of the
provisions of such laws …." These words are being interpreted
to mean that all officers who will be engaged in the assessment
of the those persons are free to use the information furnished in
Section 2 in the years ahead. It is neither
a secret nor is it unnatural that persons endowed with statutory
power wield it at all times. It is also common knowledge that people
who are holders of power will not surrender it and so it is with
the Inland Revenue Department. It is a culture developed after five
years of training. The Minister
of Finance when presenting the bill in parliament, said: "To
bring to a close the defaults of the past and to enable those persons
who evaded paying taxes in the past to come into the mainstream
to become taxpayers and to open tax tiles WITHOUT FEAR OF PENALTY
with regard to their past misdemeanours. If we insist that a person
has to be punished for his past misdemeanours then we are never
going to cure the existing position." In making this
statement, it is most unlikely that the Minister was enticing the
evaders into a trap or snare. It would be unfair to attribute such
a motive to the Minister of Finance. However, the Inland Revenue
Department appears to be doing exactly that by ingeniously adapting
certain sections of the Act. In the preamble
to the Act it is stated "….TO INDEMNIFY SUCH PERSONS AGAINST
LIABILITY TO PAY CERTAIN TAXES AND AGAINST LIABILITY FROM INVESTIGATIONS,
PROSECUTIONS AND PENALTIES WITH A VIEW TO SECURING FUTURE COMPLIANCE
OF SUCH PERSONS WITH THE RELEVANT TAX LAWS". The important
point here is that the preamble refers to compliance, which is a
voluntary act and does not in any way connote coercion or enforcement.
Nor can it mean using the declaration as a basis for future enforcement. There is no
pronouncement in the preamble that the information voluntarily provided
by tax evaders will be used against them for purpose of ascertaining
their future income or wealth or regulating his behaviour in the
future or as a subtle means of enforcement. Rather than abuse the provisions of the Amnesty Act, Inland Revenue officers should be innovative and imaginative and use their skills and training imparted to them by local and overseas trainers to perform their statutory duties and make their assessments on the basis of information furnished or extracted after 1.4.2002. In fact the investigation branch of the Inland Revenue is adept at obtaining information necessary for their work and the search provisions in sections 183 and 184 of Act No. 38 of 2000 fortify them. N.D.R. Casie
Chitty Tax amnesty law won't increase tax base By Lyn Fernando, Immediate Past Chairman, Exporters' Association of Sri Lanka The controversial tax amnesty law, which has been criticized by all, perhaps with the exception of a few errant traders and beneficiaries under the amnesty, has been designed to increase the tax base and encourage more people to be taxpayers. In order to
achieve this, the government has provided an amnesty to all defaulters
whether they be Customs, Excise, Exchange Control, etc. with no
penalties or additional taxes, but only the necessity to declare
and bring the monies into the formal sector. This is not the first
occasion that successive governments have endeavoured to tap the
informal sector and bring it into the formal sector. The present
exercise will only benefit a few errant traders, tax defaulters,
Customs and Exchange Control violators and will in no way result
in an increase in the tax base or meet the government's target of
reducing the informal sector. On the other hand it penalizes the
genuine tax payer as well as the honest official that has taken
pains to detect unscrupulous traders The tax amnesty
law has been controversial, in that it has pardoned firms and individuals
that has resorted to either Customs violations, Exchange Control
and Excise violations or tax defaulters who are now permitted to
show their monies legitimately without any penalties or tax levied
on these incomes. In contrast those genuine importers and traders
who have over the years paid the correct amount of customs duty
and taxes have been placed at an enormous disadvantage by these
unscrupulous traders who through under- invoicing, over-invoicing,
etc. have defaulted the Customs, but more importantly have had an
edge over their competitors. Successive
governments have acknowledged the high incidence of black money
resulting in the several tax amnesties, currency demonitization
exercise, etc. with poor response. Yet, it is well known that there
is a high volume of business conducted in the informal sector with
under-valued transactions, which results in considerable waste as
the money is neither placed in savings nor invested while many have
investments and savings abroad. A visit to any star class hotel
or holiday resort will give an indication of the extent of waste,
as the black money cannot be invested legitimately. Black money At the same
time successive governments have endeavoured to increase the tax
threshold under the PAYE scheme and reduce income tax as a means
of relief to the lower income earners and improve tax compliance.
This policy supported by some Trade Chambers has been pursued over the last several years instead of addressing the core problem which is the inherent aim to avoid having a tax file number and be subject thereafter to continuous harassment. While the larger
tax payers have access to tax consultants, the smaller tax payers
have no such option but either pay up or make a deal with an official
where sadly tax officials' incomes are supplemented by rewards for
tax detection. Hence the desire to avoid a tax file number and conversely
the need for government to address this issue in a more practical
and meaningful manner. Sri Lanka has
a variety of taxes and levies which are complicated and complex
resulting in a highly distorted system with a very narrow tax base.
In a country with a population of 18.5 million only 2% or less are
tax payers, with an estimated 50% or more businesses in the informal
sector and no less than 10 tax amnesties given during the last few
decades without much success. Meanwhile, development strategies
have concentrated on tax incentives as a means of attracting investment
both local and foreign and successive governments have pledged to
reduce the tax rate. PAYE It would appear
therefore that GST and NSL together contributed Rs. 78.8 billion
or 67% of revenue. The introduction of the VAT will not make much
difference to these figures whilst the recent increase in the PAYE
tax threshold will probably reduce the number of taxpayers. If Sri Lanka
is to create a climate for growth and kick start the economy from
its present depressed state a more practical and pragmatic approach
of eliminating income tax and concentrating on consumption tax and
wealth tax would be the answer. The introduction
of a consumption tax only would make it easily collectable and also
encourage savings and investments. The immediate advantage of eliminating
income tax would be a massive infusion of investment and a shift
from the informal to the formal sector. This would result in the
disclosure of actual transaction costs, a better collection of stamp
duty and the collection of consumption taxes from the majority in
the rural areas particularly those in the North and East who do
not pay any income tax. The increase
in consumption tax could be introduced in such a manner that it
will not have any effect on essential foods, medicines, etc. but
can be on a four or five tier structure in order to reduce the burden
on the poor whilst increasing the tax on consumption on those who
can afford. Again if income tax is removed the price of all goods
particularly essential food and medicine will decline because all
firms absorb a part of an employee's tax, which will no longer be
necessary and could be passed down in lower prices. Similarly companies
too will benefit and be able to reduce prices. An immediate effect
would be the reduction of price on essential milk powder, gas, drugs,
etc which can be free of any consumption tax. In eliminating
income tax it would be possible to introduce a wealth tax because
wealth (excluding shares and investments) does not generate growth
but investment does. Consequently high wealth individuals can be
called upon to pay a wealth tax which would also counter criticism
from the left. At this point of time it is necessary to look outside the box and find a solution if Sri Lanka is to utilize this high incidence of black money and create a climate for growth and kick start the economy from its present depressed level.
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