Tackling the question of taxation

Friday, 29 October 2010 06:51 - - {{hitsCtrl.values.hits}}

The Presidential Commission on Taxation that handed over their final report this week has made a series of wide ranging recommendations that target the widening of the tax base as an incentive to improve revenue.

Its Chairman Prof. W.D. Lakshman had stated that the key concern of the commission was to lay the groundwork for the development of Sri Lanka for the next five years. Among the recommendations was the need to reduce the number of taxes, which currently stands at around 60 by half and streamline the tax payment process so that more people would willing comply.

These all seem sound at first glance but the government must release the full extent of these recommendations for public discussion before they can be implemented. Even though according into Prof. Lakshman part of them have already been infused to the upcoming Budget, there are several other sections including the tax holidays and other incentives proposed for the business community that need to be considered by all stakeholders.

The reduction of taxes imposed by the provincial councils and revamping of the Inland Revenue Department would result in a modernising of the tax structure but what must be assured is consistency in this change. Without broader discussion the legislative changes that need to be made might be rushed through without the public being aware of what they are going to get. Specific industries such as banks that presently have to pay around half of their earnings in taxes should perhaps be engaged with so that they are aware of what relief is being offered to them.

Indirect tax regulation is a slippery affair, especially since it affects the poor more than the rich. Ensuring that the rich who have the means to pay their taxes are not left out of the net and those with top political connections or are themselves politicians should be annexed into the taxation structure. Investors who are given tax holidays must pledge their long term commitment to development and consistent monitoring must be done to guarantee that they carry out their duties to this country and do not simply repatriate their earnings.

The other sticking point is whether or not to tax public servants. So far they have been happily exempted from taxation but Sri Lanka has to support a growing cadre of public officials; so perhaps the time has come for a change of mind. It is unfair for the rest of the population to support over a million public servants, some of whom are as well paid or even better paid than their counterparts in the private sector. If equality is the aim of these tax reforms then bitter as the pill is, well paid public servants will have to be taxed as well.

It is only when the people feel that they are being treated fairly and see actual work being done with their tax money that they will voluntarily start paying taxes. For this, good governance is key and if tax reforms are to be really successful then the interlinked government mechanisms must also start functioning competently. Taxation can spur growth and boost development but it also requires honesty and law abiding citizens to achieve the ultimate goal. This larger picture must also come to the attention of the government and they must lead by example to prove their sincerity.