Taxes, elections and sanity from a citizen’s point of view

Taking to the streets to demand this local council election in the current form seems a bit hilarious as what we are demanding is to continue the same system that has plagued us for long – Pic by Shehan Gunasekara

• Postponing elections is never a good idea; but Sri Lanka is at no ordinary place either

It is no doubt Sri Lanka and its people have gone through 12-18 months of devastation, frustration and humiliation. The country was in a free fall and everyone was desperate to rush out of it not necessarily because the grass is greener on the other side but this side was so barren. Now there is some resemblance of stability to be seen with moderation of inflation (albeit still at very high levels), reversal of the exchange rate trend and reincarnation of hope at least among some of its citizens. However, still the political landscape is heating up mainly due to two factors – postponing elections and increase of taxes. As I write this trade unions are threatening to commence an island-wide strike opposing the recently introduced very high tax regime.

If I start on the high taxes – obviously I don’t like to pay high taxes but I know I have to give where Sri Lanka is right now. This will involve significant changes to lifestyle and foregoing many things that we took for granted. Simple reality is as long as Government revenue is way below its expenses as the case for Sri Lanka, the deficit keeps widening. At some point this needs to be bridged by increasing revenue (taxes) or printing money. We have been resorting to the latter for a very long time and with the International Monetary Fund (IMF)’s intervention that option seems to have been exhausted. The money printing to bridge the gap has resulted in very high inflation and the people who suffered most are the bottom of the pyramid workers whose lifetime savings may be in their Employee Provident Fund (EPF) balances of which value may be effectively halved. The bottom of the pyramid workers may be the least impacted due to the tax hikes as well, probably due to their lower salary base. Ironically the tax hikes are likely to be in the best interests of the majority of the population opposed to the alternative of money printing. Yet we see these masses are lured into the streets to protest against the tax hikes due to the lack of understanding of the implications of not increasing taxes.

From the relatively high salaried professionals’ point of view, the increase of taxation (particularly PAYE/APIT) has been devastating (including myself!). As this has occurred coinciding with rapid increase of cost of living and interest rates the net household cash flows have taken a beating. It is very natural for these individuals to be frustrated. However, if we think from the country’s point of view, all of us know that one major contributory factor to the current crisis is the irrational reduction of taxes in 2019 which soared the fiscal deficits. All of us enjoyed that reduction and we should have been mindful of the inevitable crisis too. 

I think the real demand of the professionals/trade unions should be to ask for a reduction of tax rates or increase in tax slabs to be commensurate with cost of living. However, this will only be possible through a meaningful reduction of Government expenses – reduction of multiple layers of administration, restructuring of State Owned Enterprises, eliminating corruption to increase tax net and demanding efficiencies from the public sector. This is what true patriots should ask for. Demanding a mere tax cut right now will not be sustainable and the only sustainable way to achieve that would be to perform these essential restructurings. Unfortunately, not too many trade unions are demanding this! The election becomes an interesting topic in this context.

Just prior to the local council elections in 2018 the number of local council members was increased from 4,000+ to 8,000+. This is completely against sanity as in a progressing world efficiency is something that the society is aspiring for. Over the past 30+ years particularly due to the advances in information technology the world has shrunk. In organisations, the amount of work and geography that is covered by a certain number of employees has increased multi-fold. Yet, we needed to double the councillors required to look after our mundane affairs. 

Moreover, most of these councillors’ names have been frequently associated with crimes at various intensities such as illicit liquor, bribes, murders, prostitution, etc. Therefore, real patriotic citizens should ask for constitutional changes demanding reduction of these wasteful representatives of democracy – not only at local councils but provincial councils (ideally abolishing altogether yet seems impossible right now with India’s involvement in our affairs) and parliament levels as well. The amount of corruption is likely to be proportionate to the number of politicians in the system!

Therefore, taking to the streets to demand this local council election in the current form seems a bit hilarious as what we are demanding is to continue the same system that has plagued us for long. We should seize every possible opportunity that can reduce the number of politicians and their influence on our lives. Such a change would help to reduce the expenses and corruption and hence our money can be used productively, hopefully creating an environment for lower taxes. Some of these protests demanding an election are called by so-called leaders who were the great protectors of family rule and concentrated power for a very long time. It is quite obvious that self-interest is in play more than a great fight for democracy. Also the empirical evidence suggests that given the choices we have made in the past, elections may not be something to cry for (surely not a local Government election to appoint 8,600 members)!

I think for an unbiased Sri Lankan it should be evident that the country has made a decent progress over the last few months on the external front. Tourism is making its way back and the absence of which caused most of our perils over the last three years. In my opinion tourism is the low hanging fruit where we should dedicate most of our efforts to protect and nourish as it could provide the fastest way out of the current crisis. The world still has a pent up demand for travel and Sri Lanka with its depreciated currency provides a cheap option for globe trotters. 

As someone who has been travelling in South Asia a lot over the last 12 months, I can personally relate how cheap Sri Lanka could be for Indian and Bangladesh citizens let alone the Westerners. The large growing middle class of India, opening up of China for external travel after a long hiatus should work in Sri Lanka’s favour in the years to come. Therefore, it is very important that we provide the safe and secure environment for tourists as much as possible which could become our competitive advantage along with the natural beauty. Therefore, uninterrupted supply of basic services such as power, transportation, port services is an absolute matter of national interest. Any street fighting is not going to help this cause and in fact could harm Sri Lanka and its citizens. Countries that have overcome crises have demonstrated sacrifice, dedication and discipline in abundance and Sri Lanka can be no exception. It is important that all of us work in unison to create a virtuous cycle to come out of the vicious cycle we were in during the last 12-18 months. 

We may not like the Government but we should love the country! 

(The writer is Director/Chief Executive Officer of an investment banking group in Sri Lanka and holds directorships in several Small and Medium Enterprises. The views expressed herein are those of the writer and may not necessarily be the views of his employer or the institutions he is representing. He could be reached via email at [email protected].)