Editorial

It was a starless night sky that was lit up by short bursts of fireworks and skyrockets to herald the New Year 2024. The constraints of the people’s purse dampened the spirit of the occasion. More significant were the economic fireworks that were lit on day one of the New Year with the increase of the Value Added Tax (VAT) from 15 to 18 percent and from zero to 18 percent on 95 new items. The increase hit every household and business house across the board. It was an inauspicious start to the New Year, and one might have wished for another old year, rather than the new one just dawning.

The Governor of the Central Bank and the Treasury Secretary tried to explain the situation to the people through a television interview. It was late at night when they came on air, and a day or two too late. People were seething and afraid. The duo empathised with the citizenry, but their explanations were too high-flown, and the people were in no mood to listen if they were awake. The interviewer from the President’s Media Division did his best to throw in some questions relevant to the people. Why must the ordinary folk stomach these tax hikes for no fault of theirs, he asked. For the Opposition, this was heavenly manna in this election year. Others asked some practical questions. Is this the only way to collect government revenue? What steps have been taken to cut waste and corruption? And can the new tax regime succeed when the people just cannot cough up the cash?

The VAT shock turned out to be more than what was expected. It was only after the display of prices ‘Before and After’ that reality dawned. The Government’s delay in making public what items were to be brought under the net and what were still exempt created confusion and gave an opportunity for unscrupulous traders to exploit the confusion. A weak and ineffective Consumer Authority was useless in the circumstances to protect consumers. Like in the case of Income Tax, those who don’t have a VAT file benefit from such exercises.

The Government probably expects the public to settle down after the initial burst of frustration, adjust their home budgets and get accustomed to the new prices. The residual effects from the increase are, however, going to be felt for a long time. The knock-on effects are also coming from varied avenues. The rains have ruined the vegetable and fruit cultivations, and food prices have shot up. The lack of coordination with national plans has sent mixed signals. For instance, the plan to convert to renewable energy sources by 2030 has been slapped with the VAT on solar power providers, a classic disincentive for the drive towards clean energy and savings on oil imports.

It seemed difficult for either the Governor or the Treasury Secretary to say when the situation would ease and citizens would get some relief. That was a little comfort for the people. The Opposition has taken advantage of the situation to tell the people that the only solution to their woes is an election, implying very clearly, a change of government. “Elections will ease your pain,” they say, and the masses who don’t know and don’t care about economic calculations like revenue to GDP, etc., buy into that simple premise that elections are the only answer to all this suffering. Whether they are any wiser from the bitter lessons of the ride they were taken on in 2019 is very much in doubt. The message that the country’s economic ills will outlast the next election, whoever is in office, has not been adequately transmitted to the electorate.

The January 1st taxes were not accompanied by an announcement of relief measures for the poor, concessions for the exporters, or the small and medium enterprises (SMEs) that are very much the backbone of the rural economy. The Governor called on the public to sneak on others who are not paying their taxes, advocating shades of the Orwellian view of mass surveillance in totalitarian states with no whistleblower protection laws in place.

While the Government is keen to inculcate a tax-paying culture like in advanced economies, a corresponding anti-corruption drive and aggressive recovery of stolen assets strategy would have received better understanding and support from the public to lift the country out of the economic abyss the nation remains in.

A friend in need; a friend indeed

The Finance Minister of Japan is due in the country next week in what should be a significant step in the rehabilitation of Sri Lanka’s economy from the dumps of 2022.

Japan has long been an all-weather friend. The ‘soft spot’ for Sri Lanka extends to its ‘soft diplomacy as a member of the ‘Quad’, the four-nation security grouping with India, Australia and the USA to keep a tab on China’s growing influence in the Indian Ocean and beyond.

Sri Lanka made a total hash of its relations with Japan when it scuttled a monorail project given on the easiest of terms. It was a criminal act by those responsible in that Government, and Bangladesh was the beneficiary of Sri Lanka’s rogue officials of the day. Fortunately, relations are back on track, and Japan has forgiven, but surely not forgotten.

Finance Minister Shunushi Suzuki was at the forefront of Japan’s endeavours to win the support of creditors in Sri Lanka’s debt restructuring efforts all of last year. Japan has indicated its willingness to invest big-time once again in this country once the restructuring steps are done and dusted.

It has stated that it stands ready to reignite the economic partnership between the two countries, and revitalise stalled projects once the debt restructuring process is complete. Its large corporations also await entry into the Sri Lankan economy through its private sector.

However, Sri Lanka is yet to come up with a priority list, with various ministers seeking help directly from Tokyo sans any coordination with the Treasury or ‘by your leaves’ from the Foreign Ministry.

Maximum advantage must be taken from Finance Minister Suzuki’s visit for Sri Lanka’s recovery from the ruins of bilateral diplomacy in 2019, leading to the ultimate economic crash of 2022.