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Editorial

Income tax

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It is very clear at present that the new income tax net cast by the Ranil Wickremesinghe government has provoked a situation that may well become unmanageable and ominous signs of this are clearly emerging. Strident protests from groups including doctors, university academics and others including port and airport employees and many others have been becoming increasingly strident over the past several days. Hints of direct trade union action, obviously meaning strikes, have been made. Whether a government, already on the back foot following Inter University Students’ Federation (IUSF) Convenor Vasantha Mudalige’s release on bail and angry public opinion railing against blatant efforts to postpone the scheduled local elections. can fend off the tax protests remains to be seen.

All those protesting on this account well know that the government is desperately cash strapped and needs to urgently harness revenue to keep the wheels of state turning. On its part, the government also is too well aware of the inability of most of the protesters to bear the new income tax burden in the face of galloping inflation, particularly food, electricity and a host of other goods and services are concerned. But there is very little that it can do about it. Wickremesinghe’s and his government’s obdurate refusal to abandon or cut down on Saturday’s 75th Independence anniversary bash, said to have cost Rs. 200 million, has only aggravated public fury about the new income tax burden placed upon the people.

The very small number of personal income tax payers in this country have always felt unfairly treated, believing they have been singled out for harsh treatment while the vast majority remained untouched. They could not be more wrong. All the people of the country pay taxes and how! As one famous newspaper editor of the past pungently put it, “every time you strike a match or flush the toilet, you are paying a tax.” We all know the platitude that the only thing that is certain in life is death and taxes. Indirect taxes unlike those that are direct (like income tax) by far account for the lion’s share of tax revenue. Populations of developed countries, particularly in Europe and North America, pay high income taxes. But they, unlike us in Sri Lanka, get good returns for what they pay. We, in this land like no other, can only grin cynically when we see signs proclaiming “Your tax rupees at work” at road digs and construction sites and think “like hell” to ourselves.

Equity is a basic principle of taxation long ignored in this country. Go back to 1977 and the early years of opening our long shackled economy by the J.R. Jayewardene government with Ronnie de Mel as finance minister. That was when public service emoluments were freed of income tax on the argument that top public servants were paid much less than their private sector counterparts and this hindered government’s ability to hold competent managers in the public sector hierarchy. The contention was not altogether without merit but there were many fallacies as well. Public servants from the colonial days have enjoyed non-contributory pensions which is not the case (with very few exceptions) in the private sector. Dr. N.M. Perera, as finance minister in Mrs. Bandaranaike’s United Front government of 1970 tried, without success, to withdraw the pension benefits from new entrants to the public service. He sensibly proposed that they be paid a retirement benefit like what is offered by the EPF to private sector employees with contributions from both employer and employee. The failure of this effort has left a ticking time bomb on the taxpayer’s lap to this day.

At a post-budget press conference following freeing public sector salaries from income tax, then Finance Minister De Mel was asked whether parliamentary emoluments too would be similarly exempted. He ducked the question saying “that hasn’t been decided yet.” Of course the benefit was extended to MPs too. Cabinet Spokesman Bandula Gunawardene told a post-cabinet news briefing a few days ago said that the IMF wanted all those earning Rs. 45,000 a month to be made liable to income tax. The government tried its best to push it to a monthly Rs. 150,000 and finally settled at Rs. 100,000. There were those who didn’t believe the minister on the premise that an institution like the IMF would not have got into micro details but would have broadly prescribed a percentage of GDP that must be gathered as tax revenue. However it wasn’t long before the president himself confirmed Gunawardene’s claim.

There’s no avoiding the reality that Sri Lanka’s income tax base is far too narrow and needs to be widened substantially. This would mean that people who have never paid income tax would caught up in the tax net and would deeply resent being compelled to pay. This is particularly so in the context of the value of money reducing sharply, most so in recent months. The country is also saddled with an Inland Revenue Department entrenched in a tradition of harassing already squeezed lemons to increase tax collection in a society where evasion is widely prevalent, often among professionals who should know better. The government must also be cognizant of the untaxed, lavish non-cash benefits of politicians deeply resented by the people. However that be, whether the government will be allowed to implement the announced scheme or be compelled to backpedal remains to be seen.



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Editorial

Sailing between Scylla and Charybdis

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Monday 17th February, 2025

President Anura Kumara Dissanayake (AKD) may be no hero like Odysseus, and the International Monetary Fund (IMF) and the irate public are certainly no immortal monsters, but the perilous economic voyage AKD has embarked on is akin to sailing between Scylla and Charybdis. The NPP government’s maiden budget is to be presented to Parliament today. It will be the moment of truth for the incumbent dispensation troubled by more than its fair share of problems. What AKD has undertaken to perform on the economic front is a high-wire act, and balance is of the essence; he has had to keep the budget within the confines of the IMF bailout programme while granting relief to the resentful public, whose patience has been wearing thin owing to economic hardships.

It is being claimed in some quarters that the budget to be presented today has already passed muster with the IMF, but even so, problems are far from over for the government. Whether the budget will be acceptable to the public at large remains to be seen. Otherwise, it will entail a heavy political price for the NPP.

In a bid to rally popular support, President Dissanayake has promised pay hikes for state employees, who number more than 1.25 million, according to official statistics, but private sector employees (about 3.63 million) and own-account workers (about 2.8 million) constitute the majority of Sri Lanka’s workforce. The number of contributing family workers is about half a million, according to the Department of Census and Statistics. So, pay hikes for the state employees will leave millions of non-state sector workers disgruntled ahead of an election.

Meanwhile, the relaxation of import restrictions on vehicles may help the government meet the IMF-prescribed revenue target (15% of GDP) without increasing the existing taxes that are already very high or introducing new ones. However, the resumption of vehicle imports is bound to have an adverse impact on the country’s foreign currency reserves, causing the rupee to depreciate and the prices of imports to rise. This is a Catch-22 situation the government may not be able to avoid.

People are in no mood for excuses, and what they expect from the government is the expeditious delivery of its election promises, which range from bringing the prices of essentials down to affordable levels and slashing automobile prices to make cars accessible to everyone. So, the challenge before the government and President Dissanayake is to ensure that today’s budget meets the expectations of the public, with local government elections slated for April.

The government finds itself in the current predicament of having to deliver on its promises even before settling down properly because the JVP-led NPP raised people’s expectations beyond realistic levels to win elections, which looked like promise-making contests, as it were. In the past, the JVP/NPP would take to the streets, asking every newly elected government to grant relief to the public; it called for pay hikes even at the height of the current economic crisis. Now, the boot is on the other foot.

The NPP is being dogged by its own pre-election promises, rhetoric and unreasonable demands during previous governments. One may recall that the NPP in the run-up to last year’s presidential election, claimed that petroleum prices could be reduced by as much as Rs. 160 overnight, and farmers paid Rs. 150 per kilo of paddy. It either did not realise the gravity of the country’s economic situation or erroneously believed that it, too, would be able to get away with broken promises, like past governments, which followed the Machiavellian precept—‘the promise given was a necessity of the past, and the word broken is a necessity of the present’. It is now under pressure from the people who gave it a supermajority to grant them relief.

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Editorial

Local elections

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The Supreme Court determination on the Local Authorities (Special Provisions) Bill read out in Parliament on Friday makes clear that these elections, last held in 2018, due in 2022 and postponed thereafter on various pretexts must be held in the coming weeks. But the question is when? The opposition urges that they be held after the Sinhala and Tamil New Year holidays are over. They argue that with the president, as finance minister, due to present his first budget which is expected to be voter friendly on Monday and the budget debate will take much of March.

The majority judgment held that the Bill must be passed by a two thirds majority which the present regime holds and has not required a referendum so there will be no legislative challenge. The matter of fixing the election dates is for the Independent Elections Commission and the government should have no say in the matter. Nominations for these elections were called and a polling date fixed in 2023 post aragalaya after President Ranil Wickremesinghe had assumed office. Deposits were paid and nominations received. But the elections were not held on the grounds that the government had no money to fund them. The courts ordered that they be held “as soon as possible.”

Some candidates for that election had entered parliament. Others have emigrated and some have died. There is an obvious need for the refund of deposits and call fresh nominations before polling which the Bill provides for. The question therefore will be in the timing of the election. Certainly it cannot be held before the budget. The present regime is very well aware that the election will be an acid test after its heady election victory and will be intent on demonstrating that it remains popular. The opposition will be determined to regain lost ground. How will events pan out? That is the million dollar question.

Gifting sight to the sightless

At the World Governance Summit hosted by the United Arab Emirates a few days ago, President Anura Kumara Dissanayake made a reference to a subject generally taken for granted by most Lankans and no longer accorded the importance or merit it deserves. This relates to the fact that Sri Lanka is the world leader for eye donations – the gifting of human corneas from those no longer living to the sightless or persons with reduced vision. The president said in his speech that anybody using a smart phone could instantly verify this fact for him or herself. The latest figure at 94,959 corneas sent abroad exceeds the 80,000 stated in the Internet. These eyes have been sent to as many as 114 cities in 57 countries since the Ceylon (now Sri Lanka) Eye Donation Society was founded in 1961 by the late Deshabandu Dr. Hudson Silva. This vast endeavor of gifting sight to the sightless has benefited over 58,000 people locally and also enabled 40,000 plus corneas being made available for research.

In his speech, the president said that the fact that this country is the world leader in overseas eye donations is ample demonstration that we are a warmhearted people, a quality that can win us friends globally. No doubt the Buddhist ethic that permeates this dharmadweepa is surely a factor that has influenced the gifting of eyes by those who no longer have use of them; and corneal grafting is now commonplace in ophthalmology. Dr. Hudson Silva’s was a household name from the 1960s onward when he enthused the nation to participate in this meritorious practice and set up the infrastructure to do so so. But, sadly, he is no longer remembered as well as he should. However, the Sri Lanka Eye Donation Society which later extended its work by setting up a human tissue bank in addition to its original eye bank remains a lasting monument to a truly remarkable man.

As a medical student in 1957, Hudson Silva was inspired by the vision of transplanting corneas from the eyes of those no longer alive to those in need of them. He told his mother to donate his eyes when he was no more. She responded that she was likely to die before him and to make sure that her eyes are donated. From this tiny acorn a mighty oak grew and today the Sri Lanka Eye Donation Society performs a tremendous service free of charge. It attracted support from the Government of Sri Lanka and various other benefactors at home and abroad and today owns an impressive headquarters building at a prime location in Colombo. At the beginning the society collected the corneas of people without custodians in government hospitals, homes for the aged and executed prisoners. It carries in its books the names and addresses of over 22 million people who wishes their eyes to give sight to another after their deaths.

It should be known that a human cornea should be removed within four hours of a death to be of future use. The eyeball can be preserved in ice for 24 hours and thereafter for 14 days after the cornea is separated from the eyeball and preserved in a special fluid. The society has over 250 branches with trained technicians to remove eyeballs so that its coverage is almost island-wide. The late Dr. Hudson Silva who captured national headlines calling the government health department “a sick giant” when he was in government service had brilliant public relations skills and media savvy for his time so that the story of what little Sri Lanka was doing in this field was carried the world-over by the international press. Thus it is gratifying that a short excerpt of a speech that the president made at a global summit has once again attracted attention both nationally and intentionally to what Sri Lanka is doing in the area of giving sight to the sightless.

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Editorial

Coal giant awakes, but uncertainty prevails

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Saturday 15th February, 2025

The Norochcholai coal-fired power plant, which came to a standstill on Sunday due to an emergency grid shutdown across the country, shuddered back into life yesterday, feeding the starved grid. The Ceylon Electricity Board (CEB) announced that there would be no more power cuts. The public, troubled by planned power outages, which are as problematic as unplanned ones, must have heaved a sigh of relief. However, there is no guarantee that the problems that caused the Norochcholai plant shutdown will not recur, for their root causes have not been eliminated.

Minister Kumara Jayakody, who is in charge of the power sector, blamed Sunday’s countrywide power failure on an unfortunate monkey that caused a short circuit at a grid substation in Panadura by touching a transformer and dying in the process. The CEB said a cascading safety shutdown had led to the Norochcholai plant failure. A group of CEB engineers claimed that a steep increase in the solar power generation and a drop in the demand for power on Sunday had rendered the national grid unstable and caused a countrywide blackout. There are still many monkeys around grid substations, and solar power continues to be generated with the demand for power remaining low on Sunday. So, the possibility of another countrywide power failure occurring tomorrow or later cannot be ruled out.

Opposition Leader Sajith Premadasa, speaking in Parliament, yesterday, asked Minister Jayakody to inform the House whether the CEB would be able to ensure an uninterrupted power supply tomorrow, given the low demand for electricity on Sundays. But Leader of the House and Minister Bimal Ratnayake, true to form, sprang to his feet, insisting that yesterday’s special parliamentary session had been summoned for the Supreme Court determination on the Local Authorities (Special Provisions) Bill to be announced, and therefore the Opposition should stick to the order paper. The Opposition argued that yesterday’s parliamentary sitting had cost the public millions of rupees, and therefore serious problems affecting them had to be discussed in the House. Minister Jayakody however refused to be drawn in. The government members’ protests and/or silence are not going to solve the problems in the power sector.

The CEB should explain why it has not adopted technological solutions to the problems that cause system shutdowns, especially the Norochcholai power plant breakdowns, which lead to scheduled power cuts. What one gathers from views expressed by power sector experts on Sunday’s nationwide blackout is that it is possible to prevent the Norochcholai plant shutdown with the help of a power infrastructure upgrade. Technological solutions are available, they insist. Is it that the CEB has not adopted them because the CEB has to buy power from oil-fired power plants at exorbitant rates when the Norochcholai power station shuts down? The latest Norochcholai plant failure is believed to have cost the country Rs. 1.2 billion extra a day to keep the grid running. Has anyone laughed all the way to the bank?

The CEB’s losses are conveniently passed on to the public. Hence the need for a high-level probe to find out what really caused Sunday’s power failure and the shutdown of the coal-fired power plant, and whether some vested interests undermined the national grid, as claimed in some quarters.

It is also possible that the so-called oil and coal lobbies are trying to discourage solar power production to advance their own interests. This angle of the issue of power failures must not go uninvestigated. Curiously, a claim is being floated that a fire that destroyed a factory in Horana on Thursday had been triggered by a solar panel that caught fire due to the prevailing dry spell and intense heat. Is it also part of the ongoing campaign against power generation from renewable energy sources?

Problems in the power sector are too complex and serious to be tackled in an ad hoc manner. They must be properly identified before remedies are attempted. A thorough, systematic approach is called for. We suggest that a special presidential commission of inquiry be appointed to investigate unresolved issues, allegations of malpractices, etc., in the power sector, which is Sri Lanka’s Augean Stables.

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