Financial Times

VAT-a-mess and governance
By now Sri Lankans must be shocked at the disclosures of corruption at the Inland Revenue Department (IRD), by its officials in high places.The amount that top officials have pocketed is mind-boggling and simply unbelievable. Or is it not too shocking for such things to happen in a country where white collar crime is okay and only the small fry get jailed?

Welcome to the land of the ‘free’ where governance and transparency is all about criticism being fine as long as it’s in a private conversation and far from the ears of the public. This week instead of discussing just one issue, we dwell on three matters of public interest relating to corruption and the lack of governance.

VAT
The three billion-rupee VAT scandal at the IRD and the alleged involvement of two retired deputy commissioners and more arrests to follow must certainly come as a bolt from the blues to those ‘gentlemen’ who sit in judgment over others on paying taxes.

It was highway robbery by officials who lived it off as if they were above the law. The details of these horrifying white collar crimes have been splashed in many newspapers and need not be repeated here.

What we would like to stress however is the harassment a simple wage earner or a small businessman has to undergo to obtain a simple refund from the department. He spends months, sometimes years to get legitimate dues. Only genuine tax payers know the immense hardships and harassment they've to go through.

One company for example has more than Rs. 35 million due from the department as refunds. But often the time taken to get the refund is at least 18 months. Why? Because the IRD doesn’t have money.

These are dues to companies or individuals. In a way it’s cheating the taxpayer or just like evading taxes. The IRD owes a lot of money as refunds but doesn’t allow these companies to set it off their future liabilities. Isn’t that the most logical thing to do – because these are a company’s legitimate dues?
That’s why we’ll never be able to create a tax-paying society. When a system is unfair, rotten and virtually cheats the individual, the general feeling is to beat the system and evade taxes. It’s all about a system that hounds those who are genuine and sincere taxpayers.

For example a young man who regularly pays his dues every year on time was horrified when he got a red letter notice saying he was behind schedule – just because he was a few days behind in the payment. These are regular, honest taxpayers – but these are “sharks” the department goes after while sparing the “sprats” (big, corrupt businessmen).

President Mahinda Rajapaksa must expedite these investigations and punish those who are guilty of such crimes that are no different from murder or robbery.

It’s also time the government cracks the whip on other state revenue agencies such as Customs, Excise, RMV, etc where corruption has become the norm.

SEC
In the same breath we hope the SEC will have the courage to push for a full conviction in the insider dealing case against the Nawaloka director, his wife and daughter without compounding the offence, as permitted under the law.
Too often previous cases of insider dealings and criminal offence, have been compounded freeing an accused who has made massive profits while trading on inside information. Invariably they get away by paying few, affordable millions.

Governance
Presidential Advisor Nivard Cabraal has always been upright on governance in the public and private sectors and the need for transparency. Therefore his recent comments, reported in our sister paper, The Daily Mirror, has surprised many people including his ardent supporters.

This also comes at a time when the Auditor General has been lambasted for doing his job – making state organizations accountable and urging transparency. Reacting apparently to comments by World Bank Country Director Peter Harrold on the need to reduce dependence on foreign aid while curbing waste and corruption, the former President of the Institute of Chartered Accountants prefers engaging in a dialogue rather than public comments on issues that concern the public.

Constructive criticism, he has reportedly said, is vital but should be done directly and privately and not in a public arena. Now how does one practice good governance if issues of public interest are hidden from the public?

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