* Robin Hood government adopts Sheriff of Nottingham motif
* Reviled economic ‘hit man’ becomes valued economic partner
April 15, 2016, 3:42 pm 
Sri Lanka entered the traditional New Year with the yahapalana government literally standing on its head. The present government described its first mini-budget in January last year as a Robin Hood budget where the rich were robbed to give concessions to the poor. Indeed there was no doubt that in the early days the government did both – robbing the rich as well as giving concessions to the poor. They introduced several one off taxes such as the ‘Super Gains Tax’ of 25% on all entities that had profits of over Rs. 2,000 million in the 2013 tax year, the one billion rupee levy on casinos, the one billion rupee levy on satellite TV operators having more than 50,000 subscribers, the Rs. 250 million levy on all mobile telephone operators, the special levy of Rs 250,000 on every bar and liquor sales outlet were among many such measures to ‘rob’ the rich.
This was followed by unprecedented concessions given to the poor. The salaries of public servants were increased by Rs. 10,000 per month – a feat that no previous government would have even dreamed of carrying out. They reduced fuel prices, the price of electricity and gas and at least for a while brought down the prices of several foodstuffs. Samurdhi welfare payments were increased. For several months, things went well, the rich were robbed and the poor were pampered but now the bubble has burst. The rich can no longer be robbed but the poor have to be pampered so the emphasis has now shifted from robbing the rich to pamper the poor to robbing Peter to pay Paul.
Top officials of the finance ministry have told Reuters that after May Day in two weeks time, the Value Added Tax will be increased to 15% from the presently applicable rate of 11%. This will be a 4% increase on the goods VAT is being charged on at present. But several crucial areas which were exempt from VAT have been brought into the VAT net. All aspects of the telecommunications industry is now liable to VAT as are healthcare services. Thus telephone and internet bills will see sharp increases of over 15% overnight. Private health care including the widely used channeling services for medical specialists will also see sharp increases. VAT is also to be charged on the supply of goods or services to any specified projects other than housing.
Furthermore the threshold of registration for VAT has been brought down to Rs 12 million per annum to bring as many establishments within the tax net as possible. This VAT threshold applies to the retail and wholesale trade as well. VAT was made applicable to the supermarket chains from 2013 onwards. The supermarket chains were up in arms at having had to pay VAT on supposedly VAT exempt items such as such as vegetables, seafood, dairy products, rice and pharmaceuticals. Under the present proposals, only VAT liable items will be charged VAT at the wholesale and retail level.
The Nation Building Tax will remain at the present 2% instead of being increased to 4% as was originally envisaged in the 2016 budget. However this backtracking on the increase in the NBT is deceptive because the tax net for the applicability of the NBT has been increased by bringing down the threshold for registration for NBT to Rs. 12 million per year. Furthermore certain items such as telecommunications, electricity and lubricants which had hitherto been exempt from NBT are now liable for the tax, further widening its scope. The NBT is a tax on the total turnover so the widening of the net should result in a considerable increase in revenue even if there is no increase in the tax rate. As in the case of VAT, the supply of goods and services to certain specified projects have been brought within the NBT net.
The government has reintroduced the Share Transaction Levy which will be charged from every buyer and seller of shares on the turnover of every share trading transaction at the rate of 0.3%. The share brokers were up in arms at the prime minister’s proposal to reintroduce the capital gains tax. Some share brokers in fact suggested the re-introduction of the share transaction levy instead of introducing a capital gains tax as the latter would inevitably have a dampening effect on share trading. The prime minister’s suggestion that a capital gains tax be introduced was obviously made in the old ‘Robin Hood’ frame of mind.
The rich don’t have enough votes to topple a government. The rich are not going to stage demonstrations or go on strike. Just as they don’t have votes, most of the rich don’t have guts either to question government policy or to talk back. They are therefore the easiest section of the population to exploit. For a government that lives in mortal fear of antagonizing the unwashed masses, the rich would be a tempting target. However, faced with a capital gains tax, at least a section of the rich did protest saying that this will be self defeating as it will not only dampen economic activity, but will increase tax avoidance. The share transaction levy was first introduced in 2005 under the Chandrika Kumaratunga government and the original levy was 0.2% on the turnover of every share transaction. It was increased to 0.3%? in 2011.?? This levy was supposed to be removed under the 2016 budget proposals, but it has been retained as the better alternative to the capital gains tax.
So now we see that the government has been forced to give up its Robin Hood rhetoric and adopt the practices of the Sheriff of Nottingham instead. The trepidation with which this government is approaching the change in policy can be seen from the many flip flops and hesitation and doubling back on tax policy that we have seen since last November. The tax increases that are on the way will increase prices of goods and services in a situation where everything costs less on the international market than was the case when the previous government was in power. Since this government came into power all commodities have seen price reductions. After January last year, there have been sharp decreases in the prices of crude oil, coal, wheat, milk powder, steel, glass, cement, sugar and virtually everything that this country imports including gold and silver. Then how is one to justify price increases which will inevitably come about with the proposed changes in taxes?
Changing the tune
on China
It is not just in tax policy that the yahapalana line has been stood on its head. Even the foreign policy of the government has changed beyond recognition. The UNP’s deputy minister of foreign affairs, Dr Harsha de Silva, went on record describing China as an economic ‘hit man’ not so long ago. He had said that Sri Lanka needs to be ‘wary of China’ and that increasing ties with China would be detrimental to Sri Lanka. He charged that the Sri Lankan Government was agreeing to massively expensive infrastructure projects such as harbours and airports and coal power plants that do not work and lotus towers with no earthly use for people. He insisted that the results of this would be felt by the country years from now when it is unable to make repayments for the loans. He had said that when Sri Lanka cannot pay back the loans, China would move in for the kill and use the strategic location of the country for its own interests. When loans cannot be paid back, China can demand to use our resources. Dr Harsha had pointed out that Dr. Sarath Amunugama was already going around saying that the management of these projects should be handed over to the Chinese.
Yet the leader of Dr de Silva’s party Prime Minister Ranil Wickremesinghe and his Chinese counterpart Li Keqiang put out a joint statement just as the country shut down for the New Year holidays which stressed – among other things - the following:
* Sri Lanka shared the interest of China in building the 21st Century Maritime Silk Road for greater economic cooperation, which will be a road of friendship, economic cooperation, socio and cultural exchange and connectivity. The two sides will use the development of a 21st Century Maritime Silk Road as an opportunity to further advance infrastructure development.
*Sri Lanka welcomes the positive engagement of Chinese enterprises in the country’s economic development. Sri Lanka also welcomes further investment from Chinese enterprises. (Despite Dr Harsha’s misgivings!)
* Both sides agreed to enhance their cooperation in the fields of transport, power and other infrastructure, industrial parks, and manufacturing industry etc. Sri Lanka announced the resumption of work of the Colombo Port City Project.
* Both sides agreed to hold the third round of the China-Sri Lanka Free Trade negotiations as early as possible and work towards concluding the negotiations at an early date.
* Both sides agreed to promote cooperation in the fields of ocean observation, marine meteorology, ecosystem protection, maritime resource management, underwater joint archaeology, search and rescue, combating piracy, navigation security and maritime personnel training, etc.
* The two sides expressed the willingness to maintain close relations between the two countries in the area of defense. They reiterated the need to continue to cooperate and work together on defense and security related issues.
* China, and will continue to encourage its nationals to travel to Sri Lanka and provide assistance for Sri Lanka in its efforts to increase its share in the tourism market. The two sides encourage the airline companies of both countries to have more frequent direct flights.
* An exhibition will be co-hosted in Colombo by the cultural authorities of the two countries on the theme of China-Sri Lanka Maritime Silk Route!
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