Views on the economic Development Structured around the four key areas
Posted on January 11th, 2016

By Kanthar Balanathan DipEE (UK), GradCert (RelEng-Monash), DipBus&Adm (Finance-Massey), CEng. MIEE, MIE (Aust), CPEng (Ret)

  It is most welcome that the SriLankan Government convened a conference on the economic development based around four key areas as follows:

  1. Macroeconomics and Fiscal Stability
  2. Structural Transformation and Competitiveness
  3. Urbanisation and Development
  4. Regional Development and Social Inclusion

Views and opinion in this article is limited to Fiscal Systems only. (Tax Systems)

Although the writer could not view the entire proceeding due to, may be, the upload speed in Colombo was poor.

The views expressed in this article is not to disapprove or criticise the theories and principles discussed in the conference, but to highlight how better SL could perform in restructuring her Fiscal Policy, microenterprises, and competiveness. Let us look at the definition for clearer understanding by all SriLankans.

Macroeconomics?

Macroeconomics is a study of the behaviour of the aggregate economic systems. That is to state the study of the whole of the economies. Macroeconomics primarily concerns with the forecasting of national income through analysis of other economic factors.

Fiscal Stability

The government have to adjust its spending levels and tax rates to influence the nation’s economy. The Central Bank influences its nation’s money supply in its monetary policy. To direct the country’s economic goals, the two policies are used in different combinations

First Step: Let us consider the tax system in SriLanka.

The major shortfall in the economic framework of SriLanka is the tax revenue. This has a large impact on the fiscal policy of the country. In the paper The demand for, and consequences of, formalising among informal firms in SL”, Dr Suresh de Mel, David McKenzie, & Christopher Woodruff discuss on the informality and its impact. This paper reveals that, quote: Even among firms employing paid workers, the majority are unregistered with one or more pertinent agencies”, and only one-fifth of firms operating without paid workers are registered with any government agency”.

The author of this paper would like to refer the informal system in the North. Except the government, corporation and large registered company’s workers, it is likely that at least 99% of the breadwinners (informal) do not pay tax. However, they are engaged in fulltime work generating income to meet purchasing movable and immovable assets. The owners of such enterprises can be classified under microenterprises.

The business dictionary defines microenterprises as: The smallest business in a country which operates with the least capital and number of employees. Usually operates within a small geographic area to provide services or goods for their community”.

The author would like to give a few examples.

  1. Masons who claim they are builders in the North, start with low capital, and a few workers in their team. The so called team may not have a business name but operate with its leader’s name. There are significant number of such building teams. They do not take liability for what they build and complete, no insurance, and further none of the workers’ or the business pay tax.
  2. Farmers growing vegetable, paddy etc. No tax is paid to the government on the yield or any profit.
  3. Fisherman do not declare what they catch, sell, and collect as revenue. No tax is paid.
  4. Small scale tea boutiques, shops, operate with may be, two tax receipts books. One for the tax department and, other, the actual.
  5. The major portion of individual (microenterprise) revenue is generated from smuggling. The smugglers also employ a few people in their team. They are the richest is the North.

This article gives only a few microenterprise examples.

The inequality widens, because the smugglers become rich, like millionaires, whereas a government service engineer, accountant or clerk remains poor. The government, corporation, and corporate’s employees contribution to the country is enormous, in supporting and development, however, the owners of microenterprises who do not pay one cent tax contribute nothing.

SriLanka’s priority in its economic development is to overhaul the tax system and the tax department. The tax Commissioner should be empowered by the Public Service Commission to recommend/appoint staff to the tax department. The clerks in the tax department are not to be inter-transferable within other departments, as their knowledge and service should be considered special. The tax department should be given special powers by act of parliament. Tax Commissioner should be given special power to conduct audits and checks on individuals if he considers such person has acquired wealth indirectly and or illegally. The salary to the tax department staff should be adequate to cover their responsibility and work.

  1. Every breadwinner in a family should have a tax file number, and a simple system of tax return should be in place.
  2. Every microenterprise should request and operate with a business number allocated by the Tax department or the Provincial Council. (In some countries such informal business is known as Sole Traders)
  3. Every Province is to have the tax department provincial headquarters to manage the tax system.
  4. It is a belief that with the current technological advancement, SriLanka could have a complex computerised system to manage the tax system.

Currently the country may have a shortfall in the revenue collected, however, expenditure remains constant or on the increase. People should understand that SriLanka provide its people, free health, education, some goods, and subsidised items. They also should understand that SL should generate the revenue to meet the expenditure, have a sound GDP, low inflation & interest, to provide quality life to its people.

It’s the duty of citizens to pay the required tax on their earnings. Every citizen should know and understand that SriLanka does not engage in smuggling for revenue generation, but governance.

Before we address the export earnings, it is considered advisable to address the internal tax systems.

Politicians should not consider that such rigid and sustainable tax system will compromise their victory to parliament.

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