Taxes and services

Death and taxes are often hailed as the only two constants in an otherwise rapidly-changing world. Having seen a new Inland Revenue Act come into effect at the start of the month, many people are feeling particularly annoyed at having to pay a larger share of taxes, especially since this latest round of increases come on top of high inflation felt last year. 

Yet taxes are an important part of equitable development and social justice.  Finance Minister Mangala Samaraweera took pains at a recent press conference to outline the objectives of the new Act, which revolved around increasing public revenue to about 18% of GDP or raise an additional Rs. 60 billion in taxes. A parallel goal is to widen the tax net so that indirect taxes, which have a disproportionate burden on poor people, would be reduced and direct taxes increased.  Theoretically at least, the goal is to improve expenditure on universal healthcare and education as well as other welfare schemes to allow Sri Lanka to grow at a sustainable level. 

The World Bank in a report titled ‘Sri Lanka Poverty and Welfare: Recent Progress and Remaining Challenges’ released in 2017, which draws on data between 2002 and 2012, notes that trends in poverty have shifted, and better wages have transformed lives. But pockets of poverty and low infrastructure remain with huge gaps in the assessment of welfare programs and their effectiveness.  

The report identifies high levels of poverty in key districts in the north and east of the country, including Mullaitivu (28.8%), Mannar (20.1%) and Batticaloa District (19.4%). At 20.8%, the data from Monaragala District in Uva Province also offers cause for concern. Within Batticaloa, estimated poverty rates run as high as 45%in Manmunai West and 38% in Karalai Pattu South.

Across the board, poverty rates are disproportionately high for vulnerable groups such as youth and ethnic minorities; and unemployment is high for youth and women. Even where poverty levels are relatively moderate like in the estate sector there is limitation in access to education and healthcare, the quality of diet and the condition of housing. Such non-monetary indicators offer researchers and policymakers critical insights as to how policy making must evolve to address these changes through progressive policies.

Today in Sri Lanka some 11 different ministries oversee over 30 welfare programs.  A lack of digital record-keeping has meant authorities can struggle to coordinate, monitor and evaluate their progress. As a result of such issues, some beneficiaries remain in the program longer than they should, while others in need never gain access. 

By international standards, social assistance is less generous in Sri Lanka than in many other comparable countries. The World Bank in a 2016 a benchmarking exercise examined the generosity and targeting of social assistance programs across 40 lower middle-income countries found that contribution to the lowest of Sri Lanka’s poor or those who live on about Rs. 120 a day is merely 6.6%, significantly below Pakistan, the Philippines, and even Bolivia.

Not only are Sri Lanka’s social assistance programs small, but the budget devoted to social transfers has also fallen in recent years. Spending on social transfers, with the exception of fertiliser subsidies, has declined in real terms and this is the gap that the government must genuinely pledge to bridge. Increasing taxes is the easy part but parallel to that delivering genuine and tangible social welfare must also begin.