Honesty must begin at the top

Income tax payers are probably still reeling from the returns and the cheques they have sent in to the Department of Inland Revenue late last year. The ordinary citizen too, continues to pay every day by way of indirect or hidden taxes, but the President of the Republic, almost like Oliver Twist, wants "more".

He asked the Tax Department to venture forth and squeeze more from the public so that the Government's spending can be met.

With a war to be financed, the President has rightly called for economic development to proceed in tandem with the war effort.

But this is easier said than done -- with tourism in the doldrums and foreign investors wary of Sri Lanka's uncertain political climate. Still there is no escape -- the war must be prosecuted if there's no peace. This newspaper's financial analyst, writing under the pen-name of The Economist deals with exactly this subject.

It is useful for readers -- and indeed the Government -- to keep an eye on what this columnist regularly has to say on where the economy is heading in the midst of the crisis we are in. This week, the writer says, "Fiscal consolidation at a time of war is a difficult and challenging policy. The iron laws of economics make it imperative to follow stringent fiscal measures. Failure to adopt these because of political considerations would lead the country into further economic difficulties in the future."

He refers to the serious implications of the war on the economy, and says that because expenditure is high -- and in dollars-- there is a need to eliminate the view that to spend on "whatever is needed" is in order. It is not. Accountability, he says, is a key factor that needs to be looked into, quite apart from corruption that tends to grow with such large expenditure.

There is a call to reduce the size of the cabinet into a 20-member 'war cabinet', and for Parliament to play its part in minimising corruption and waste and in making the war cost-effective, a role none of the political parties in Parliament seems to be playing to the detriment of the economy, long-term.

The general approach seems to be one of scant respect for economic management on the basis that this is a matter that can be attended to after the war is won. President Mahinda Rajapaksa speaking to newly recruited graduates who were enrolled under the UPFA election manifesto of 2004 extolled the need for them to be honest and patriotic. These graduates were appointed tax assessors so that they can be unleashed directly upon recalcitrant tax dodgers, and reap in larger hauls of revenue to the otherwise depleted State coffers. While there is no doubt that this country is full of tax dodgers, there are increasing reports that the Department of Inland Revenue itself is riddled with bribery and corruption.

It is an open secret that some dishonest assessors have now made it a practice to telephone persons whose files they handle, threaten them with imposition of huge tax liabilities, and then settle the matter after pocketing a lesser amount.

The recent VAT scam in the Inland Revenue Department was unearthed by the Auditor General's Department -- and the man who was the immediate supervisor during the period of that scam is now none other than the Commissioner-General of the Department -- so much for taking moral responsibility.

There are further disturbing reports that some of the honest senior officials at the level of Deputy Commissioners of the Department have been moved into the non-assessing sections rendering them useless in investigations and revenue generation.

Then, there is the age-old practice of permitting retired assessors and even senior Commissioners to argue appeals on behalf of tax payers. It is like asking a retired Court of Appeal judge to argue a case before one of his juniors who are sitting on the bench.

Right now in the United Kingdom, revenue investigators of the HMRC (Her Majesty's Revenue and Customs) have launched an aggressive campaign directed at the apex of society, the crème de la crème, so to say, who have created charities and hedge funds for tax avoidance. Some time ago, the current Central Bank Governor mooted a one-year tax holiday for tax payers so that the Department can pursue persons who have no tax files, and the then Finance Minister Sarath Amunugama proposed awarding certificates to honest tax-payers.

None of this is happening, nor is revenue being collected the proper way by some unscrupulous officers in the Department. The monies that do come, like in the case of VAT, do not go into the State coffers either.

In this scenario, asking newly-appointed graduates to be honest and patriotic may just not be enough.

Proper signals that corruption and wastage (at the apex of not only the Department of Inland Revenue, but also the Government) are being checked must be made -- for proper fiscal management must go hand-in-glove with revenue collection.

The cost of the war effort cannot be underplayed if it is Government policy to up the ante on the war front.