Saturday, November 10, 2012

A few thoughts on the budget for 2013

A few quick thoughts on the budget, no time for a detailed analysis. Dr. P B Jayasundera claimed that the treasury wanted to improve the budget in terms of transparency and on that score they have delivered a significant improvement on the practices of the last few years: a significant proportion of the revenue measures were included in the budget.
True, there were a few tax increases that were pushed through between October and November, but there was a lot that came through in the budget, which means that (a) it is worth paying attention to; (b) that its presents a reasonable picture for analysis; (c) we can sleep easier on long weekends and holidays in the knowledge that the chance of taxes going up overnight has diminished.

There were several positive measures in terms of increasing clarity, such as the requirement for the Inland Revenue to give rulings on tax interpretation within six months (previously they could dawdle for ever) and a shorter time bar (18 months instead of 24 months).

The shorter time bar means that taxpayers can close their tax affairs sooner (the time bar prevents the Inland Revenue from digging up the past, which means once the return is accepted any questions from the Inland Revenue must be raised within 18 months, if they don't, the return is taken as final).

Inconsistencies between the Inland Revenue act and BOI regulations were also ironed out (Inland Revenue to prevail if those terms were more favourable)   

Several positive measures for the capital markets (tax holidays for new listings, Withholding tax on listed debentures removed, foreign investment allowed into unit trusts) were also proposed.

The extension of VAT to large scale retailers is unobjectionable (no reason why they should have been excluded in the first place) - this will lead to some increases in prices but that is a different question.

I am not opposed to taxation; I am opposed to "bad" taxation; taxes that are hidden, or inconsistent. Taxes need to be simple, uniform and visible, people must know exactly what they are paying as taxes. If they feel that the taxes are too high then they need to hold the Government to account: what are you doing with our tax money? Could it be better spent elsewhere?

Piecemeal taxes on specific industries (why add a special tax of 1% to bank profits for example) are not recommended but odd exceptions (maximum income tax on pilots and staff of IT companies limited to 16%) are probably worse. (apart from creating greater complexity in the tax code thereby increasing administrative cost they are also discriminatory, the one on pilots (why pilots and not the other staff in an airline?) being worse in this respect than the on the IT industry-at least it applies to the whole industry and one that is good source of high quality jobs).

Last years budget was replete with carefully tailored benefits for specific entities, this years budget was mercifully less discriminatory, apart from a few exceptions like the racing car concession, so again a move in the right direction.

One of the stings in the tail (which some may have missed) were the revisions to import cess (details here) and export cess (details here). As an analyst I welcome their inclusion in the budget, although as citizen I may question as to why imported meat and dairy products should be taxed at 30% or Rs.200 per kg, imported vegetables at 30% or Rs.50 a kg or fruit at 30% or Rs.80/120. Looks like it is going to be a very expensive Christmas.

PB, addressing the Ernst & Young budget breakfast made an amusing speech, I don't necessarily agree with all his views but at least he was worth hearing.

Perhaps the most telling sign of the cost of living was the menu for the breakfast at the Cinnamon Grand: no cornflakes or whole wheat bread (too expensive to offer at current tax levels). What was on offer was mostly a collection of short eats, sandwiches, some fruit and yoghurt.

Patrons of 'Sri Lankan' themed buffets in general may have noted the absence of "pol sambol" from the menu-undoubtedly due to the high cost of coconuts. Time to start holding the Government expenditure to account, methinks. 

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