SRI LANKA: A Diary of a frequent visitor

Article by Basil Fernando-July 7, 2017

I arrived at the Katunayake Airport and there was my friend whose car I usually use in my visits. On our way from the airport into the roads a conversation immediately started and of course my first concern was to note how my friend was doing in his business – which is taking tourists around in his car. Usually cheerful and very positive character my friend response this time was not as cheerful as in the past. It was in 2015 that he purchased a hybrid car with the view to embark on “tourism business” as he calls it.. The car had already been ordered but soon before he could pay the final price, there was an imposition of a tax which added a few hundred thousand rupees more to the value of the car. That notwithstanding, in his early two years had a lot of work, in fact his main problem was to find some free time for his young family. However this time the tone was different. He said for several weeks he was without work, although this is the beginning of what he calls the tourism season. And he said that he knows several persons who embarked on the tourism business with some investments and now some of them have sold their vehicles as the loss is higher than one they could expect to gain. That was a sign of people who hopefully embarked on new business now giving up such hopes and even selling their own vehicles so as not get into a greater debt. This is the first news that I heard on my arrival. My friend himself has been going to some agencies with the view to find ways to migrate to some country, such as Australia or Canada because he felt that the coming times are not good. At least for his family’s sake, such an alternative seemed to him to be better . Of course, if it comes to that the way to do it is to invest some money towards it and the way to do that is to sell his car with which he began his business and then embark on a new stage of life.

The next day, I accompanied a friend to meet a bank manager in his office in a suburb very close to Colombo. The manger was a man of about 50 years, and this being rather a bigger branch of the bank, he would be someone of seniority within his bank. Soon the conversation got into how the life is in the country and he told a story about what is happening to small businesses.

He said the biggest problem is direct and indirect taxation and everything is taxed and that the tax was unpredictable, The result is that nobody who is really aware of the situation what would happen after embarking on any small business because all the costs associated with taxation is a factor that really discourages private initiative.

The taxing into almost many items include also, double taxing. For example if you buy dhal which is common commodity which people consume here as you purchase it from the shop it is taxed. But then if a shop keeper buys he pays that tax, and then ones he cooks this and sells in the shop and sells it as a meal then that is also taxed. There is a tax to be paid by the shop keeper the second time when he sells the dhal which he has cooked for which he has already paid a tax in the beginning. This he said is unusual. Everywhere, what you hear is that, you simply cannot beat the inflation and the increase of prices and the lowering of the value of money. This has led to, increase various forms of corruption in unimaginable ways. It is kind of “a wisdom” that people have acquired as a way of beating all types of burdens that are imposed on them is to make some more money by ways of methods which would otherwise have been considered criminal. One of the results of this he said is that people who are very willing to pay their taxes, in a normal way, are not under these circumstances willing to reveal their actual assets, because if all those are taxed, in very unscrupulous ways, then it will be very difficult for them to survive. So the idea of hiding your assets has become kind of a second thought for anybody who is having some means and this is not considered any kind of anti-social or despicable behaviours as it would have been thought in a more developed country where the rule of law is respected. He said out of that kind of practice arise some other practices, for example, auditors who know the actual assets of a person, will quietly inform the income tax assessors known to them, so that the income tax assessor will make a very big assessment and send it to this person. Then he will approach the auditor again and ask, well, how to deal with these problems. The auditor gladly takes over the problem and says that it could be negotiated with the assessors and he manages to get down the amount to much less. But of course the assessor has to be paid for this. In fact what happens is the assessor and the auditor shares what that man gives, in order to get his tax reduced. The kind of shrewd intellect that develops in order to circumvent inflation and other problems is the kind of an idea that this is legitimate and that this is the way a prudent person should act . This has has created a new psychology that would be hard to beat. Anyway, there are no attempts to beat it so there is not going to be much problem on that scope. That type of story was explained in quite detail in by this bank manager.

That afternoon I had a telephone call from a friend who I had known as a graduate specialising in economics in the university days, and who later was a teacher of economics for a long time and who was an advisor to some agencies. When I asked him about the situation he said one of the things that he is completely missing nowadays, except for one or two exceptions, are people who write about matters relating to economics in the newspapers, journals or anywhere else. For example when I raised the issue that I was told by the Bank manager, about the effect of the taxation system on the economy of the country he said, he has not seen anybody writing on that issue although he is a very keen student and also a publisher who runs a magazine . He cannot find people to be interested in writing on these things. His idea was that the country still survives, because of the savings that come from the poor women who work in the Middle East, and also the poor women who work in the free trade zones and also the poor women who work in the estate sector. Hardly any kind of production takes place even items that earlier brought profit to the country. Even items like coconut and rubber, are not doing well at all. At the bottom of it is the dying of initiatives, kind of entrepreneurships, in order to make things happen, and to use business as a way of improving their income as well as doing something for the country – that has completely gone missing. He simply was at a loss, to find what has become of this economy, he said.

TO BE CONTINUED…