By P. Soma Palan –

P. Soma Palan

I refer to the front page headlined news report under the above caption in the Daily Mirror of 20^th October and wish to express my views on it. The President of our country states that “Raising Direct taxes inevitable to reach the IMF goals” to obtain financial assistance to meet the grave economic crisis and bankruptcy we are faced with. If taxing the peoples’ personal incomes is inevitable to get IMF financial assistance to overcome the economic crisis and bankruptcy created by the corruption and mismanagement of the ruling class, why peoples’ wellbeing is sacrificed and made to suffer, instead of the Politicians who are responsible for it. If taxing is inevitable, recovering the stolen money from the thieves is an inescapable righteous duty of the Government in power. What action has been initiated to recover the ill-gotten national funds tucked away in offshore and local Banks.

The Government must take a positive and definitive action to do so, instead of taxing the people of their hard earned money and adding fuel to fire to their economic suffering. Who brought about the current economic debacle and bankruptcy? It is the Rajapaksa clan and their collusive officials, friends and henchmen who brought the nation to the present bankruptcy through bribery and corruption on grandiose projects of little or no value to the nation. This led to senseless piling of foreign debts to unmanageable levels of around US$51 Billion and financial insolvency. It is this state of affairs that drove the Nation to genuflect before the IMF with a begging bowl to refill our Dollar reserves to some extent. It is the wanton stupidity and egregious irresponsibility of those governing the nation that caused not only a financial and economic crisis, but a social crisis as well. We have not faced a situation like this in our history. The people are called upon to pay increased taxes for the sins of the ruling class. Those who are responsible for the financial crisis are untouched by the punitive action of the law and roaming the country freely and in fact covertly making deals to return to power and position once again, to perpetuate the greed to exploit the nation’s resources.

Taxation

With regard to taxation, though increasing the rate of tax on business Companies is in order, it has a negative effect also. It inhibits or restricts the capacity of Companies to expand investment, economic growth and job creation. But increasing the personal tax of employment income of the middle and professional class by lowering the threshold of income, from its former limit to Rs. 100,000/ per month, is an unbearable tax burden in the present situation of ever rising general and food inflation. The presumption is that the tax free limit of Rs. 100,000/-per month is sufficient for a middle income professional to live, leave aside a family of even two children. Can the middle income employees and professional s who has to maintain a standard of living such as a decent home, means of travel ,either a motorcycle or a car, educate the children etc live on Rs.100,000/- per month? No, certainly not.

Personal income tax is a negligible contribution to the Gross National Income. An eminent former Harvard University Economist like Dr. Subramanyan Swamy is of the view that Personal Income tax should be abolished. If it is abolished, there will be more purchasing power with the people. This generates increase in demand for goods which in turn leads to increase the supply of Goods and Services .Thus, the growth of the economy is stimulated. Instead of relying on meager Personal Income tax, the Government must harness other forms of Taxes like Customs Duty, Excise Duty, and intensify the Export driven economy, by diversification of exports and stimulating further our traditional exports, Tea, Rubber and Coconut. Export-oriented Research & Development to innovate new marketable products based on Tea, Rubber and Coconut is almost non- existent. For instance, cannot we develop an exportable aerated drink out of the natural Tea, similar to Coco Cola, which would be more organic, unlike Coco Cola? This would have a market potential in western countries. Similarly, we can develop new products which are Rubber based. We do not have a dynamic National Research & Development tradition.

Our taxation policy is iniquitous and selective. It is more concerned with taxing the employment income of the middle income and professional class and leaves out the political class who engage in various businesses like liquor shops, petrel sheds, bus transport services, casinos, restaurants etc. Do they declare their income by complying with Income Tax Returns to the Inland Revenue Department? The Inland Revenue Dept. is not bothered to investigate, because of their political privilege. It is also stupid to expect them to pay their taxes, when they do not pay even their Electricity Bills of their residencies amounting to lakhs in arrears to the Electricity Board. On the other hand, one sees the apathy of the Inland Revenue Authority in investigation of likely tax defaulters, who are politically connected. For example complaints made against Thilini Priyamali as reported in the Daily Mirror, that one businessman lost Rs750 million and Former Colombo Mayor, Azath Sally lost Rs. 80.5 million by investing in her Company. If this is the amounts invested, one can imagine the actual wealth of these people. Have the Inland Revenue Dept. queried them as to how they earned such large sums of money and whether they had declared and paid their Income tax?

Curtailment of National Expenditure                                                                                                                                                                                                                                                                                                                                                                                                                                                      

The PM talks of the inevitability of increasing taxation but silent about the inevitability of pruning down the National Expenditure as another IMF goal. The reaching out to this goal of the IMF is more crucial like curtailing National Expenditure and reducing the fiscal deficit is more compelling. Our Recurrent Expenditure on payment of salaries to the Public Service and the Military and Police Forces is staggeringly high due to the excessive number of personnel. The Public Service and the military and Police forces are employment generation factories of the Government. Politicians’ overriding interest is to provide jobs for the boys and girls in the Public Service and the Military/Police forces. The more you recruit, more votes are secured at elections. When you appoint one person, you have 3or4 more votes of the family. 

Public Service and the armed Forces are the dumping grounds of Party supporters of Politicians. With increasing numbers, the output or productivity gets decreasing. The quality of the recruits is sacrificed for political patronage. One can see the lowering quality of those recruited to the Military and Police forces. During the British rule, strict standards were applied for recruitment to the military and Police forces, such as required height, physical measurements. I see on our streets youngsters in their 20’s as Traffic Policemen who cannot even stand erect, lean and feeble.

There is an excessive load of personnel in the Public Services, meaning the Administrative services. This is further compounded by the addition of State owned Business Corporations and Entities. The prime task of a State is not running business organizations. Recruitment to the Public Service and Military has to be stopped. State Owned Enterprises should be divested by handing them over to the Private Sector. This alone, will substantially reduce the State expenditure in payment of salaries and future pensions. Further, one can rationalize the use of public service personnel by transferring staff from where there is an excess to places where there is a scarcity and need for recruitment.

In respect of the military forces, do we need a large contingent of a military, which is said to be around 350,000 soldiers? A larger nation as Britain has only 90,000 in their military outfit. Are we in danger of an invasion or are we planning an invasion and conquest of another country? Can we stand the military might of other nations? Then, why are we allocating around 14% of our total Expenditure for Defense purpose? This is more than what we allocate for Education and Health. Isn’t this irrational expenditure? Why can’t we downsize our military to required limited purpose? The Politicians need the Military and Police to protect themselves and as an instrument to oppress and control public dissent. And more so, to carry a war of attrition in the North Eastern region where the Tamils are the majority, by having Army of occupation for the last 13 years, using psychological pressure, to facilitate a demographic change favorable to the Sinhalese.