Taxes and the Budget

Come every October and the national budget for the following fiscal year is the most awaited and widely discussed event in the month.

On Thursday, the Deputy Finance Minister Ranjith Siyambalapitiya said the cabinet had approved the Appropriation Bill for 2008 with spending (both capital and recurrent) at Rs 1516 billion, up Rs 231 billion from the 2007 budget estimates. The budget will be presented in Parliament on November 7.

Much as October is the month where feverish preparations are underway and cigarette and alcohol companies (traditionally) wonder whether their taxes would go up, the now familier process of pre-budget and post-budget taxes has taken away that excitement.The gazette-budget era during Finance Minister N.M. Perera’s tenure in the early 1970s caught on like a disease and every government thereafter uses this tactic to beguile the people into presenting ‘people’s friendly’ budgets with little or no hardships. It would be no different this time with a pro-poor budget in the offing – handouts to the poor; tax the rich.

Nevertheless budgets have always provided some anxiety to the ordinary man and the business community. Both would be clued to the radio or television lapping up anything that would benefit or hit their bottomline. The budget also provides some idea of the government’s course of action for the following year notwithstanding the ever rising costs of defence. Defence Secretary Gotabhaya Rajapaksa has gone on record, twice, saying peace or resumption of peace talks cannot be achieved unless terrorism is defeated completely and that statement is expected to be substantiated by a sharp increase in defence.

Everyone expects a full scale war in the north any moment now though due to the usual monsoon period - not the best time for ground fighting – the actual date may be delayed.

Expenditure is rising all the time and taxes and money printing have been resorted to by the government to meet its burgeoning costs. But a tax overload is unlikely to come in the budget lulling the people into a false sense of security until the taxes hit you later.

In recent weeks there have been calls for taxes to be equitable and non discriminatory. The Central Province Tax Payers Association recently in a statement carried in The Sunday Times FT poked fun at the Commissioner General of Inland Revenue for running a rather amusing “Pay your taxes” ad campaign.

“It is laughable that the Commissioner General runs an advertisement in the electronic media (also with the tax payers money), titled ‘Pay Taxes for a better Future’, when he himself does not pay a cent as taxes, but sends out stunning assessments,” it argued.

The association raises a valid point about evasion of income tax being not only immoral but only illegal. “If the government keeps harassing the existing 200,000 tax payers, there will be more and more tax evasion and stashing away of monies abroad. After all, why should one faction pay income tax, when politicians and public servants do not pay a cent? They also rob the tax payers’ money, and the tax payers have to bridge that gap as well,” it said.

Most believe tax paying must start with the Inland Revenue Department itself. Thus without first going around harassing those who have already paid their taxes – including for example some tax gold card holders who are considered exemplary tax payers by the department – tax officers should walk the talk and cough out their own taxes.

Tax experts say the tax exemption limit should be increased to Rs 50,000 per month/Rs 600,000 per annum from a current Rs 25,000 per month because it’s impossible for an average family to live on this income, and bring everyone under the tax net. With some DGMs and the GM at the CEB earning well over Rs 100,00 a month as newspaper reports suggest, surely they should be asked to pay like any other private sector executive?

Public sector and corporation employees including the BOI are exempt from taxes. Some of them earn in the high range bracket equal to a private executive of the same standing. Apart from being exempt from taxes, they are also entitled to duty free vehicles and other tax free perks.

With government spending sharply seen rising next year with the eastern development programme also getting underway, taxes would be the order of the day under a discriminatory system. Maybe it’s time someone contests the tax system in court. That so far has been the only salvation of the people.