Cabinet this week decided to extend the import ban of vehicles for an entire year and said they would start evaluating the vehicles owned by the State in an effort to understand how they can be best utilised. This is a welcome step but the Government has decided to continue with the permit system, albeit allowing public servants to purchase vehicles from stocks already available in the country.
One reason why employment in Sri Lanka’s public sector remains attractive is because of vehicle permits. The Government raises taxes on motor vehicles for the general public citing low reserves but hands out permits to the public sector, which has over one million employees, somewhat negating the argument that foreign exchange needs to be preserved. This preferential treatment is additionally unfair when losses of State-owned enterprises (SOEs) are already a significant burden and the employees of these institutions are not held accountable for the continued losses that taxpayers have to fund.
Employees of the private sector usually pay both direct and indirect taxes and have no permits to sweeten the pill. They are then also burdened with finding the revenue to pay the revenue losses from the permits. The permit system also creates the space for corruption and underhand dealings. Many of the permits given to politicians are resold to rich private citizens who then use the permit to import luxury vehicles at lower cost.
In 2017 Attorney-at-Law and public interest litigation activist Nagananda Kodituwakku used the Right to Information Act to show 100 Members of Parliament had sold their vehicle permits to private individuals and institutions. It has also been estimated that when permits were handed out ahead of the 2015 Parliamentary Elections, the loss of revenue was about Rs. 7 billion.
Former Finance Minister Ravi Karunanayake, during the 2016 Budget reading, proposed to end the practice of giving tax-free vehicles to State workers and elected ruling class. In his speech, Karunanayake admitted the Government had lost Rs. 147 billion in revenue from 2012 to August 2015 and acknowledged the system was “politicised” and “misused”.
To put the giant Rs. 147 billion in perspective, it more than three times the fertiliser subsidy, which is usually about Rs. 40 billion a year. Samurdhi allocation is about Rs. 30 billion a year, and many other essential services could have been provided with the money spent. Loss of revenue from vehicle permits is doubly impractical at a time when the Government needs to focus on fiscal consolidation to limit the Budget deficit as much as possible.
Loss of tax revenue from vehicle permits is also regressive as they are provided mostly to upper levels of the public sector but Sri Lanka still collects as much as 82% of its tax revenue indirectly. This means that the impact of tax concessions for elite public sector officials, including politicians, is disproportionately borne by the poor.
Though a case can be made for deserving public servants at a time when the average Sri Lankan finds vehicles beyond their buying capacity, it is unfortunate that the Government has not looked at a better way to include equity into the permit system.