Thursday, November 3, 2016

The HOPE that rises from COPE

In today’s FT Dharisha Bastians painstakingly goes through the history of the latest deliberations and fractious discussions in COPE on the Bond Scandal, and after the final report resulted in near Unanimity of conclusion from all parties, that despite huge strains on the Yahapalanaya Govt. it finally came through where its independent oversight mechanisms set forth in the 19th Amendment, at least APPEAR to be working, and that can ONLY be a good thing.

Make no bones about it, the sea change from the Rakapakse era is in fact undeniable, no matter what spin the JO continue with, and the latest time wasting gimmick that needs to be nipped in the bud is the yet another challenge against the Prime Minister’s legitimacy.

Of course when you have the same people shuffled around in Parliament and in essence the PIE remains unchanged, even coming to this level of transparency is a sure sign that despite many obstacles, the principle of checks and balances are in fact operating, albeit painfully slow.

Where to next? We have spent too long dwelling on these series of transactions to the detriment of many huge problems that Sri Lanka is faced with. The lack of a firm head of CIABOC for starters and I do not wish to go through the whole list here.

The PM has laid down his strategy for the current year, which sadly has NOT yet been discussed by commentators, and that may presumably because we are awaiting the Budget Speech on the 10th to give focus to his wish list.

Sadly very little of substance has been achieved in 2016, and I trust we must already make a new year resolution for 2017, to get our skates on and speed up on all fronts, and stop wasting our time questioning and making allegations, unless fool proof evidence is available. The reason is that it also destroys the confidence of the people, because the Media love to exaggerate an event or incident to make an impact without realizing the negative consequences of giving too much weight to a topic of little importance to the goals set to move forward.

It is in all our interests to move on at speed on the reforms that are still required. The parliament will be fully engaged for a whole month on the Budget.
It is important then to ensure that the Budget is fool proof, unlike last year’s, which was too flawed, resulting almost in a total rewrite. I trust that the lessons have been learned so that this time it is smooth sailing, with a minimum of amendments.

There is NO question that the introduction of the VAT few days before the budget is also unprecedented, and this list of 82 items that are exempted is causing palpitations around the Country at all sorts of businesses which find themselves having to keep records of VAT able and non VAT able items, and the issuing of proper VAT invoices, where many traders and retailers may have claim input VAT paid against their ultimate VAT payout.

The anomalies, such as exemptions on Prawns, and not on Fish are surprising and hints of some Prawn farmer having his own way. In any case all exports are NOT subject to VAT and some explanation is warranted on this aspect.

ALL Meats, Chicken and Fish sales etc are also subject to output VAT, which means that the consumer is going to feel the price increase by 15% sooner rather than later. The STEALTH Tax of the telecom tax of 50% of the payment, is a massive increase from the taxes prevailing and will go to the heart of the people in EVERY strata of society, young and old alike.

This little trick of putting out the VAT issue before the Budget is supposed to fool the people that the BUDGET did not raise taxes, when in fact the result of the VAT Bill is that a huge revenue raising exercise has resulted, over Rs300Billion, that will go a long way to reduce the deficit of the Government, but the Price of Cigarettes at Rs1,100 for a pack of 20 is definitely going to reduce the Tobacco Taxes, due to reduced consumption, giving a windfall for the Beedi Mudalalis who would have hit the jackpot, as their taxes have barely increased. It is open to question whether this is a good thing as the health hazards may be worse.

I cannot therefore imagine a scenario where the populace at large will be happy with this budget, and with the overall need being to reign in expenditure and pay down debt, growth can only be expected by incentivizing industries earmarked for growth. The future is in high value added industry using less labor, due to the severe labor shortage being experienced at present.

The only HOPE THAT CAN COME OUT OF COPE therefore is a sense of conviction on the part of the Private Sector, the driver of the Economy, that both employers and employees believe that productivity gains will allow substantial pay raises, due to market forces that will force labor saving, will enable workers to overcome the price increases, and still result in a better quality of life. 


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