I recently got a letter from our Company Secretary stating that we owe the government Rs. 60,000. For existing – just for having a registered company. The government has also introduced a Capital Gains tax (tax on profits for sale of shares or property) and they’re increasing VAT and income tax. Basically, taxes are rising, in a way that affects all of us directly.
Why
The government is broke. With the global economy slowing down and over 9.5 trillion rupees in debt from previous governments, things are a bit tight. However, what this government does not talk about is the fiscal problems they have contributed to:
- Bribing State Employees: Ranil et al gave state sector employees a Rs. 10,000 raise. Given that we have over a million such peeps, that’s over 10 billion in added costs – every year. This was basically a bribe to win their votes, but one that we’ll have to keep paying forever.
- Giving In To Anyone That Protests: The budget had stuff about reducing car permits for MPs and Doctors and other special interests. However, anyone that protested got them back. Thanks GMOA, always looking out for yourself!
- Dodgy Bond Market: The dubious Central Bank Governor’s indubitably dubious son-in-law made a killing on one bond deal that caused a scandal but that company Perpetual is still involved and is now sponsoring a CB roadshow in Singapore. There is weird stuff going on in the bond market that hurts the country.
What’s Wrong
What’s wrong is not necessarily the taxation. Our revenue base is low and that needs to get fixed, IMF demands or not. What is wrong is that all of this stuff should have been in the budget. Instead that bum-wipe of a document was torn apart until only commas and spaces were left.
What drives investment and business is a good policy environment yes, but above all a predictable one. Sri Lanka now has an environment where policy changes dramatically on the daily and where even retroactive taxes can be imposed. Not even the past is predictable. This is fucked.
What To Do
Honestly, I think that if a Finance Minister can’t pass a coherent budget you should get a new Finance Minister. If a Central Bank Governor is involved in scandals that cause a loss of confidence, you should replace them.
I also think that the government has to stand up to vested interests in the money-losing part of the economy (ie the state sector), even if they protest. And the government really needs to look at itself.
Reform State-Owned Enterprises
State owned enterprises like SriLankan Airlines and the Petroleum Corporation lose BILLIONS every year. Petroleum at least delivers something useful, but why have we lost $90 billion over the last five years on an airline? That’s effectively a subsidy going from the poor to the rich people and foreigners that fly. I mean, why? Sell it or don’t have a national airline.
Reform The Public Sector
We also have a public sector where we pay for people to be educated (badly), then pay for them to work in the government sector, then pay them pensions. It’s unsustainable and terrible for the economy. There’s an entire class of people (politicians, government doctors, state employees) that don’t pay taxes and can buy cars and who will protest vehemently if they’re indulgences are given away. Not to mention fertilizer subsidies for unproductive farmers.
Reform Themselves
This government is still spending on car permits for MPs (and PCs and government employees), they’re still spending millions refurbishing their own residences, and there’s still too goddamn many of them. We have 83 Ministers of some sort, they have God knows how many cars, etc. I recently heard of someone in the civil service involved with these financial problems who’s getting 6 bathrooms redone in their public residence. I mean, fuck off. If the whole country is going to share the burden it should start with these guys.
Instead of addressing these major (and admittedly government toppling) issues, the government is instead taxing the productive part of the economy.
Seriously, they should sell off or close money-burning state-owned businesses, cut unproductive government jobs, sell off government properties and land and get their own house in order. As it is they’re randomly imposing taxes on the private sector and completely spooking investors.
Apparently there’s a fee of Rs.250,000/- for winding up a business too, though it’s a mystery how they expect to collect if you were winding up ’cause you failed.
We should insist that reforms start with the government, before they make us pay out.
I find your views to be spot on Indi. Government has been blood sucking parasite that feed off the working class. This attitude stems from the leadership of the country it self. Everyone is looking out for themselves. And government servants take on that attitude.I’m saying this as what I have seen as a government servant.
Brilliantly written mate! My confidence in this government is slowly dying out – as always, I don’t think they have sat down and thought about a holistic view of where they want the country to be in the next 10 years. The law keeps changing based on their whims and fancies and the lack of transparency in state departments is a joke!
The debt service costs are also a killer, the previous regime took on loads of debt.
http://www.economynext.com/Sri_Lanka_debt_repayment,_interest_Rs1.2_trn_in_2016-3-4443-1.html
The previous regime also increased the no. of state employees from around 700,000 to about 1.3m (including the military). We have to pay salaries AND pensions for these people.
This Government inherited a mess and many analysts knew of it and had issued warnings of its dangers. What is unfathomable is why this regime dug the hole even deeper with all sorts of giveaways and tax breaks (which no one asked for). Some giveaways immediately after the Jan 2015 election were inevitable, given the political situation and the promises made. But after August there should have been a sharp round of belt tightening, instead of which they continue to spend merrily. When the shit hit the ceiling they react by digging up all sorts of crazy taxes like capital gains and super gains.
Given the policy flip-flopping no one knows where anything is headed, so a great uncertainty (meaning risk) for businesses. Business confidence is at zero, in my own opinion.
Corruption – which is what lead to debt funded white elephants under the last regime is growing apace under this regime as well. Nepotism, cronyism are growing and signs of being drunk on power are evident.
All in all a complete failure – we should replace them, but with who?
Indi great post. My 2 cents in support:
I would like to add that the number of people that have tax files and actually submit and pay annual taxes is very low. Among the MAIN culprits are DOCTORS who demand cash quite openly – hospital bills are often split between their charges and ‘cash only’ doctors charges. Shame that among the richest segment of society they pay no taxes on this ‘cash’. It’s a SIMPLE matter of going to to court on a public petition and for the courts to subpoena hospital records. If the government is serious, BILLIONS & BILLIONS (no stretch) can be recovered in taxes. In the uk, even if cleared in court of criminal charges and profiting from it, Her Majesty’s Revenue and Customs do not care a bit and go after ‘due taxes’ – eg Howard Marks.
STOP COLLECTING TAXES AT SOURCE LIKE VAT ANS CUSTOMS DUTIES.
GO AFTER ENSURING THAT THE PATHETIC TAX EVADERS PAY THEIR DUE. OUR PROBLEMS WILL BE MEASURABLY AMELIORATED.
I find it preposterous how this is the fault of the previous government. a debt to GDP ratio of 75% is actually a massive improvement over what Chandrika and Ranil left with when Mahinda took over.
http://www.tradingeconomics.com/sri-lanka/government-debt-to-gdp
When Ranil and CBK were in charge, our debt was over 100% of the GDP. Mahinda actually controlled that situation. Throwing around nominal figures saying that our debt has gone up is just bullshit. When your economy goes up so does the size of your debt. Debt as a % of GDP has steadily been improving under the MR administration and this is something both the IMF, World Bank, and all the credit rating agencies acknowledged. Which is one reason why Sri Lanka’s credit rating improved under the MR administration.
http://www.sundaytimes.lk/100919/BusinessTimes/bt17.html
of course, two weeks ago, our ratings were cut.
http://www.sundaytimes.lk/160306/business-times/fitch-rating-downgrade-further-narrows-sls-foreign-finance-avenues-185093.html
Also, its hilarious, how the UNP suddenly and quite conveniently finds hidden debts after almost 15 months in power. What a joke. What the fuck were you doing all this time! If all these bloody debts were looming why the fuck did they introduce all these retarded subsidies, government sector pay hike, and outright policies that reduced government revenue.
This administration has been mismanaging every aspect of government, and whenever anything goes wrong, which happens all the fucking time btw, its mahindas fault.
9.5 trillion rupees in debt Vs. 0.01 trillion rupees for state sector employees
?
Policy is not the issue. Blame the scam that is “interest” (https://www.youtube.com/watch?v=G9IH-XKQpOI) and the insane borrowing that all governments undertake. It’s wiser to take out the root cause of the problem instead of the little meaningless niggles on the side. An interest free world would be freedom for all.
Sheriff, Where did that Hambantota Port come from? The airport? The Katunayake expressway? The Nelum Pokuna? The Telecom tower being built. All debt. Very expensive debt. The debt repayments are kicking in now.
We have been on this path before as well:
http://jestforkicks.blogspot.com/2012/02/rupee-slides-imf-loan-more-likely.html
http://jestforkicks.blogspot.com/2012/06/is-it-all-greek-to-you-simplified-guide.html
The GDP figures touted were also believed to overstated – the GDP deflator being ‘out’. Hence the GDP looks bigger, growth looks bigger and the debt looked smaller.
Nevertheless this regime must be faulted for unfunded giveaways, further expanding expenditure, lousy tax policies. They should have tackled the problems at the outset, instead they have made things worse.
Green, would you like to lend any money interest free? Would any bank want to? May as well as keep it under the mattress. Without a reward money will not circulate.
What we need is control over government expenditure. basically ‘small’ government, providing minimum public services. Low expense, equals low taxes and low debt.
The market can provide many services, generally much more efficiently.
Suren,
administratively collecting taxes at source is easy and cheap. One of Adam Smith’s canons on tax was that the cost of collecting a tax should not excessive, otherwise its not worthwhile.
Income tax is very cumbersome to administer, returns need to be filed by individuals, supported by documents. Assessors need to review each return and assess whether figures are correct or reasonable. They need to compare figures from previous years and across comparable returns in the current year. Its like an audit, cumbersome, time consuming and costly.
The Inland Revenue closed all files of taxpayers who were only on PAYE a few years ago because they found it impossible to administer. I have no idea how the imbecile proposal to tax capital gains is going to be administered-this is even more complex than income tax. I reckon it will be impossible so hopefully it will be dropped.
When doctors spend their money, on cars on holidays or whatever they end up paying taxes in the form of duty, VAT etc. Giving doctors duty-free car permits however is sheer stupidity. Essentially discriminatory, the proposal to discontinue them was one of the sensible things in the last budget that got reversed due to pressure.
One suggestion for raising revenue, apart from disposing of SOE’s is to dispose of the land held under the Land Reforms Commission.
Some 987,000 acres were vested with the LRC and are just sitting there. There is corruption within with land being quietly divested to interested parties at pennies and then sold for pounds to other buyers.
Better to sell large amounts by public auction, collect the revenue and pay down the debt. also this:
http://jestforkicks.blogspot.com/2014/12/who-will-pay-off-sri-lankas-loans.html
Raising taxes is somewhat understandable but where the govt is at fault is:
1. Not cutting down on govt expenditures (e.g. large cabinet)
2. Not shutting down or sorting out wasteful projects (Mattala airport, Mihin Airline, etc)
3. No policies encouraging entrepreneurship and small businesses.
4. Right To Information Act. Implement and publish data on where the money is being spent and how? No transparency right now which leads to no trust in govt.
5. Have capable people run their respective departments and get the jokers/loyalists out. Get things done!
@jackpoint
M ≠ M + Interest
where M equals the total amount of money in circulation. All money in circulation is debt. And we need to pay interest on that, that happens to not exist in circulation. It’s a simple equation that might lead you to question the whole system, posing very very very dangerous problems for humanity.
Does it not?
Jack Point, I’m sorry you have no perspective. All those projects you’ve highlighted don’t add upto 2 bn usd. So try to get more perspective before talking about things i feel that you don’t quite understand.
And why on earth are you even talking about GDP deflators? We have not had an inflation problem for a long time. Show me one place where our GDP has been rebased to a lower figure? Even after harsha’s little joke last year the rebased GDP went up, not down. So please present some evidence to back your claims.
As for the current mess. From what i know we had approximately 4 bn usd in debt maturities coming up in 2016. this was something that was coming from a mile away. Instead of preparing for this what did the government do? give every fucking subsidy imaginable, increase the salary of the most inefficient sector in the country, take aggressive steps to discourage foreign investment, increase our usd debt portfolio, etc …
During the past 15 months of this government, they have obtained 6,361 million USD in foreign loans. To put matters into perspective, this is enough to meet the entire foreign loan components of the Mattala airport (190 million USD) the Hambantota Port (426 million USD) Norochcholai Coal Power plant (1,340 million USD), The Colombo-Matara Highway (630 million USD), The Colombo-Katunayake Highway (248 million USD) all put together, and there would still be enough money to build not one, but two Port Cities (1,400 million USD each) one 500 megawatt Sampur Coal power plant (500 million USD) and yet another Mattala airport with the final leftovers.
@bogan boy
precisely, here is an excerpt from the report issued by fitch, which also came with nice downgrading of our credit rating.
“Sri Lanka’s gross general government debt (GGGD) burden is estimated to have increased to more than 75% of GDP by the end of 2015, up from 71% at the end of 2014 ”
https://www.fitchratings.com/site/fitch-home/pressrelease?id=1000143
So despite doing fuck all for the past year this government is borrowing more money than MR. Yet, all we see is denial and home schooled internet economist yapping about how MR created the debt problem.
And please don’t say crap about MRs high interest rates. All the sovereign bonds issued by the current administration have been at a higher interest rate than those of MR.
This is something MR has said on stage, so take it with a grain of salt.
“The Former President claims that out of the total US$ 4 billion loan repayments falling due this year, more than US$ 2.5 billion or over 62% of the total were loans that the present government had taken in just the past year, while the share of the repayments due in 2016 attributed to all previous governments put together was thus just over US$ 1.5 billion.”
if that is true, then major face palm.
Full text. very interesting read. But as i said take it with a grain of salt
http://nation.lk/online/2016/03/15/yahapalanaya-took-62-of-2016-due-debt-mr.html
Sheriff, For any utterances by MR, make it a kg of salt.
At the time they were made, those pay hikes were necessary, to people for whom Rs.10,000/- is a significant amount. COL was soaring. VAT rates being increased now will place more of a burden on the fixed/low wage earning group. The responsibility for their low productivity lies much further up the line.
But it IS rather telling on the new government that it took this long to take stock of the situation, long after presenting a budget. At least they are now talking about privatising non-strategic govt. investments.
Until then, we citizens should occupy the parliament in protest over the enhanced allowances parliamentarians have recently approved for themselves.
Shammi,
What Mahinda has said is quite verifiable. Not some hocus pokus story about hidden debt that suddenly appears conveniently to deflect blame. He’s saying that out of the 4bn, 1.1 bn is currency swap with india. and 1397 mn are repayments on short term debt borrowed by this government. There are places to find this information.
Well Sheriff, when you think of all the things he’s said in the recent past, usually prefaced by “Apey hamuduruwaneh” ……
I wish he’d also clarified why the current government’s recent borrowings were necessary.
“why the current government’s recent borrowings were necessary.”
apparently born yesterday…have you heard of the genius who increased the recurring expenditure by many folds and tried to compensate that by one off taxes …go figure …
billy,
Thing is that this government gave a Rs.10, 000 salary increase.
That was going to cost Rs.120 billion for 1 million employees for a single year (That amount is roughly 800 million dollars in todays exchange rate). Also consider the fact that there are more than 1 million government employees in the country. Also considering the fact that the total government budget was somewhere around 1500-2000 billion rupees, adding 120 billion to the government revenue within two years was not feasible (6%-9% growth).
LMAO! from the horse’s mouth
http://www.adaderana.lk/news/35041/central-bank-agonizes-over-runaway-expenditure-decreasing-income
The budget deficit stood at 7.4 percent of the GDP in 2015, while it was 5.7 percent of the GDP in 2014. This made a mockery of the Sirisena-Wickremesinghe governments plan to bring the deficit to 4.4 percent of the GDP. Government Debt increased to 76 percent of the GDP from 70.7 percent of the GDP in 2014. National Savings declined to 27.8 percent of GDP from 29.5 percent of the GDP an year earlier.
– Central Bank
I find your views to be spot on Indi. Government has been blood sucking parasite that feed off the working class. This attitude stems from the leadership of the country it self. Everyone is looking out for themselves. And government servants take on that attitude.I’m saying this as what I have seen as a government servant.