Tax receipt, last year
I recently paid my income taxes. For me, this involves two trips to Maharagama, one trip to the bank (or into the nether reaches of my closet where my checkbook dwells) and a sizable amount of money. This year it was mostly foreign exchange so my tax bill was paltry, but last year it was painfully huge. Evading taxes in Sri Lanka is not necessarily easy, but it’s not hard. Only about 600,000 entities (including corporates) pay tax, and a lot lot more are evading. So why do I pay taxes. Honestly, so I can bitch about the government.
Economics and democracy are related on the surface, democratic countries tend to be richer, but the relation is usually framed as ‘democracy leads to economic growth’. I think it may be the opposite. Take America for example. The American Revolution didn’t start over liberty or freedom or any such noble values. Those came, but the first protests were over taxes. Not that there were taxes, but that there was taxation without representation.
“A share of wealth (however modest) provided a broad range of citizens with a compelling incentive to demand better government, and emerging elites on both sides of the Atlantic insisted that taxation entitled them to political representation. Autocrats reluctantly accepted new political entitlements, giving birth to a more mature social contract between leaders and those they led. The right to vote spread gradually. (The End Of The Free Market, Ian Bremmer)”
If you can say no taxation without representation, couldn’t you also say, no representation without taxation? This is why many countries seem to be pursuing the economic development first model. Because that’s how America developed. If you give everyone the vote (as opposed to wealthy land-owners as in wealthy America) they seem to vote for autocratic systems that deliver growth.
The Executive Director of the IPS and sitter on Mahinda’s tax board has said that there are only about 600,000 tax paying entities in Sri Lanka (Sunday Times. I would presume that they have a greater regard for liberal democracy than the population at large, but they are also direct shareholders in the system. 80% of tax revenue, however, comes from indirect taxation. Taxes on petrol, food, energy, etc. Also inflation. Thus, poor people are shouldering most of the burden but with the least direct involvement. It’s a deceptive system.
I’m going through this book (Bremmer, above) which has a brief history of capitalism and it seems that there is a virtuous cycle between democracy and economic growth. “Free markets, they argued, produced greater prosperity; prosperity created middle classes; middle classes demanded better government.”
That is, Kings and autocrats have always had stakeholders. The history of democracy has broadly been the expansion of those stakeholder. England had a King with wide ranging powers until nobles demanded a stake through the Magna Carta. That system had wide powers over the American colonies, until they demanded representation, or else. Those white landowners had wide powers over black slaves, women, poor people, etc, till they had the civil war, civil rights movement, full enfranchisement in the last century, and then Barack Obama. Thus, democracy is an expanding system, and it seems to expand apace with the economy.
This makes one wonder if its even possible to drop democracy on weak economies and expect it to work. It may be putting the cart before the horse, putting representation before taxation.
I shall close with quote from the book, which, while not entirely relevant, is entirely hilarious
A government that robs Peter to pay Paul can always depend on the support of Paul – George Bernard Shaw.
I think it’s very easy for non PAYE individuals and corporates to evade paying taxes here, and they do. LIke the man said, non/under invoicing and overstating expenses is very common. The complicated nature of the system may also be a disincentive for small scale businesses to file returns, even if they wanted to.
I had to visit the tax dept many times about some problem my mother had, and judging by the people I dealt with, it doesn’t surprise me that so many escape without paying. Their filing system was archaic and the people disinterested.
They’ve certainly made very poor progress in dealing with that massive VAT scandal.
Another interesting thing I heard is that the LTTE plane crash incident did a lot more damage than we thought. Lots of documents were destroyed, or are claimed to be destroyed, which will make it difficult to prosecute evaders. Last year, a few people I know got notices asking them to produce receipts for taxes they’d already paid.
Are you hinting at the possibility of a revolution?
Most of the taxation her is done at the consumption end not the income end.
tax revolution. viva la taxcion!
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I know it doesn’t make sense ;p
Looks like something Lefroy would write
The government can’t get 80% of it’s revenue from the consumption end unless they tax essential items. Hence the revolution.
@Indi
Dude, you’re loaded enough to pay income taxes?
We need to hang out more often.
What is income tax?
Zorro? :D
*tax
Dodo, can you really wiggle one eyebrow?
Not only that, he seems to be sending in an honest return too.
But of course, that which he didn’t wiggle, banished him to the land of extinction.
Do you pay millions in taxes each year?
It is not possible to drop democracy on people – it is a slender flower that blooms only when carefully nurtured. It is fertilised and watered by the institutions – the judiciary, the legislature and the press. The whole thing works within an independent public service, where services to citizens are rendered by officers who are guided mainly by the constitution; the policies of the politician will be taken into account only as long as they do not conflict with the constitution.
This institution building takes decades. It was the relative shallowness of the institutions in Pakistan and Bangladesh (neither was plannend as an independent country) that condemned them to the destructive political cycle that they find themselves in. This was also the curse of many of the newly independent African states. The few that preserved the system, such as Botswana flourished.
good post
and its hard to attribute Botswana’s success/flourish to the carefully nurtured democracy flower. i think the democracy bloomed in large part due to the diamonds (coupled with the carefully penned ownership/policy framework of course). i guess the point is that in most of history’s case studies, democracy has primarily worked not due to the merits of the system but due to the presence of that something extra, which always came first.
“i think the democracy bloomed in large part due to the diamonds (coupled with the carefully penned ownership/policy framework of course)”.
Interesting statement. Try applying this statement to DRC.
I liked Jack Point’s comment.
I am not sure whether he was taking a carefully worded potshot at our own government, judiciary, legislature and press, but I will bet that if we had resources like DRC, Botswana, Namibia or RSA, the only difference would be that the Rajapakse’s will be sorted for a few extra generations, what with their penchant for “controlling” the press and judiciary and bribing corrupt politicians to pass legislation to suit their requirements.
Who knows? Maybe they’ll find large oil reserves off the NW coast and come to the aid of the Rajapakse’s of 2110.
The problem in SL is simply the fact that there are too many proles (godbless George Orwell), who could easily overthrow any undemocratic government without even having to conspire against it, but never become aware of the need to do so. They are not to be blamed, for theirs is a ‘bath packet’ life. You’re either hungry, or you’re not. If you’re not hungry, it’s alright. If you’re hungry, it’s still alright.
Proles are animals. That’s what they are. To build a successful democracy, what you need is people who have the time, knowledge, and intellect to think critically and independently and act accordingly. Basically it means that you need a large middle class (it’s obvious that not everybody can belong to the upper class).
That’s probably why Mahinda believes in trickle down economics. It’ll certainly not expand the middle class.
agriculture subsidies and massive rural investments are truly a hallmark of trickle down economics
The Rajapaksas seem to be following a similar blueprint to this, so they’re sorted for more than a few extra generations methinks :(
http://www.guardian.co.uk/world/2008/may/05/1
@Dodo
I don’t have to explain that agri subsidies have more to do with politics than economics. I hope you were a duck, instead of a Dodo, so I can tell you that those Agri subsidies are the only things you got to quack about.
As for rural investments, yeah sure, if you only watch ITN. I wonder whether evicting half a million people from Colombo is part of those rural investments, and not increasing the salaries of public servents is to save money to develop the living standards of the rural poor, and making a budget that’s so obviously pro-big-businesses is part of those rural investments since jobless rural poor might be able to work in some plastic factory and die soon.
whether the agriculture subsidies there for political reason or not is non sequitur. they are there, and helping a large number of people. And there is more to quack about Lefroy, what about rural roads do you have the faintest clue how much of the vegetables were going bad before they ever entered the market. Those were losses that farmer used to bear.
and AFIK those people aren’t getting evicted they being moved to apartment complexes just outside of colombo. A smart thing to do, hong kong did it in the 60s and it helped the country alot because it will free up thousands of acres of land for property development and setting up businesses. and the budget while business friendly isn’t really anti welfare. The problem with reganist policies were not that they were business friendly but that they helped big business at the expense of the social safety net. All these arguments about tax cut and all will be valid only if our welfare system is actually propelled by income taxes, but that’s not the case. very few people pay income taxes and given our system it’s far better to charge less income tax and somehow incentivise more people to at least start paying.
and frankly i’d rather 50% of the public service sector disappear. They certainly don’t deserve a raise. one thing the government should have done is force companies to channel more of their profits into EPF & ETF
@Dodo.
I should’ve mentioned that – roads. Agri subsidies and roads (Roads that I doubt would be roads after a decade or so. But I’m no expert).
About the “GREAT EVICTION.” Now Dodo, don’t tell me you’re naive enough to believe that “all those people will be peacefully moved to apartment complexes just outside Colombo.” If anything is certain, it’s that those people aren’t going to go peacefully. They’ve been living there for at least one or two decades, and they won’t just go. Rajapakse government is going to shoot some (Mervyn is now a tool, not a weapon), and some of the rest will be given barren land with no shelter. I do believe some of them will get to live in apartment complexes (those who’re selected by means of Natural Selection. Hah). But the rest will find life harder than it is now. 0.5Mn is simply too much for a government which still struggles to handle thousands of IDPs.
About taxes. Less income taxes means more indirect taxes to support the welfare state. How’s that a welfare state in the first place.
About public sector not deserving a raise. I believe you, like me, is an atheist. But if there’s a god, praise him for not making you a school teacher.
Lefroy, those people were living in land that does not belong to them and prime real estate at that. the plan is to move them into high rise apartments. Gota is handling it. whether it will work or not we will see in another 5-6 years time.
the simple matter is that people aren’t paying taxes bringing down the tax level and offering pardons for people who pay taxes is a way of getting more people to participate in paying taxes. 50 people paying 10% is better than 10 people paying 35%, that’s the plan at least.
well i think teachers are an exception they should be treated a little differently from the other public servants but the vast majority of the civil service actually needs to be fired. The public sector is too large & too inefficient here, it needs to die out.
@Dodo
Isn’t it clear from the fact that it is Gota who’s handling it how they’re going to handle it?
For some, ends justify the means. The end here is a clean, business friendly city; an asian miracle. Very good indeed. The means however, are undemocratic and cruel. Somehow I’m not comfortable with this.
Of course people can’t just go and live in lands that don’t belong to them. There are laws against it that should be endorsed. But even then they should be endorsed in a humane manner.
Those people have been living in Colombo for decades now. Some of them have born in those slums, and can even vote for Duminda Silva. Some of them are getting ready for the A/L exams in May. Some of them for O/L and Grade 5 Scholarship. Some of them have permanent jobs. Some of them have not so permanent jobs. There are 500,000 of them, and all of them will be herded out of the city by government which has proven themselves incapable of properly handling IDPs, and allegedly responsible for several deaths and disappearances of beggers in the city.
From the point of view of those people, or of a secular humanist, development seems to be a little too costly.
If people don’t pay taxes, they should be jailed for that. Tax evasion is a crime in any country. Needless to say, those taxes should be fair and reasonable. However cutting taxes to the rich, simply because they don’t pay it, doesn’t solve anything.
In any case, I don’t think that’s what motivated the government. I think the government sincerely believes that because of low income taxes, the rich will invest more in the economy and that’d create jobs to the poor. Ergo, prosperity will trickle down.
There’s also the minor fact that Mahinda has quite generous ‘friends’ such as K.A.D. Perera and Thilanga Sumathipala, who invested a damn lot in him and his presidency.
Teachers is hardly an exception. For example, what about those labourers working for the MC? Of course, most of them are politically appointed. But so are teachers, and some of them, unlike labourers, are unqualified for the jobs they’re supposed to do.
I’m happy that Colombo is being cleaned up, especially the pavements. The government may not be able to build flats to resettle them all in a great hurry. They could give preference in allocating the available flats to those who have special problems like children sitting exams, and provide loans on easy tems for others to build their own homes. I don’t believe these people are really all that destitute. Suitable land will have to be found of course. Considering the unhygenic and dangerous condition these slums are in, it may prove to be a blessing in disguise for these people. I have confidence in Gota too, he has enough power, authority, and the drive to get a job done. But I am concerned as to who will get the prime land thus released, and the purpose for which it will be used. I don’t want the whole of Colombo to turn in to a Vegas or a red light district in the guise of developing tourism. We have plenty of other tourist attractions to sell.
Is there any reasonable basis to think that the government was responsible for the beggars who were killed? I thought the motive was robbery.
I think it’s not the MC labourers who should be fired but the people who manage them, who have authority over them. There’s plenty to be done, which is not being done, because the labourers aren’t properly supervised. These labourers sign in in the morning and then go and do another job somewhere else. People in authority should be dealt with for not making maximum use of the labour force. It’s the same at CGR, and other govt. and local govt. institutions. There is this sad lack of accountability, which is what makes it different from the private sector.
Similarly with teachers, I feel that instead of firing them they should be made to work at least two extra hours in the afternoon. This time could be used for practicals, projects and additional help to students who feel they need it, and to improve reading and writing skills of primary school students. Maybe even adult education classes for those poor illiterate women who plan to work in the middle east. (Though I would much rather they altogether discouraged women going abroad for menial jobs in households for a pittance) It might help to curb this absurd private tuition craze, as well, which will save parents a lot of unnecessary expenditure.
@shammi
You’re missing the point by a mile.
Of course, but that’s what I always do.
Anyway, what I’m saying is that we should make our tax money go as far as possible, and it would, if those who are responsible are made to account for what they spend. The fat public sector is a burden and politics will make reducing it difficult. High indirect taxes that go to maintain it would be bearable if some social ills could be addressed. Some might argue that an efficient public sector is an oxymoron. I think this can be changed if accountability was strictly maintained.
The welfare state only makes people lazy. We can be proud of where our free education and free health service has brought us, but I think the time has come to start charging at least nominal fees for these services in order to maintain good standards, and give people a say in how it should be run.
As for taxation of big business, the problem is lack of enforcement more than the low rate of taxation. High rates are inhibiting investment, and that is not what we need if we are to open up underdeveloped areas. If the tax collection was more efficient and evaders brought to book, direct taxes could become a larger portion of the revenue.
If anyone deserves a tax cut, it’s the small business owners (who usually belong to the upper middle class. They might even own Prados, but most probably Monteros or Allions) because they’re the ones you can count on to create jobs. Big businesses don’t create jobs. They make large profits without really creating a similarly large number of jobs. There will be economic growth, but it’d be a jobless growth. Job creation is the only real solution to poverty.
As for holding people accountable and making tax money go as far as possible, to do that you’d need strong and popular leader who is far ahead the present zeitgeist, both morally and intellectually. As far as I know, there’s only one such person, and he too is worthy enough for the job only because of his post-coital philosophical inquiries into human suffering and monotheistic religions. His name is Thomas Lefroy and he has better things to do other than go against the maha raja and celebrate his 60th b’day in a prison cell.
I don’t know whether you’re right O morally and intellectually superior Tommy, (who can’t seem to say anything without bringing coitus in to it) because I’m not an economist. I would have thought it required large businesses to make large scale investments in rural areas so far untouched by industrialisation, to make any real impact. Their diversity and scale would negate or absorb the initial losses. Medium and small scale enterprise would follow them to provide related or incidental services.
Accountability should be demanded by the voting and taxpaying public.
p.s.: Contrary to what you say, you do seem to have a penchant for literary characters.
oops, literary figures.
Why? Is coitus morally wrong now?
There’s no doubt that the growth of big business will result in the growth of the country’s economy. But there the idea is, while the already rich will become richer, prosperity will trickle down to the poor. There’s no problem with the rich becoming richer. But there’s certainly a problem with the trickling down part.
I also have a penchant for poems about reincarnation, so I can laugh at them. Like,
“At times I almost dream
I, too, have spent a life the sages’ way
And tread once more familiar paths. Perchance
I perished in an arrogant self-reliance
Ages ago; and in that act, a prayer
For one more chance went up so earnest, so
Instinct with better light let in by death,
That life was blotted out not so completely
But scattered wrecks, enough of it remain,
Dim memories, as now, when once more seems
The goal in sight again
lefroy, have you actually read the budget? a lot of the things you are asking for is actually in there. except for state workers more money. they’re getting 5% hike that should cover the inflation that’s more than enough for them considering how much they contribute to this country.
The UDA project is happening. they raised several billion rupees through the public debenture which alot of big businesses, banks & foreign funds invested in. they’ve started calling some of the tenders already.
also, terms like ‘jobless growth’ are completely meaningless in places like sri lanka.
Okay Dodo, if you say so. It must be the budget of Monaco that I skimmed over. Anyway 5% raise is certainly enough when you think about it critically and biblically.
The term “jobless growth” is only half meaningless in places like SL. Jobless has meaning. Growth does not.
you’re doing a good job of sounding stupid here. small business are definitely getting massive benefits. to name a few excise & vat are removed for things like busses, lorries and three wheelers, electricity is offered at concessionary rates to small business owners, the tax brackets are also skewed to favor small business owners. there’s actually quite a bit more there. the minimum tax threshold has also been pushed up from 300K to 600K. I don’t know where you come from but those are definitely benefits for small business owners & the middle class in general.
jobless growth happens when in places like america. when economies go into recession jobs are lost businesses are closed. when things start again those same services are replaces by either automated machinery or foreigners. thus you get the same out put with less local employment. the sri lankan economy cannot out source or introduce automation. Infact, cheap relatively skilled labor is our specialty. moreover, bussiness here always require a large amount of labor take for example tourism. It’s not like you can open a hotel without hiring 100s of people.
@Dodo
You are doing a good job of sounding condescending here, and also in conviniently forgetting your peacefully moving 500,000 people in Colombo slums to apartment complexes just outside Colombo.
About electricity rates, yeah sure, if your business belongs to GP 1, it will not go up (not go down either). But if it belongs to I 1, then the unit price will increase by 1 rupee.
Moving on, tax revenues are expected to grow, and it seems, not by reducing the tax burden, but by the expansion of tax base. Most probably it’s going to fuck the tax revenue. Then, no matter what they say, inflation will go up, making poor poorer. That 5% increase of salaries will do nothing. But hey, you’re right. The middle class is going to have a wonderful year.
As for “jobless growth”, oh I’m sorry. Here, this term isn’t used in the same way it is used by americans to criticise the Obama Admin. Jobless growth here simply means just that – jobless growth.
Oh. Now that you’ve mentioned it, hotels are going to get totally fucked upside down with the increase of electricity rates by 30%-40%.
That’s for large hotels. None of which are owned by small timers.
Interesting thoughts – by Alain De Botton of course..
http://video.ca.msn.com/watch/video/where-is-our-tax-money-going/16is1n9hx
http://video.ca.msn.com/watch/video/we-should-rebrand-tax-as-charity/16iaeu4wh