Tax haemorrhage

The vehicle industry in Sri Lanka has long-produced bones of interrelated contention. The sensitive issues mostly range around permits and the inaccessibility of vehicles for lower and middle income groups that are forced to pay high taxes to the Government. But official records show fraudulent vehicle registration is costing the State billions of rupees each year.

According to data released in Parliament by Transport Minister Kumara Welgama, an estimated Rs.6.4 billion was lost in taxes to the Government in 2010 alone. Given that it was during a time when tax rates were relatively low and imports high, it is logical to judge that large amounts of money are still being siphoned off by unscrupulous parties.

The Minister had rather boldly remarked that the Department of Motor Traffic is not solely responsible for this tax loss and cited the Import and Export Controller, Customs, and the three armed forces as being equally responsible. According to Minister Welgama, permits were issued to import vehicle bodies to replace those damaged in the tsunami. Using such body import permits, while importing bodies, other vehicle parts were also imported evading taxes and vehicles were assembled locally.

The Ministry has a ballpark figure of 19,000 such cases using old vehicle registration documents and using number plates of vehicles sold for scrap with chassis and engine numbers engraved illegally. The Minister had also alleged that this is a racket that employees of the Department of Motor Traffic and the Department of Customs have been engaged in for a number of years.

In an attempt to address this issue, the Minister has instructed the Police to arrest vehicles using old registration plates on new models. Moreover, the CID is reported to be conducting investigations. However, given that old numbers can also be used legitimately, it would seem that the culprits would be hard to find. In addition, the reports did not indicate how many offenders have been caught to date or what action has been taken in regard to this mammoth loss.

It is certainly ironic that while honest people take out crippling loans or sacrifice their savings to pay for their vehicles, another set are pocketing the revenues that should be added to the public coffers. Given the high and often unfair level of tax rates and lax policing, it is hardly surprising that many feel no guilt in essentially stealing from the State.

A few days ago the Government increased fuel prices yet again, largely pressured by burgeoning expenses that could have been somewhat addressed by increasing revenues of the Government. The best way that can be done is by policing the tax system better and ensuring that massive loopholes of this nature are shut off. The International Monetary Fund (IMF) recently pointed out that one per cent of VAT in Sri Lanka earns significantly less than the same percentage in other countries because of the ineffective collection system.

Haemorrhaging of precious tax rupees has a deep effect on the overall expenditure framework of the Government and spills over into the private sector as well. Efficiently collecting taxes also means that less pressure can be exerted on honest citizens and businesses that dutifully pay their share. The revenue can also be used to forge development in a more sustainable manner.

Perhaps the most important lesson in this is that the top officials in Sri Lanka must lead by example. If they do not pay tax or do not use public money wisely, then few people will be motivated to do their duty to the State.