Columns

• The President says NO but SJB’s Harsha says YES

Since the country’s economic debacle, the immense hardships the people have suffered, need no retelling. After the shortages and the long queues had gradually ceased to become a daily phenomenon, in the midst of seeming stability, began the never-ending night of ceaseless taxation. With salaries remaining stagnant since the Covid pandemic, the Government chose to lower the threshold of taxes and impose an excessive rate on VAT on a beggared people, already gored by the economic catastrophe.

These people whom the economic debacle had left paupered have become the soft target to relentlessly tax to raise revenue to satisfy IMF demands while waste and corruption, two areas which have been identified by the IMF as causing a huge drain on the economy, have been allowed to thrive with scarce efforts made to plug the leaks. In addition to a massive failure to collect due taxes, billions of rupees lent to certain big businessmen have been written off by state banks through political influence.

Had the Rajapaksas ended a 30-year terrorist war only to unleash a 30-year economic war that may well lead to civil war? The present situation of general despair and dissent has created an ideal fertile bed of revolution upon which Marxist seeds sown earlier have already begun to bloom.

Instead of living in another house on rent, the main ambition of almost all people is to work and strive to build a home of their own, so that no matter what may befall, they, at least, have a roof over their heads. No wonder then the news has raised alarm among all homeowners whether they will be forced to a government imputed rent on the home they own and live in.

PRESIDENT: Will not apply to all

As the President in Mannar handed over freehold land deeds to 442 dwellers–out of the allocated 5,000 land deeds to the local residents–in the Mannar district this week, and advised them not to sell the land but to build a home of their own. His aim, he said, is to bestow 2 million freehold deeds under the ‘Urumaya’ programme. The following day in Embilipitiya he distributed another 1524 freehold deeds to eligible Mahaweli and Walawe settlers.  This was from an earmarked total of 45,000 settlers in the Mahaweli and Walawe regions.

In their exuberance in receiving freehold deeds to their lands, one dark worry must grip them this morning whether, now that they have become the legal owners of the land, they will be forced to pay a government-imputed rental tax, applying to vacant properties as well. The sheen may suddenly go out from the freehold gift when it dawns on them that the gift has turned them into members of the exclusive taxpayers’ club.

So will all homeowners be charged an assessed rental tax, effective from April next year, even if it’s the only home they own?

President Ranil Wickremesinghe says no. As he told Parliament on June 18, the government would exempt one house per owner from the proposed wealth tax outlined in the IMF programme. The tax would be imposed on high-net-worth people and not on average-income earners. Therefore, about 90 percent of the people’s houses are likely to be exempted from the proposed tax.

IMF’S BREUER: Will revisit the agreement

Exorcising the fears of all, he said: “One house will be exempted from this. It is going to have a very high threshold and I do not think the vast majority of the people in this country should even be worried about their house. Don’t worry your house will be safe.”

Phew! That is a relief. But one nagging question still lingers to perturb. There’s many a slip, as it is said, between the cup and the lip. Much can happen between now and April next year. What if, just for argument’s sake, Ranil Wickremesinghe—who is still to announce whether he will compete in the forthcoming Presidential race this October—is or is not the president, and, instead, a new incumbent occupies the presidential office? Will the calming assurance he gives now in June as President, still be binding on the new President come next April?

It’s certainly a cause for worry and profound concern.

This is specially so since SJB’s economic expert Dr. Harsha de Silva, in answer to the question if it only applies to multiple house owners, asserts a firm no. In Parliament on Tuesday, he firmly insisted that, contrary to what the President had said, the recently signed IMF agreement stipulated a rental tax will be levied on all owner-occupied properties.

In its latest report on Sri Lanka, the IMF has proposed an imputed rental income tax from owner-occupied and vacant residential property to be introduced by April 1, next year. The report said: “The introduction of such a tax is critical to sustain revenue mobilisation efforts as a substitute for the property tax which was initially planned for 2025 but faced institutional impediments.”

Dr. Harsha, who had already done his calculations earlier, said, “The aim of this IMF exercise, is to raise 150 billion rupees in revenue. If only an owner-occupied property is exempted from this, and only an owner with two houses and more will be subjected to a rental tax, the amount raised in revenue will hardly be sufficient to meet the IMF expected target of 150 billion rupees. If, as the President claims, it will only be applicable to those in the high wealth earning bracket, then the total revenue this will raise will fall miles short of the expected IMF target of 150 billion.”

Earlier in a TV interview, Dr. Harsha had said: “This is not a tax on property but a tax on a person’s income. Normally a tax is levied on the income actually received by a person. But here, an imputed rental tax on owner occupied property will be regarded as income actually received. If it only applies to multiple house owners, and that, too, only to those in the high-income earning bracket, then the revenue raised will not meet IMF’s target. I dismiss any claims that it only applies to a select elitist few and challenge anyone to deny that the recently signed IMF agreement states that it will apply to all home owners.”

SJB HARSHA: Will apply to all

In an article published on Friday in the Daily FT, he reiterated that the imputed tax will apply to one home owners. As an example, he cited the case of an individual with a monthly salary of Rs. 150,000 currently paying Rs. 3,500 in taxes. However, if the same individual is subject to an imputed rental income of Rs. 100,000 per month, his tax liability would skyrocket to Rs. 21,000 per month.

Last Friday, IMF’s Senior Mission Chief for Sri Lanka Peter Breuer, addressing a virtual press briefing said, “the IMF respects the democratic process and is willing to align its schedule with the electoral process.”

He declared, the IMF will revisit the agreement with the next leader within the ambit of the IMF bailout programme and warned that it is not feasible to reduce taxes by any administration as it was significant how the reduction in government revenues had contributed to a very severe crisis in Sri Lanka.

But the IMF, however, with its stress on raising government revenues, may well visit again other clauses with the next President, and hold, ‘the rental tax on all owner-occupied property’, as non-negotiable non-go zone outside the IMF’s parameter. Peter Breuer has already ruled out VAT and income tax. Can anyone say for certain whether a rental tax on owner-occupied homes will meet the same fate or not?

Despite IMF’s Mission Chief Breuer’s stubborn stance now, it’s possible the mood in Washington may hopefully soften when shown that bitter economic remedies used in isolation from its social consequences may well be the last straw that breaks the camel’s back.

Isn’t there something inherently foul in the idea of further burdening a beggared people by imposing a rental tax on a non-income generating asset they reside in?

If the SJB comes to power, the man tipped to be its Finance Minister, Harsha de Silva, vowed on Monday not to implement this ‘unfair and unreasonable’ IMF demand. At least, homeowners can heave a sigh of relief.

If the Marxist driven JVP brethren come to power, it will probably not matter at all. Though they may oppose this IMF clause on the surface, they may secretly welcome inheriting a ready-made formula to raise government revenues; and, by imputing an extremely inflated rental tax on all owner-occupied homes, tax them out of existence, making all private property be forfeited to the state for non-tax payment. In accordance with their Marxists beliefs, this will be an easy way of making all private property end up state owned.

A Lankan’s home will no longer be his castle but one besieged by a host of unknown tax liabilities in the offing.

Anura in London: PCs will remain until we identify lasting solution Last Sunday in Kilinochchi, Sajith Premadasa declared in the heartlands of the Tamil people, his intention to activate the 13th Amendment in full to meet the just grievances and aspirations of the Tamils. The following day in Jaffna, at the opening of his ‘Sakwala’ programme’s 229th digital classroom, he, with TNA MP Sumanthiran in attendance, reiterated the same 13th Amendment declaration. Two weeks ago, TNA leaders had decided not to field a candidate of their own in the forthcoming Presidential race. Instead they had decided to hold talks with all three Sinhala candidates before deciding whom to support. HERO’S WELCOME: Anura gets the rock star treatment As a result the TNA top brass in Jaffna issued a special invite to Sajith to have a discussion with them. At the meeting at the TNA office in Jaffna, they dealt at length with Sajith’s plan to fully implement the 13th Amendment and breathe life to the presently moribund Provincial Councils. The next day, JVP leader Anura Kumara turned up in Jaffna town, knocking on the TNA’s office door. He was duly auditioned for the role. He presented his plan to decentralise power to the Provincial Councils. After the private meeting was over, Sumanthiran—with Anura Kumara beside him—told reporters what had transpired behind closed doors. He said, “During the discussions with Anura Kumara he admitted that the Tamils should have the right to decide on their requirements. He also admitted that the provincial councils had failed to provide solutions to the problems of the Tamil people.” But had they failed because the 13th Amendment has never been fully implemented? Can one condemn a fridge for its failure to work, if it has never been plugged into the socket? Two days later Anura Kumara was in London to be smothered in adulation by Lankan fans in England. He was given the full royal treatment that befits a rock star arriving at Heathrow to take London by storm. The pre-publicity blaze included having his face prominently plastered on some double-deckers. In his maiden address last Saturday to a gathering of Lankan expats—many of whom are more patriotic and more chauvinistic in their love for the motherland than all SLPP members put together—he was asked about giving equal rights to the Tamils and the Muslims. He said that provincial councils will continue as it is under his JVP Government. Doesn’t that mean in the same comatose form as it presently is? To the gullible applause of his Lankan expat group, he declared in London: “We will continue with provincial councils as it is. We will not scrap them. We believe that it is not a lasting solution. Our policy is to continue with the provincial councils as they are now until we identify a permanent solution to address the grievances of Tamils.” But will that be a comforting answer to satisfy a shrewd Tamil people? That the JVP leadership, for all its blistering talk about injustice, has no clue whatsoever as to how to remedy the grievances long borne by the Tamil people? Except to say they will think of a way, sometime in the future. Tell that to the pigeons in London, Anura.