C.A.Chandraprema Courtesy The Island

November 11, 2017, 8:04 pm

The third yahapalana budget was presented in parliament and there does not seem to be anything positive that can be said about it. It was the AFP Correspondent in this country who pointed out at the press briefing held afterwards by the Minister of Finance that the reduction in the tax for electric vehicles cannot be implemented on the ground because it applies only to new electric cars which are apparently not exported to Sri Lanka by their manufacturers because this country lacks the infrastructure to maintain them.  From the looks of it, the Minister and all the officials at that press conference seemed unaware of this matter and they promised to look into it. Whether this was genuine ignorance or another sleight of hand which this government is well known for, is a moot question. The present writer tends rather to the latter because increasing the revenue from the vehicle import tax was one of the cornerstones of this budget.

What the general public expected was a budget that provides people with some relief in view of the skyrocketing cost of living. Admittedly there were some pre-budget reductions in the price of some essentials although that would not amount to much in the big picture. What the people have got is a budget that will increase the financial burden on them even further. The most important part of the budget is its summary which appeared as Annexure IV in the budget speech. This table gives us a fair idea of how things will stand for the general public in the coming year. According to this document, the government intends increasing total government revenue from an estimated Rs. 1,997 billion in 2017 to Rs. 2,326 billion in 2018 – an year on year increase of Rs. 329 billion. Tax revenue is expected to increase from Rs. 1,749 billion in 2017 to Rs. 2,034 in 2018 an increase of Rs. 285 billion. During the previous government an increase of tax revenue by anything more than 100 billion would have been considered abnormal, excessive and punitive. When tax revenue estimates are increased, that means that somebody is going to have to fork out the money.

Minister of Finance Mangala Samaraweera

In that respect, this is a budget designed to milk the people dry.  The way the government is hoping to increase tax revenue is by increasing revenue from income tax from Rs. 308 billion in 2017 to Rs. 375 billion in 2018 an increase of Rs. 67 billion. Under the previous government that would be an amount by which the government would hope to increase total tax revenue year on year. However, the present government is seeking to increase revenue from income tax alone by that amount. It can be assumed thereby that the provisions of the new Inland Revenue Act are to be brought into full play next year in order to meet this target.

Apart from that huge increase in revenue from income tax, the government also hopes to increase revenue from indirect taxes on goods and services from an estimated Rs. 1,054 billion in 2017 to Rs.1,239 billion in 2018 – an increase of Rs. 185 billion. As in previous years, the perennial favourites are to provide the increased revenue from goods and services taxes. The first are of course the import duties payable on cars and motor vehicles which is expected to provide additional revenue of Rs. 25 billion, the widening of the VAT net is to rake in another 25 billion, the tax on mobile phone relay towers and on SMS advertising is to bring another Rs. 15 billion. The duty revision on liquor is expected to bring in Rs. 10 billion. The only new item among these trusted perennials is the proposed tax of 20 cents for every Rs. 1000 called the ‘debt repayment levy’ or the Medamulana tax which is expected to bring in Rs. 20 billion.

The taxes on sweetened beverages and raw material used for ethanol production, the excise duty on plastic resin, the carbon tax on motor vehicles, and the revision of government fees & charges are expected to bring in a further Rs 20 billion. Even if all these targets are met, the total increase projected will amount to only Rs. 110 billion with the remaining Rs. 75 billion having to come from the natural increase in revenue as the economy grows. However the economy has not been growing in such a manner as to enable an increase in revenue from the goods and services tax revenue equivalent to Rs. 75 billion. One gets the impression that these over-ambitious revenue targets have been given just to keep the IMF happy. The projected increase of tax revenue in 2018 in fact is equivalent to the increase (Rs. 285 billion) in tax revenue that took place in 2017 after the VAT hike of 2016. Total tax revenue increased from Rs. 1,464 billion in 2016 to an estimated Rs.  1,749 in 2017 following the wrenching increase in VAT and expansion of the VAT net that took place in 2016.

It can be seen that what is expected is a replication of that performance. This time however it won’t be so much the VAT revision as the new Inland Revenue Act that is supposed to provide the government with the revenue.  2018 is going to be another year of expropriation in revenue terms. The first such year was 2015, when the newly elected yahapalana government increased tax revenue from Rs. 1,050 billion in 2014 to Rs. 1,355 billion in 2015 an increase of over Rs. 300 billion.  This was however achieved with a slew of punitive exactions bordering of extortion like the super gains tax which was supposed to provide Rs. 50 billion, and the targeted levies on various companies in the telecommunications and alcohol production spheres. The increase of Rs. 285 billion in 2017 was achieved mainly by the increase in the VAT rate and expansion of its applicability. In both instances, the major leaps in revenue collection were achieved by also increasing perennial favourites like liquor taxes and telecommunications levies.

Next year, what we are most likely to see is the government working the new Inland Revenue Act for all they are worth, while exploiting the perennial favourites as usual. The signs therefore are that 2018 is going to cause as much if not more ‘tax stress’ as in 2016. VAT at least was an indirect tax. But in 2018, we are going to see the government actually dipping directly into people’s pockets to keep themselves going. Direct taxes always cause much more angst than indirect taxes.