It is actually going to cut into growth, not give a helping hand to it.
I was talking with a friend, who has come from overseas to advise the State on increasing the Taxation yield and helped draft the New Inland Revenue Act, that comes into effect on 1st April 2018, and it is hoped that the percentage of direct taxation, most especially personal taxation as a percentage of GDP will rise, assisting the Government to collect a higher percentage and therefore a greater collection from Direct Taxation, in line with comparative countries. So the expected ration of Indirect to Direct will come down in favor of direct.
It is obvious that indirect taxes including VAT and Import Duties on even essential items like Sugar taxed at Rs30/kg our of a total cost of Rs100/kg has been the means by which the state collects Taxes which for all intents and purposes is clearly regressive, as it is the poor who spend all their income on consumer items suffering a taxation bite as they consume. The wealthy on the other hand except for those who pay the duty on imported vehicles, do not pay any significant tax as a proportion of their income and will continue to benefit, increasing their wealth in multiples as there is little of their increased wealth, especially in the rate of rise in property that many indulge in spending their spare cash, that gets taxed.
The capital gains tax proposed is expected to tax at 10% of the gains, which is still attractive, but hardly a disincentive to park their money there. However the 15% VAT now imposed on apartment disposals after April 1st by the developers on the FIRST sale of a new apartment, may suddenly turn into a wholesale property crash, in proportions we have never before experienced, if sentiment suddenly goes sour, and it is only a catalyst such as a VAT hike like this that can trigger such a catastrophe, leaving half built apartments in their wake, and a crisis of confidence of utmost proportions just because some foreign expert whose has NOTHING to lose make a proposal that our idiot followers have blindly accepted as necessary, not realizing how sensitive this sector is to a sudden price manipulation for the state to benefit from this sector.
A property tax gradually imposed on assessed values of new build apartments valued in excess of Rs20M, may have been a better solution.
I gave this background to alert the reader to the manipulations, taking place in order for the state to find means of increasing how much Taxation they collect. But before that, I have a problem with how the state currently spends money, be it taxed or from borrowed sources, and therein lies the real RUB!
There is NO argument that the State is wasting the tax payers money. Remember the tax payers broadly are poor people who are paying the state money so they can be profligate about spending it.
It is not personal money that the State Spends, so they don’t appear to mind if it spent wisely or not. We know it is wasted on unnecessary purchases, as the State Employees are not sufficiently altruistic to be careful with their spending habits, and if the Treasury receives a lot more money, they are simply under political pressure to be even more profligate to keep the public happy by doling out unproductive largesse to fulfill cravings, and not long terms growth.
While it is one argument that the state is not collecting enough , the other side of the same argument is that if the state taxes the people and wastes that money, the economy could be in an even worse state.
One good side effect of wealth, is that people only require so much to live, so wealthy people invest their wealth in ways to increase their wealth further, and the more productive that investment, the greater the return assisting the economy in the process, by creating employment and production.
Instead of that, if that money is taxed and doled out to the poor you are simply helping him have a better life, while not doing anything to improve economic prosperity. So is this money better left in the hands of the wealthy or is it better handed over to the State to spend?
I personally don’t have any confidence in the Sri Lankan state to spend wisely, and so it is another tragedy of epic proportions, where the State will stifle consumption and investment to the extent of the extra taxation yield and waste the money raised on consumption of imported goods like food items for the needy.
I have repeated ad nauseam in this blog about the waste of the Country’s resources by those in power backed by those in Public Service, both of which are highly politicized and peopled with armies of individuals who don’t add one red cent to the economy, except bleed it dry.
Until we clean up the rot at the top, holding politicians and Govt servants accountable for performance, we should resist paying this additional taxation, until the State can demonstrate they know how to spend the people’s money wisely, like they would their own hard earned money.