Public sector debt
The reduction of public sector debt from 110 percent of GDP to 100 percent is possible if the government follows through rigorously on its proposals to reduce public debt.
Restructuring of the three big state owned enterprises (SOEs) – namely the Ceylon Electricity Board (CEB), the Ceylon Petroleum Corporation (CPC), including CPSTL, and Sri Lankan Airlines – is critical to achieving this; and this will require political will to see it through.
In addition, other state owned businesses (SOBs) need to be divested as the government should not be in the ‘business of doing business.’ Instead, it should provide the right environment for business while ensuring that adequate regulations are in place to protect consumers of such products and services.
The current crisis has provided the right impetus for this to be done. No longer are people ready to accept inefficiencies that stem from these SOBs due to inherent nepotism and favouritism that has plagued these entities from their inception.
Of course, these measures must be accompanied by an effective safety net to protect those at the bottom of the pyramid and I see promising steps being taken in this direction.
I believe that the concept of mandatory registration of all residents over 18 for tax purposes has been borrowed from the US tax system, where you have to file a tax return each year even if it’s a ‘nil return.’
This requires everyone to make a declaration of their income and any false declaration carries with it the threat of a tax fraud prosecution. This will help widen the tax net. However, I have serious reservations on the ability of our tax system (RAMIS) to handle such a volume.
Even now, the system jams on or around the tax filing date! While upgrading the system, I’d suggest that we increase the threshold age for such filing to say 21 years as a start, as this is the probable employment threshold for us in Sri Lanka. Once we get through the teething issues, the bar could be reduced.
However, this must be accompanied by further simplification of the personal tax system to facilitate people to file their returns without too much complication and cost.
Frankly, no, not enough is being done to address tax evasion. The pathetically low number of tax payers in the country is testimony to this.
It’s critical that the tax authorities take tangible measures to widen the net without harassing those who are already paying taxes. An effective Tax Payers Charter should be implemented to protect taxpayers from such harassment from a small number of unscrupulous officers. I must hasten to add that a large majority of them do not fall into this category.
A high level reconciliation of assets declared to income earned will help. Right now, too much time is wasted on going into little details and we can’t see the wood for the trees!
A better allocation of resources of the Inland Revenue Department (IRD) will realise better results.
State owned businesses (SOBs) need to be divested as the government should not be in the ‘business of doing business.’