By Tisaranee Gunasekara –

“I shop everywhere, anything that fits perfect will be purchased, price and name does not matter”. – Rohitha Rajapaksa (Daily Mirror – 8.5.2013)[i]

In her autobiographical-history of Pre-revolutionary China, Han Suyin explains how the country’s incompetent and spendthrift rulers used taxes as a mode of wealth-extraction from ordinary people. Kettle tax, stocking tax, bedding tax, hog tax, wealthy house tax, army mule tax, troop movement tax, soldier reward tax…the list was endless. “There was inaugurated in certain areas a ‘happy tax’ for the purpose of promoting happiness on the day taxes were paid”[ii].

‘Janamoola Nayakaya’ (Leader rooted in the People) is one of the innumerable accolades bestowed by the Rajapaksa-state media on President Rajapaksa. The Rajapaksas use ethno-religious chauvinism to create a sense of identification and commonality between themselves and the Sinhala-Buddhist majority. This rhetoric of solidarity is belied by Rajapaksa economics. As the 2014 Budget reveals, again, a fundament of Rajapaksa economics is taxing the poor and the middle classes (including the Sinhala poor and middle classes) to the benefit of the Ruling Family and its kith and kin.

This week, JVP Parliamentarian Anura Kumara Dissanayake revealed that the government imposes a tax of Rs.25 on a litre of petrol[iii]. This is just one example of the nexus between indirect taxes and cost of living in Sri Lanka. Indirect taxes form the financial mainstay of the government. Prices go up, primarily because of indirect taxes; indirect taxes go up, because the government has no other way – apart from borrowing – to make ends meet.

According to 2014 Budget 87.1% of government income is expected to come from taxes; 67.1% of government income is expected to come from indirect taxes.

2014 Budget reveals not only a government dependent on indirect taxes for its financial survival but also a government which is intent on rewarding its kith and kin at the expense of the masses. This bias is obvious in the way the regime wielded its tax-sword to the detriment of the ‘Common Man’ and the benefit of the ‘Rajapaksa Man’.

Cess taxes were increased, at unspecified rates, on a range of goods including wheat flower, cheese, curd, margarine, sauces, sausages, sweets, chocolates, cereal, pasta, vinegar, vegetables, mushrooms, nuts and fruits, fruit juice, mosquito coils and cut flowers. A 25% tax was imposed on gauze. Import cess taxes on steel products, aluminium bars and tubes, padlocks, hinges and Portland cement in packs of 50kg or below were hiked. A special commodity levy was imposed on sprats, chickpeas, green grams, canned fish, sugar, Maldive fish, dried fish, orange, coriander, cumin, tumeric, ground nuts, mustard seed, palm oil, salt, yoghurt, butter and margarine. A Nation Building Tax of 2% was slapped on banks. A 5% tax increase was imposed on telecom services. VAT exemptions on paddy, rice, wheat, some spices, dessicated-coconut, rubber, latex, coconut, tea including green tea, rice flour, wheat flour, eggs and liquid and powdered milk, tractors, semi-trailers, machinery for tea and rubber industry, plant and machinery for firms, and some pharmaceutical preparations were removed[iv].

2013 budget gave a 300% tax break to super racing cars. That trend of pampering a tiny sliver of the politico-economic upper crust continues in the 2014 Budget. Designer pens, ties and bows have been made Cess-free. Branded consumer items have received a tax relief; they will be taxed at 7.5%, the lowest rate possible.

Indirect taxes, imposed not on luxury goods but consumer essentials, amounts to a form of wealth extraction from ordinary people. When this extraction is not balanced by increased incomes, consumption levels decrease and debt levels go up. This scissors crisis in popular living standards causes a host of secondary problems, such as the exacerbation of under-nourishment. Japan has already warned about precarious nutrition levels of among resettled IDPs, especially children[v]. As Amartya Sen and Jean Drèze point out, “Endemic undernutrition is a less obvious – less ‘loud’ – phenomenon than famine… But even in terms of sheer mortality, many times more people are killed slowly by regular undernourishment and deprivation than by the rarer and more confined occurrence of famine”[vi].

Sri Lanka is in danger of becoming a country characterised by under-developing people. And as Budget 2014 demonstrates, national wellbeing (including Sinhala-Buddhist wellbeing) matters to the Rajapaksas only as an attractive façade and a convenient slogan.

Acolyte Capitalism

Using the example of Latin America, Michael Walton warns India about the dangers of ‘structurally disequalising growth’ caused partially by “implicit social contracts between the state and the business and the state and various social groups”[vii].

This warning is extremely apposite for Sri Lanka, not only because the country is becoming an Asian leader in inequality-increase but also because the growing nexus between the Rajapaksas and a segment of the private sector is becoming a key-determinant of economic and budgetary policies.

According to some analysts, the regime is using taxes to impose protectionism, for the benefit of favourites: “In a continuing disturbing trend, more industries were given protectionism, allowing favoured businessmen to avoid competition, further worsening a culture of rent seeking and exploitation of poorer consumers. Boats and gauze were added to the list while protectionism was increased for building materials and food. Already monopolises have developed in building materials under protective tariffs…”[viii] After a recent spree of acquisitions, the Rajapaksas’ in-house business magnate, Dhammika Perera stated, “We now have a monopoly in ceramic tiles and aluminium industries”[ix]. Mr. Perera is reportedly a ‘big fan’ of President Rajapaksa[x]. Naturally; the Rajapaksas kept him as the BOI Chairman for three years and then made him the permanent secretary to the Ministry of Transport; Rajapaksa economics and Rajapaksa budgets are particularly good for his many businesses.

This is Acolyte Capitalism, a system where success in business depends on how loyal and obedient you are to the Ruler/s.

In October 2013, the Perceived Economic Opportunity Index (PEOI) decreased, “ending up around the lowest level since the index was developed in July 2011… Most people are just managing to meet their household expenses but are worried about rising prices into the future, according to the Index complier.”[xi] This tallies with the findings of the far more scientific opinion poll by the CPA; ordinary people, from South to North, want decreases in living costs and improvements in agriculture, health and education. The Rajapaksa priorities occupy the polar opposites, as Budget 2014 demonstrates.

The rich and the poor, the powerful and the powerless do not inhabit the same world. Sensible policy makers try to lessen this gap, lest a clash of the worlds happen. The inverse is happening in Sri Lanka. Mahinda Rajapaksa’s latest budget proves, again, that the regime, given its nature, cannot but continue on its current economically ruinous and politically destabilising anti-Robin Hood path.

Attacking political critics and opponents, mismanaging national finances, tolerating obscene disparities, further alienating ethno-religious minorities and antagonising powerful regional/international players – these are outward signs of a fatal systemic disease. Patriotic rhetoric and fear mongering are merely interim solutions to the crisis. As the other Rajapaksa-priority – a gargantuan military and a bloated defence budget – indicates, naked force will be the Siblings’ ultimate solution to the burgeoning economic malaise and its socio-political and electoral fallout.