Before the Treasury sets out to present
the Budget for the forthcoming year, there are basic tasks that must be in
place, with all those involved in the process fully aware of them, as every
proposal therein MUST be congruent with the goals set.
PRIORITY ONE
1
Whatever
is proposed MUST enhance the strength of the Sri Lankan Economy with evidence.
2
It
must give confidence to the International Community to whom we sadly still have
to go cap in hand both for investment and for borrowing.
3
It
must be aimed at improving the credit rating of the Country, in order to reduce
the borrowing costs. Especially the refinancing of external debt.
4
Map
out a practical strategy for the repayment of 80% of the external borrowings
falling due in 2018 and 2019, along with agreements in place to reduce the
interest rates on refinancing, in a negative interest rate world.
5
This
will IMMEDIATELY divert the “market angst” of the repayment of this debt, which
is “A sword of Damocles” over the Sri Lankan economy. There is NO harm in
making a political statement on the reason, but in line with the PM’s statement
of ridding this Country from the Rajapakse debt trap, this could be the first
indication of congruence of statements of STATE
PRIORITY TWO
1
It
must be clear that the domestic Fiscal and Monetary Policy Management is on
track, with a hybrid system of placements and market based auctions, to ensure
that there is a mechanism in place, so the SL Govt. borrows both domestically
and internationally at the lowest possible rates of interest.
2
Beefing
up the quality of the team in the Monetary Policy Committee, so they understand
their role, and perform their duty without fear or favor in the interests of
the Country. This will be a game changer in confidence building.
3
The
historic high spread of the Banking System has over the years resulted in the
SL economy at a GDP level of less than half its true potential. This MUST be
reversed without delay. The Treasury and CBSL have not been in a hurry to do
this, which has cost the economy dear, as they have merely looked at the
short-term taxation of the Banks huge profits, and not the long term benefits
to the exchequer and the economy of Companies making profits and investments. I
can personally attest that even today, the high spread has deterred our
investment decision of purchasing highly productive capital goods to improve
our productivity in manufacture, which when extrapolated has a huge impact on
the growth of the economy. If borrowing rates were 200 basis points less, we
would have invested Rs150M in machinery, to double our current output in volume
terms. I don’t expect anyone in the treasury to understand this simple concept
that every small business owner does!
4
In
order to counter this enforced drag, I recommend that every company with turnover
less than Rs1B be allowed to borrow at 300 basis points lower than present,
except for purchases of ANY FORM OF VEHICLE.
The above policy will result in an
immediate surge in credit. Many companies facing severe labor shortages, can
only survive, without going overseas, if they are able to substitute with
latest technology in digital form. Mechanization will become more practical,
and hitherto, the high borrowing rates have been the reason for lack of
investment.
PRIORITY THREE
Sri Lanka is at full employment and
until the treasury realizes it all policy decisions will be flawed. Yes there
is massive underemployment, but to get a person out of underemployment to work
productively full time, requires a gargantuan mental shift of work ethic, and remuneration
shift, that needs a change in the mental state of the Public.
The worst offenders are the Three
Wheeler drivers, 500,000 who can be re-trained in more productive and
remunerative work, 2 million stay at home mothers, and 1 million youth who
would rather stay at home and wait for a job of THEIR choice to fall on their
lap (many from political connections to get Govt. jobs). THEY ARE CURRENTLY NOT
JOB SEEKERS!
PRIORITY FOUR
All employment incentives must take cognizance
of three above, and be aimed at MAKING people WANT to take the employment opportunities
in the private sector, currently over 500,000 which are going a begging.
Politicians are inundated by time wasters looking for plum jobs in the Public
Sector, and all of these people must be directed to a job bank agency to counsel
them in what is treachery and what is civic duty! The definition of a prized
job must change from one that pays a lot, in Govt. for doing little, and the
ability to make money on the side, to that of one in the private sector that
values skills and rewards work and effort.
PRIORITY FIVE
Set the budget proposals cast iron NOT
leaving room for ambiguity, where the legal draughtsman is responsible for
wording, format and procedure to ensure there is NO room for doubt, on who is
covered, how it is calculated, how the
taxes and levies are collected, what the exemptions if any are and the effective
date of change.
Above all this must be in line with the
overall goals of equity and reasonableness. There should be practicality in
enactment and collection and non-regressive.
PRIORITY SIX
All regressive taxes especially hitting
the poor must be identified and SUGAR COATED, where the reason for tax is more
health benefit like on high sugar content drinks (like Coca Cola) These taxes
must be frozen as a percentage of selling price, no matter what the
international prices are.
They may apply to Kerosene, Sugar,
Flour, Milk Powder, Dhal, and first 50 units of electricity for a household.
Stamp duty on transactional values of less than Rs500K reduced to zero. In this
way all small land transactions will be recorded in the appropriate State
Department.
PRIORITY SEVEN
All products with Price controls,
subsidies, conveniences and concessions must be available at the State owned
Sathosa outlets. Many private traders have STOPPED stocking these items, which
then inconvenience the public.
Life enhancing products MUST be introduced.
Night buses in all cities to operate from 6pm to 6am @twice the current rates,
on routes of less than 50Km must be forced on those seeking licenses. It is too
much to ask the state bus service to work at night when its staff cannot turn
up to work on the day shift! This will allow night shift to grow, reduce costs
of running a night shift, and hugely increase labor productivity and result in
much higher wages with overtime.
PRIORITY EIGHT
If the above are followed, the political
expectations of the budget will automatically get fulfilled, and no one can
contradict its intent as that of being to BENEFIT THE COUNTRY, not place more
burden on long suffering citizens.
People expect relief, businesses expect
breaks, however the past year has seen a huge rise in costs of items people
buy, and despite the reduction in the price of fuel, in retrospect it was a
hugely foolish move. People just used more of it, so not benefitting the
balance of payments, travelling more meant clogging the roads, moving out of
public transport into private vehicles meant more traffic jams, making commutes
even longer, and so the vicious cycle of a reduction of the quality of life of
our people, with the lower tax revenue to the Govt. resulted. THIS WAS A LOSE
LOSE FOR ALL despite political arguments to the contrary!
Worse, neither did the cost of public transport
fall, nor did any of the costs of the products that should have fallen thereon!
Surely we could have learned from other Countries which did not make such a
foolish move when world oil prices fell.
PRORITY NINE
ALL This indicates the need for
simplification of revenue raised, not a whole series of new taxes that
complicate the tax structure even more. Granted the Govt. needs to raise
revenue to plug the deficits. It should be done from increasing the tax yield
from direct taxation from 10% back to the 20% if was in the late 90s. 500,000
wealthy people were created during this period, and none received a taxation
file. Why not first find them and get them on the taxation train they have so
craftily avoided so far. Stop hassling the people who are tax payers to squeeze
a few more pennies from them.
The raids of the EPF inspectors to
companies to check if deductions are made to all employees are legendary. This
is bad for businesses who are finding it very hard to retain staff, and have
very high turnover, and need at least 6 months before determining if a person
will actually stay and contribute to the Company, let alone EPF. It simply does
not make sense to put them on payroll on day one. It adds unnecessarily to the administrative
burden of companies who already pay taxes. Find new ones for God’s Sake not go
after tax payers! What kind of beast work’s for the Govt. certainly no one with
a brain.
PRIORITY TEN
So how about a simplified tax structure,
one that was tried and dropped, this time make it a goal to be achieved in the
near term to the giveaway budget at the end of the term of parliament before
the next election.
It would be good to have a flat rate so
there will be no distortions. All taxes including VAT can move to the 15% mark
adding capital gains taxes too but doing away with stamp duty at a flat
Rs25,000 per transaction, so it will NOT distort property mobility, as capital
gains tax will take care of capital appreciation!
Apart from the standard zero rated
items, all establishments with Rs1M a month or more turnover must be vatable,
as it is one means of increasing the catchment of direct tax payers that have
escaped. Education can be zero rated, so the tuition master can be included in
the taxation net. Of course a renewable energy policy would give concessions
for imports of capital equipment and electric cars, set at 5%. It will
gradually reduce our dependence on imported fossil fuels to negligible amounts
in 25yrs.
This can be State Policy incorporated in
the Constitution, to stress Environmental restoration, and a guaranteed human
right to drink clean water, eat clean food, and breathe clean air, all else
will immediately fall into place, automatically.
Of course tax breaks for recycling, elimination
of plastic bags, and plastic bottles even for water, should form part of the taxation
structure. Along with tax breaks for small enterprises providing clean water
using reusable containers eliminating the need for disposable plastic bottles,
that now even litter the ocean around us.
CONCLUSION
The people are waiting with bated breath
in anticipation of a budget to beat all other budgets, especially in light of
the previous disaster. DO NOT Disappoint it is a once off chance to make
amends. It must offer relief to the less well off 80% whilst incentivizing the
better off 20%, to work to the full, the latter being the most productive, risk
taking, visionary and valuable members who will run small businesses and employ
the less well off. The previous BUDGET failed both these sectors.
Remember the Budget’s immediate aim MUST
be first and foremost be able to find suitable candidates to fill the 500,000
vacancies in the economy. This will reduce the dependency on the state whilst
at the same time adding to the taxation of the economy, mainly in sales taxes
from their earnings as well as the EPF!
It is a win win situation for all with
the Private and Public Sector working together to achieve this not against each
other as in the last budget where incomes were forced up, with companies losing
money as a result.
Have courage, make Customs, IRS and
other Revenue collecting agencies efficient professional and incorruptible. If
the 500,000 new tax payers starting with the obvious 50,000 that can be
harnessed within a week of effort which can yield Rs200B instantly, a total of additional Rs500B can
be collected. To balance this for fairness, any parliamentarian that has sold
their vehicle permit must be taxed as Income Tax rates on that income.
The need to raise the quality and efficiency
of the public sector has already been covered earlier, as without it no budget
can be administered effectively.
Let us get back to basics. The essence
of budgeting is to show in a snap shot, how much revenue the Govt. aims to
raise in the coming year, and how it is to be done through different modes of
changes to the taxation and related revenue raising targets including
borrowing.
That is then countered by the way it
will be spent in the coming year. Last year both were way lower. The recurrent expenditure,
mainly comprising the payroll of public servants, and pensions, Public
Investment of the Capital Account is how it is divided. The latter will provide
a social return to the economy in future years, aimed at obviously improving
the quality of life of those who live in Sri Lanka.
It
is the responsibility of the Govt. that the above tasks are carried out in the
most efficient manner. WE MUST PUNISH all those who make this task difficult, including
the public servants taking bribes, and public servants not performing the tasks
laid out for them. Acts of omission and commission!
All that is needed is just one budget
that can change the mindset of the people to stop being crooked. If we begin at
the top in the Finance Ministry, to show magnanimity and desist in the proclivity
to steal from the public, and remove the crooked technicolored dreamcoat, we
will be well on the way to prosperity.
This is an example of one person and his
treachery that can take down a whole country with 20 million people. That is
why true leadership matters and statesmanship which in Sri Lanka has been non-existent
for so long is the need of the hour. Just one STATESMAN is all that is needed
to change a whole nation!
LET’S PRAY WE FINALLY GET IT. WE HAVE NO
OTHER OPTIONS LEFT!
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