Of taxation, Inland Revenue and Panama Papers

Avurudu vacation revelations

Court vacation always permits that little bit of extra time to pen something down and the occasion arose when former Dep. Governor of the Central Bank Dr. Wijewardene, Island Editor Shamindra Ferdinando and I were invited by Sirasa TV last Monday for a dialogue on this general theme.

Immediately the following evening (Tuesday) our good friend Deputy Foreign Minister Dr. De Silva, an expert in the area of fiscal policy was heard to complain, during a debate on the same channel, of the appallingly low rate of registered tax payers as opposed to our income earning population; thus this discussion is too much of a temptation to just leave it there, hence these thoughts accompany my (belated) wishes to you for a peaceful and relatively prosperous Sinhala and Tamil New Year! 

Let’s use the backdrop of the now infamous Panama Papers revelations as a starting point. So we are made aware of some twenty odd Sri Lankans (yet unnamed) who are supposed to hold and/or benefiting from foreign holdings, assets or income amounting to trillions of rupees, which by law must be disclosed internally and be subject to taxation, unless of course they are entitled to some exemption such as double taxation regime. 

This is in addition to the so many “golden horses” and “foreign castles” etc that were mentioned regularly in the run-up to our people’s victory of 8 January last year and repeated ad nauseam in August which were assured to us as matters of priority that would be pursued, reclaimed and credited to the coffers of the people upon assuming governmental power. With all of this yet to see the light of day even one and half years later, we are now appraised (at last week’s Cabinet briefing) that, inter alia: 

1. We are facing severe economic issues, particularly due to debt servicing of loans (apparently raised by the previous regime), and that therefore; 

2. We will have to be taxed more, pay/charge more VAT on several added items at a higher rate; 

This immediately triggers some reasonable questions in the minds of that very minimal (not even 10% according to our friend Harsha) tax payers, as indeed it will in so many other citizens, as to whether: 

(a) The incumbent regime, prior to forming government had absolutely no idea of this spiralling debt component, if they did why were we not informed before the election that their method of solving this problem was to tax the citizen; 

(b) If they claim they were unaware of this situation up to now, what were they doing in Parliament all those years enjoying perks at our expense without doing this basic duty of an Opposition? 

(c) Have they explored all other avenues of collecting lost revenue and/or reclaiming “lost monies” before landing all of that corruption on us, the tax payers and if not, why did they assure us that they will? 

(d) If the answer to (c) above is in the affirmative, isn’t it simply “political deal-making” by threatening those corrupt of impending action to gain some governmental advantage to remain in office, but not really following up with legal steps and taxing us instead? 

Some points to ponder. 

Taxation of the public – theory and legality

As I’ve dealt on this in detail before (see ‘Budget and the Cabinet’ – http://www.ft.lk/article/9311/The-Budget-and--the-Cabinet or ‘No Budget’ – http://www.thesundayleader.lk/2010/05/16/no-budget/ or more recently ‘Legality of the Budget’ – https://www.colombotelegraph.com/index.php/legality-of-the-budget/) may I only encapsulate the main arguments as follows: 

1. The Constitution permits us, the People to decide on how our myriads of competing interests may be best satisfied with the limited resources we have over the following year, by a debate and vote through our elected representatives; 

2. This is why the Appropriation “Bill” only becomes “Law” following such debate and vote, why a government falls if they cannot muster that support for their expenditure and why any subsequent amendment (to that proposed manner of raising revenue or expenditure) must necessarily be debated and approved before the People again by a supplementary Bill; 

3. All authorities on this subject including Erskine May, Prof. Dicey, etc. agree that it is this constitutional process that attributes validity to governmental income and expenditure 

Thus if we are now to be encumbered with any additional method of taxation from what had been voted upon, whether increase of VAT or any other, it must necessarily follow the above process of obtaining the peoples consent; anything else would be unlawful. 

Robin in the Hood/Soora Saradiel? 

We were recently briefed by the Cabinet Spokesman that some of the intended tax revenue were going to be utilised as follows: 

1. Taxed monies raised from private/international schools – are to be allocated to develop general education under the State curriculum to reach the declared 6% spending for education: 

a. Assuming for a moment that such “taxing the rich and paying the poor” model is approved as being democratic by our people, where is the expenditure planning by the Executive, at least an approximate estimate of expected income, what is the expected allocation towards primary, secondary or tertiary levels of education, towards what exactly such as infrastructure or qualitative expenditure will it go? 

b. When was all this placed before the people (represented by our MPs) and recorded as approved by a vote? 

2. Expected VAT revenue from private hospitals, etc. to be utilised to uplift state health sector: 

a. Once again good for popular consumption but where are the actual figures? 

b. Approval by the people in Parliament? 

c. More importantly if this was the policy of this Government, why was it not declared so previously at an election or at least in the last Budget? 

The way these things are being dished out to us almost “from a hat” and more dangerously, that our people appear to be accepting all this without question or reservation makes you wonder, doesn’t it, as to the level of expression of our sovereignty? Are these just made up as they go along, possibly on their way to the press briefing and just read out, to gain public support? If this is the intended objective of raising VAT revenue then what happens to financing the “debt servicing” of those loans that the PM claims as the reason for seeking this additional revenue; surely one can’t do both with the same money, even financial idiots like us understand that? 

Going after undisclosed/un-taxed assets

Leaving aside for a moment “the reasonableness” of taxing us, the citizens to cover-up for debts allegedly created by mismanagement or corruption of the previous regime (which is the reason given now), shall we look at “the logic” behind not utilising the recovery regime already in place, to go after such ill-gotten gains, as to why they aren’t doing so: 

(A) Inland Revenue Act No.10 of 2006 – sets out that “a person who is deemed to be resident in Sri Lanka” is liable to pay it and it extends to “global income”. 

(B) Exchange Control Act No. 23 of 1954 – Part IA (Control over Foreign Assets) 

• The amended Sections 6AA deal with compulsory declarations of foreign currency accounts, 6AB foreign assets, etc.; 
• Although we have not still been given the names of those involved, the media reported as some Sri Lankans engaged in several businesses that are caught up under Section 29A under which no one can operate or maintain any tourist, airline or shipping business except under permission and conditions of the Central Bank 

(C) Monetary Law Act No. 58 of 1949 – the Central Bank acts as the agent of the SL Government in the international arena to deal with other Governments, International Institutions and/or Agents 

(D) Financial Transactions Reporting Act No. 06 of 2006 – under this regime all suspicious acts or transactions with any banks must be reported to the Financial Intelligence Unit of the Central Bank by such Institution with serious consequences for any failure to do so 

(E) Declaration of Assets and Liabilities (Amendment) Act No. 74 of 1988 – in my humble view the most efficacious regime on this question of tracing ill-gotten gains, it gives a very cohesive approach bringing together several state entities –

• Section 2 (1) (a) – (e) sets out a comprehensive list of persons who are expected by law to declare all their assets and interests, including those held by their spouse and children of mature age, that includes (a) Members of Parliament (b) Judges and public officers and staff officers in Ministries and Government Departments (c) chairmen, directors, members of the boards and staff officers of public corporations (d) elected members and staff officers of local authorities (da) office-bearers of recognised political parties Trade Unions Ordinance (dd) proprietors, editors and members of the editorial staff of newspapers (de) chairman, directors and staff officers of companies where the majority share is of the GOSL
• Section 5 – provides a very powerful authority under which any of the following may call for these records for inspection or investigation – 
• The Attorney-General, 
• Head of the Department of Exchange 
• And also any one of us have a right to call for this information, which has now become a Fundamental Right for us, under the addition to the chapter by the 19th Amendment (which we also worked on, to bring about) 
• Under Section 7 – anyone can lodge a complaint with any of the above authorities (AG, Bribery Commission, etc.) and bring to their notice any suspicious acquisition or asset with sufficient evidence of same 
• Section 12 – extends our reach to Assets “in or outside Sri Lanka” 

Thus my question is, have we exhausted all of these avenues to bring back the trillions in Panama alone (and the many other billions you claimed to have evidence of) before increasing our taxes and asking us to observe a “day of sacrifice”; I’m not too sure! 

High time to get your act together, Yahapalanaya

As we all agreed at our above TV discourse, some of us who screamed our voices hoarse facing severe threat to life, limb and family to usher in a change from the autocracy, nepotism and blatant dictatorship of a corrupt few on 8 January last year, will find it a sad day indeed if you, upon whom we’ve trusted the reins of government to bring about that change were to lose this opportunity; simply due to your inability or lack of commitment to see it through. 

Mr. President, with all due respect to your courage to hop-over after the hopper-dinner at Temple Trees, please don’t be misguided into wearing that same proverbial “Emperor’s new raiment” that some of your predecessors tried to show-off, actually revealing all and covering nothing; we have heard you proclaiming proudly on several occasions that some 6.2 million people voted “trusting in you”. Please don’t allow those surrounding sycophants to mislead you into some non-existent sense of superiority, seeking momentary popularity within your party at the cost of governing the entire nation that ordinary people like us won for you; it was those hundreds of everyday people that convinced the majority of those millions to vote, sorry Sir, not even you!

Similarly the Prime Minister and his UNF coalition need to take a firmer grip of the direction and control of this Government, rather than permitting those cross-over opportunists to mislead the Head of State and increase the Cabinet daily; and the hundreds of State officials who are overtly acting against your directions. Do you really need all that added expenditure to an already over-burdened Government, dishing out Ministers and Deputies to increase someone’s popularity, at times duplicating or even triplicating the same work? With all that plus the new “second vehicles”, increased salaries and perks for MPs, etc., you are asking doctors and other State officers to forego their duty free entitlement and the people to celebrate May-Day as a “day of sacrifice”; seriously, have you gone completely mad?

Finally I call upon the people, as always, particularly those of you who walked the streets with us, faced those barricades, tear gas canisters, water cannon or even the ultimate threat of “white vans” to bring about this change; wake up and sustain the pressure wherever we can before it’s too late and we lose what we won so dearly and perhaps end up, worse than we were before!

Power to the people! 

(To commemorate May Day 2016.)