Permit pain

The Finance Ministry has announced that the Government is likely to start issuing vehicle permits to public workers from 1 May, partially to offset criticism of higher vehicle prices introduced in Budget 2019. Vehicle permits have long been a controversial issue in Sri Lanka because it gives an unfair advantage to politicians, institution heads and other well-heeled public servants who can afford to pay taxes a chance to get tax-free vehicles at the cost of the hard working privately employed taxpayer. 

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 about 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 tax payer 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 and 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. 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 has embarked on a fiscal consolidation process that aims to trim the deficit. It would be far better for the Government to reduce expenditure than to slap new taxes to increase revenue to reign in the budget deficit. 

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 unconscionable that the Government continues to feather the pockets of politicians and elites at the cost of public funds. Permits are an election handout, plain and simple.