Opinion
IMF folly – Imputed Rental Income Tax
By Dr Sirimewan Dharmaratne,
Former Senior Analyst, HM Revenue
and Customs, UK.
While one can only imagine the atmosphere at the discussions with the IMF, what transpires from these meetings, one can presume that there was no resistance or contention to whatever the IMF proposes. The IMF appears to be pretty much dictating the fiscal policies for Sri Lanka to follow. The proposed Imputed Rental Income Tax (IRIT) is a good example how helpless or defenceless Sri Lanka has become to get a bit of money that some oligarchs spend on their yachts. The gravity of this tax is only just gradually sinking in Sri Lanka. Even those in the government, or those wannabes, are clueless as to what this policy is. It is utter stupidity to make statements such as “90% of the property owners won’t be affected” when the policy is not yet even formulated. Without the Sale Price and Rent Register (SPRR), which will be the basis for valuation, it has not been even started, but is required to be completed within a few months. Tax rate has not been determined either. Therefore, it is disingenuous and misleading to say that only 10% of the households will be affected. Further because of the word ‘rental’, some politicians still believe this is a tax on rented properties or on those with ‘commercial value,” whatever that is. But potentially it could be far more sinister!
What is Imputed Rental Income Tax?
This is a highly controversial and nonsensical tax that is imposed in only five countries, namely Iceland, Luxembourg, the Netherlands, Slovenia and Switzerland. None of these are developing countries and even in Switzerland, there is an ongoing debate on its abolition. The tax is imposed on the ‘imputed’ rental income of your own home after deducting mortgage or loan payments. The imputation is based on the rent that you would have to pay to rent a similar property in that location. Once this is determined, there may be some provision for the homeowner to negotiate the imputed value, based on several other factors. In countries where this is imposed, imputed value is negotiated down to be less than half of the potential rental value.
Proposed SPRR
The IMF has suggested implementing this tax by March 2025, once the SPRR is completed within a few months of this year. This will be a monumental task in the informal and disparate property market that exists in Lanka. Except for some properties in high-rise apartment complexes and a few other high-end properties, mainly in Colombo, most rentals and property transactions occur through personal advertisements on newspapers and online. Their rental rates and selling prices are personal information and are unlikely to be recorded anywhere. Further, each property is unique and no two properties, in the same neighbourhood, are the same. This adds to the complexity of determining overarching rental rates, or sale prices, even for a small confined neighbourhood. Also, rents are negotiated, based on personal acquaintances, actual or perceived ability to pay rent and several other factors that cannot be quantified. Often one finds palatial homes in not so desirable neighbourhoods surrounded by very basic abodes. This will make it extremely challenging for authorities to come up with any credible imputed rent register for a myriad of heterogeneous properties strewn all over the island.
This is very much different to developed countries, where there are whole neighbourhoods with pretty much identical properties. Variation is sale prices and rents are very minor within a neighbourhood. Transaction information on only a few properties is enough to impute the sale or rental value of similar properties. In the UK, for example, there are several online property sites that individuals use as guides to advertise properties for sale and rent. Also, since most homes are mortgaged owned, banks have a record of sale prices and mortgages extended to each property. The government and tax authorities have access to all this information almost in real time.
Is this tax realistic in Sri Lanka?
Despite the ill-conceived optimism of the IMF, this tax is highly impractical in Sri Lanka due to aforementioned reasons and certainly not within the suggested time frame. This is an excellent manifestation of what happens when international organisations run out of ideas and are devoid of any sense of reality of the environment that they are working on. In a highly fractured and heterogenous property market, each property will have to be considered individually to calculate the imputed rent as each property is a unique entity. Further, the rental demand for high-end properties in Colombo and its purlieu are by embassies, international organisations and other foreign establishments that can pay high rents, which are out of reach of many ordinary Sri Lankans. While those who are lucky enough to get such clients may demand high rents, to use them to impute rental value of the adjoining property is not possible. For properties of this nature there is an esoteric and limited client base. For the rest of the country, there is a ‘rent ceiling’ that any property could demand, regardless of how grand it is.
Therefore, any kind of rent register has to be either very individualised or fairly prosaic, mostly based on highly conservative estimates in a very parsimonious information environment. Either way, putting together a useful and credible SPRR would be highly contentious and those with means and connections could influence how much their imputed rent would be. This opens up another avenue for widespread corruption, where valuation offices could easily be the new elite surpassing custom offices.
Is this tax fair?
One of the main arguments against IRIT is that it goes against the very principle of taxation. A tax is imposed on a transaction or when an income is generated. This tax is imposed on a non-income generating asset. As such, it is biased against those individuals who are asset rich but cash poor. Sri Lankan house ownership is unique. Most people strive throughout their working years to build a house that eventually becomes their family home. When they retire and income is drastically reduced, it not only becomes their permanent refuge, but also serves as a launching pad for grown up children until they become independent. Few lucky ones acquire homes through bequeath or marriage. For these individuals’ this tax may not be as unfair as for those who have spent their hard-earned money building or acquiring a property. However, the morality of the tax is still questionable. This tax is penalising people for their enterprise. It is in effect disincentivizing people from investing in their future and the welfare of their children. While tax implications can be taken into account in making a decision about going for a higher paying job, or purchasing an item, no one would know what the future tax is when they start to build their own home. It is completely at the mercy of an imperfect and capricious valuation process. Therefore, if applied regressively, this tax would be unfair on the owners of the existing stock of property and could peril the livelihood of those who are living at the margins, but fortunate enough to have their own comfortable home in a desirable location. Those who are planning to get on the property ladder would be no better off either as they would have to consider some random tax that will be imposed once the property is built or acquired.
Why in this predicament?
The reason that Sri Lanka is in this quandary and has to propitiate IMF is due to years of neglect to implement sensible tax policies. Ridiculously low historic personal income taxes and their ad hoc implementation has given a false sense of prosperity that accustomed the populace to a lifestyle that otherwise would not have been possible. If the taxes have been allowed to increase marginally over the years to reflect the true cost of providing public services, the pain would have been much less. To cover the gap that could not be covered by taxes, all elected governments have been borrowing heavily, primarily to support consumption. Even when borrowed for income generation, gratuitous corruption and egregious decisions have rendered most investments liabilities. All the while the debt has been piling up unabated, and passed on from one administration to another. Economic mismanagement and the maintenance of a bloated, inefficient and corrupt public service have finally nailed the coffin in. While decreasing government expenditure through restructuring and privatisation is facing fierce opposition, agreeing to raise taxes and find new sources for taxation appears to be the only way to convince creditors to lend more. But is it?
Tax Gap – Finding tax leakages
One of the main accusations against pervasive taxation is the inability or unwillingness to clamp down on widespread tax evasion. Different groups point out sources where substantial haemorrhage of tax occurs. However, quantifying leakages of tax revenue has hampered putting forward a compelling case against imposing more debilitating taxes. To realise how extra tax can be collected without imposing new taxes, the government needs to know how much tax is lost and then formulate a comprehensive plan to collect. The method to estimate lost tax is by calculating the tax gap. Tax gap calculates the overall deficit in the tax that is due under full compliance and what is actually collected. It can be broken down by sector, such as tax lost through income tax, corporate tax, excise tax. The concept is fairly straightforward although computationally data driven. Rather than agreeing to every outlandish suggestion that the IMF makes, the government should be able to suggest alternative methods to raise taxes without further burdening the long-suffering public. The way to achieve this is by having people who could hold a conversation at their level. Obsequiousness is seen as a sign of weakness that organisations like the IMF have come to expect in developing countries. Unless the government gets its act together and shows that they could put forward fact-based strong arguments, it won’t be able to defend the public from the wrath of the IMF. Without the knowledge of how much tax is lost and a comprehensive plan to collect it, it is not surprising that only one party dominates these discussions.
Repercussions of Excessive Taxation
Studies done in the UK and other countries have shown that excessive tax burden promotes evasion and evasion is self-feeding. When people see others evade taxes, they are also compelled to do so, especially if they see no action is taken. Since taxes don’t give any direct benefits, individuals are more likely to comply if everyone else does. People neither feel good when they pay taxes or feel bad when they evade. Because they feel ‘everyone’ is doing it. All this means that there will be a huge cost making individuals comply with various taxes and associated regulations that are popping up like mushrooms. This will in turn increase government expenditure, negating most or some of the revenue from increased taxation. A complicated tax like IRIT will face significant difficulties and costs through its implementation. Identifying the ownership, imputed rent valuation, adjusting it for various mitigating factors, negotiations, endless legal challenges and distortions to the property market will render this tax unworkable in Sri Lanka. The IMF really should stay away from prescribing specific tax policies that are not suitable for Sri Lanka while the government should be much more erudite in holding their ground and fighting their corner.
Opinion
Role of children’s stories in learning English and their impact on children
Children’s stories have always been an important part of childhood. From traditional fairy tales to modern picture books, stories entertain children while also helping them understand the world around them. When children are learning English as a language, stories become an especially valuable tool because they provide a natural, enjoyable, and meaningful way to develop language skills. Through characters, plots, and imaginative situations, children’s stories support vocabulary development, improve communication abilities, and encourage confidence in using English.
One of the greatest benefits of children’s stories in English language learning is that they introduce children to new vocabulary in a meaningful context. Instead of memorising isolated words from a list, children learn words through situations and actions within a story. For example, a story about a farm may introduce words such as “animal,” “field,” “farmer,” and “plant” while showing how these words relate to each other. This contextual learning helps children understand and remember new vocabulary more effectively.
Stories also improve children’s listening skills. When teachers, parents, or other speakers read stories aloud, children hear correct pronunciation, sentence structures, and natural expressions in English. Regular exposure to spoken English helps children become familiar with the rhythm, sounds, and patterns of the language. Even when children do not understand every word, they can often follow the meaning through pictures, gestures, and the events of the story. Over time, this develops their ability to understand spoken English in different situations.
Another important impact of children’s stories is the development of speaking skills. Stories encourage children to talk about characters, describe events, answer questions, and share their own ideas. Activities such as retelling a story, acting out scenes, or discussing what might happen next give children opportunities to practise English in a relaxed environment. Because stories are enjoyable and engaging, children are often more willing to participate and communicate without fear of making mistakes.
Children’s stories also support the development of grammar skills. Through repeated exposure to well-formed sentences, children gradually recognize how English works. They learn common sentence patterns, verb forms, and ways of expressing ideas. For young learners, grammar is often easier to understand when it is presented through a story rather than through direct explanations. For example, a story that describes past events naturally introduces the use of past tense verbs, allowing children to observe grammar in action.
In addition to language development, stories have a strong influence on children’s imagination and creativity. Stories allow children to enter different worlds, meet interesting characters, and explore new ideas. When learning English, imagination makes the language experience more meaningful. A child who becomes interested in a story about a brave character or a magical adventure is more likely to remember the words and expressions connected with that experience. Creativity also encourages children to create their own stories, which further strengthens their ability to use English.
Children’s stories can also help develop cultural awareness. Language is closely connected with culture, and stories often introduce children to different traditions, lifestyles, and values. English stories from different countries allow children to learn about people and places beyond their own experiences. This helps them understand that English is not only a subject to study but also a way to communicate with people around the world.
Reading stories in English can also increase children’s motivation and positive attitudes toward learning. Many children may find learning a new language challenging, especially when they focus only on textbooks or exercises. Stories make learning more enjoyable because they combine education with entertainment. When children associate English with fun and creativity, they are more likely to develop curiosity and continue learning.
The emotional impact of stories should not be overlooked. Many children’s stories contain themes such as friendship, kindness, courage, and problem-solving. Through characters and situations, children can learn important social and emotional lessons. Discussing these themes in English gives children opportunities to express feelings, opinions, and personal experiences. This not only improves language ability but also supports emotional growth.
Teachers play an important role in using stories effectively in English language classrooms. Selecting stories that match children’s age, interests, and language levels is essential. Teachers can support understanding by using pictures, asking questions, encouraging predictions, and connecting the story to children’s lives. Repetition is also valuable, as hearing the same story several times allows children to become more familiar with vocabulary and sentence structures.
Parents can also encourage language learning through storytelling at home. Reading English stories together, listening to audiobooks, or watching story-based programs can provide additional exposure to the language. A supportive environment where children feel comfortable experimenting with English can greatly improve their confidence and progress.
In conclusion, children’s stories have a powerful impact on learning English as a language. They provide children with opportunities to develop vocabulary, listening, speaking, reading, and grammar skills in an enjoyable and meaningful way. Beyond language learning, stories encourage imagination, creativity, cultural understanding, and emotional development. By making English learning engaging and enjoyable, children’s stories help young learners build a strong foundation for future communication and lifelong learning.
Saumya Aloysius
(A children’s writer contributing to both local and foreign newspapers as a freelance writer)
Opinion
When governments destroy mangroves
Any government that comes into power is a caretaker – of its people, environment and security. This is another glaring occasion where their lack of knowledge, or blatant disregard to the environment is causing long-lasting damage to this country.
After the devastation of the tsunami, then governments took the initiative to raise natural protection of the island by undertaking massive projects to plant mangroves. It was a long-term project, spanning 20 years, by the armed forces, to get these barriers up. Now the same army is used by this government to chop down these mangroves!!
This is happening right now in the Trincomalee lagoon. Nearly 40 lorry loads of mangrove forest have been taken away already. The excuse used for this is dengue control, a circular issued by the presidential secretariat in June. The ignorance is here; the seawater mixed lagoon does NOT breed mosquitoes. Trincomalee does not pop up in the dengue demographics, even as a high risk area. Yes, there is garbage, and plastic thrown into the mangroves that can be breeding grounds for mosquitoes. These can be cleared away in a clean-up operations, without harming the mangrove trees. It has been done a few times before, by previous government authorities, like coast conservation, who know the value of the mangrove belts. The local rumour becomes believable, that this deplorable act is done to please some local business partners of the area who run pleasure boats in the lagoon.
Yes, unhealthy mangroves can breed mosquitoes. But mangroves are ‘decease swamps’ is a dangerous myth. That mangroves are dirty, stagnant swamps teeming with decease carrying mosquitoes is a misconception that promotes harmful policies to control dengue outbreaks. This top myth justifies the illegal coastal clearance today in Trincomalee. It is destroying an important ecological asset of this country, mangroves, while failing to address the true root of dengue transmission. Where is the coast conservation department in this situ? Have they got CCD permission to carry out this butchery?
Healthy mangroves do not breed dengue mosquitoes, especially the one’s closely connected to the sea like in Trincomalee. The larvae needs completely still unmoving water to breathe at the surface, and mature. The power of tidal flushing which keeps water circulating in the mangroves makes this impossible. Also the daily ebb and flow of ocean tides keeps the water moving in the mangroves and frequently drains the forest floor. The natural hydrology of healthy mangroves, acts as an automatic self-regulating barrier against stagnant water collection, making viable breeding sites virtually impossible.
Also mangroves contain nature’s exterminators. It hosts a massive army of mosquito predators. These mangroves are not dead swamps but vibrant nurseries. Young Fish, dragon flies, crusteasians, and insectivorous birds are natural mosquito predators. Clearing mangroves collapses this natural food web, removing this natural pest control.
In fact, clearing mangroves is counterproductive and will backfire with worsened dengue cases. The heavy machinery will leave a scarred landscape with deep tyre tracks in the marshy soil making stagnant water pools and disrupted drainage. When rainwater fills these artificial depressions it will create perfect stagnant, predator free, fresh water pools, Ideal breeding grounds for Aedes aegypti. Also clearing this kind of buffers can bring in the urban sprawl with its people, housing, and garbage, to the new degraded land.
The collateral damage is even bigger. Destroying mangroves in the name of pest control leaves coastal populations poorer, hungrier, and highly vulnerable to extreme weather. One would have thought at least the people in the coast conservation department were knowledgeable enough about the loss of wave attenuation with removal of mangroves and the risk of flooding and storm surge damages to the coastal areas. Collapse of these fish nurseries should ring alarm bells in the fisheries department. Reduced fish harvest and loss of livelihood for the local fishermen should have had fisheries department people rushing to the site. But neither of the mentioned government departments have raised a murmur, in the face of political influence. This is the sad truth of the country at the moment. Sri Lanka’s climate resilience has been compromised by release of stored ‘blue carbon’ and a loss of natural buffer against rising sea levels, while the responsible people in the government are silent in front of an ignorant political hierarchy.
This is an appeal to the highest authority in the country to stop this environmentally insensitive projects of this nature being coughed up by ignorant municipal members. Clearing these forests directly violates so many policies on conservation. Our local fishermen depend entirely on healthy mangrove root systems—such as those being chopped down. From a health perspective, medical professionals have repeatedly assured us that under the current National Policy Framework, marshy lands and mangrove ecosystems pose no threat of dengue. We request your guidance and intervention to ensure our environment is not sacrificed.
Citizen S
Opinion
Lankan hotels and price discrimination
In planning a long trip to Sri Lanka from the UK, I was disappointed to see different hotel pricing for foreign visitors when compared to local rates. Like many travellers, I prefer to book directly with hotels, rather than international hotel consolidators, as more money goes to local businesses. But the assumption that foreigners should pay more is simply distasteful. As such, I’ve chosen another long-haul destination that does not follow such practices, and hope that Sri Lanka will change its approach to overseas visitors in the near future.
Neil Roskilly Wetherlee UK
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