Friday, October 25, 2013

Buying a vehicle on a tax free permit? Then expect a letter from the tax department

This story was narrated to me by a friend. He had been thinking of buying a Mitsubishi Montero (for Rs.12m, on a permit) and had almost finalised the deal. He quickly backed off when a couple of his friends who had bought vehicles on permits received letters from the Department of Inland Revenue, asking for details of income.

Apparently details of anyone who registers a new vehicle, bought under a tax-free permit are sent to the Inland Revenue, who will follow up with tender inquiry as to where the buyer got the money from and whether it has been declared for income tax.

Its a bit unnerving for people but not as bad as the situation another friend faced about 6-7 years ago, when the economy was in the absolute pits. He had got married and the reception was held at a hotel, the Inland Revenue rang him up and asked him how he had paid for his wedding!

Apparently they had been diligently collecting details of booking for large parties from hotels and calling people to ask how they paid for them.

Incidentally, the company my first friend works for has just bought a new BMW X5 for their CEO. The normal duty paid price is apparently Rs.47m but on a permit, it costs Rs.20m, still a colossal sum. The permit itself, a 'minister's permit' cost Rs.8m. The company had to send the requisite information to the Inland Revenue but since they had their tax files and were filing regular returns it was not a problem.

The Inland Revenue's tactics are perfectly legal and there can be no objection to legitimate follow up sources of income. However, this should not be confined to ordinary citizens but should include ministers as well; who are supposed to declare their assets, which many have not.  

The more serious issue is the permits, a classic case of the so-called 'license raj' or rent seeking activity. High tax is charged on certain products or services but the Government then goes on to issue "tax free" or reduced tax permits to a section of the population (state employees, or more disturbingly, ministers). These permits are then sold to others, with the permit holders pocketing the a tidy profit. This is done largely with the intent of benefiting favoured constituents and is unfair by ordinary citizens. Claiming that this is done because of poor public sector pay is disingenuous.

Let ministers and public servants be paid proper salaries - allocated through the budget and transparent to all, but let them also pay normal taxes. Don't allow them to make hidden profits by changing the tax and legal codes to enable them to do so.

Another (unverified) story that I heard is that ministers are entitled to to two bus route permits and either a petrol shed permit or a liquor license. We do not know if this is true but we know for a fact that the allocation of these permits is murky and generally goes to favoured constituents. These are then sold on to people who run these businesses, which is one reason why public transport is so bad, why so many are trying to buy motorcycles, cars or trishaws and why all are inconvenienced by congestion and pollution.

Its not just a case of profits for the few, there are also wider social costs that are borne by many, not to mention the sheer hypocrisy of ranting on about the evils of liquor, while the very business is under close control of the same politicians. 

Wednesday, October 23, 2013

Violence against women in India: will a Pledge to the Girl Child help change attitudes?

Violence against women in India seems to be a big problem. Attitudes and culture, where women are regarded as less important than men seems to be one of the causes. Abortion of girls, female infanticide and neglect; dowries are all symptoms of this attitude.

Could a pledge help change attitudes?

This is just an idea that I am playing around with, but what if families with girls took a stand.

Unless and until, men are willing to take a pledge, to welcome, nurture and love the girl child, they will not have my daughter in marriage.

You only want boys? Then be happy and gay, be single, be a eunuch for all we care.

You want to marry?

Yes, but only if you sign up. If not, hard cheese.

There are a number of pledges around, but none that will deny marriage of their daughters, if potential grooms refuse to take and honour it.

An idea worth sharing? Let me know.

Sunday, October 20, 2013

The joy of travel is dimming

I used to love to travel and in the past was the main organiser of trips for groups of friends. Bungalows on estates were a favourite destination.

I just returned from Bandarawela, we stayed a couple of days at an elegantly appointed bungalow, with a lot of history preserved, well laid out with some fine views. The food and atmosphere were excellent, so whats the complaint?

Its the drive. The roads are now a nightmare. Its not that the roads are crumbling, its just that the traffic and driving are maddening.

I always leave early and generally after getting a few miles outside of Colombo the traffic peters out and the rest of the drive is very pleasant. If one leaves early in the morning the Colombo traffic is avoided altogether and the whole drive is a breeze. There are occasional blocks in towns or a slow moving lorry or bus will hold things up for a while but that was about it.

Now, come the long weekend, half the country seems to be on the move. Many don't seem to know how to drive, wandering erratically around the road with no clear signalling and there are heaps and heaps of trishaws and "batta" vans on every single road, holding up traffic everywhere.

Until recently trishaws were generally concentrated around towns and "batta" vans did not exist; now both are found all over the main trunk roads. Add to that the aforementioned Sunday drivers who tail slow vehicles without overtaking and the trip becomes a bit like dodgem cars, constantly seeking gaps in the road trying overtake these miserable creatures.

Mind you, I was not even driving on this trip, (or on the last trip, when I first experienced the problem).

All this frustration while only doing the backseat driving, watching the road like a hawk, shouting instructions to my Uncle to overtake, overtake and keep blowing that damn horn! I couldn't even enjoy the passing scenery, usually so pleasant and almost a part of the holiday itself.

I ate far too much on this trip, especially the puddings, but I'm off now to look for more comfort food-home made bread pudding. I think I deserve it, don't you?

Government to conduct Economic Census, is this the precursor to new wealth taxes?

The lead story in today's Sunday Times, claimed that the Government was considering introducing new taxes on the rich.

This is rather worrying. Increasing rates of tax is something that takes place on a regular basis, something that we are accustomed to, even if new changes are only accepted with a weary resignation. Our affairs are adjusted to the current system, arranged, as rational beings are wont to, in whatever manner that minimses the impact of tax. Changes to the system of tax itself is another matter altogether.

When a completely new type of tax is contemplated it gives one the shudders because one does not know where it will strike. Second, as policy is generally made up ad-hoc, as things go on, there is a good likelihood of some ill-thought, unworkable or harmful tax will be foisted up on us. We have precedents, all bad,  of the type of havoc wrought by such taxes in the 1960's. The article claimed that the new tax "would apply to both those who have acquired wealth through inheritance of family property and cash, and the new-rich, a growing breed of businesspersons who have acquired wealth in recent times."

I suppose one just has to wait and see what turns up, hoping all the while for the best.

Meanwhile, an advertisement in the Sunday Observer announced a new Economic Census of industries and businesses. Businesses were requested to cooperate by providing information on numbers employed, output and assets owned. The website of the Department of Census and Statistics carries some information on the census.

Throughout history rulers have used a census for the purpose of taxation, indeed the very word is derived from the Latin word censere ("to estimate").

The question that came to mind was if this census would form the basis for this and other new taxes being contemplated? The Government is spending is far above its revenues and I think the mandarins in the Treasury have realised that revenue from existing taxes is probably near its limit so new methods to appropriate citizens wealth are required.

Unlike in the 1960's however, it is a lot easier to move money out of the country, so expect another flight of capital.

Thursday, October 17, 2013

Some lessons from Singapore

The eulogy delivered by Singapore's Prime Minister for the late Goh Keng Swee has a number of points that our rulers, who periodically claim to want to emulate the City State should note.

Goh Keng Swee was Singapore's first Minister of Finance. The prudent approach to fiscal management and a commitment to sound money by Singapore's founding fathers was one of the cornerstones of their success. To quote:

"Dr Goh soon discovered that the government was almost broke, and expected a budget deficit of $14 million that year. Prudent and thrifty by nature, Dr Goh immediately introduced drastic measures to cut spending, including cutting civil service salaries. This was obviously unpopular, but Dr Goh stood firm. When he delivered the Budget at the end of the year, he proudly declared that the government had achieved a small surplus of $1 million."
Contrast that with our rulers who run massive deficits year after year, all funded by debt.

"Dr Goh next turned his attention to jump-starting the stagnant economy. He decided on a strategy of rapid industrialisation, attracting investments from MNCs to create jobs and exports. This was a radical and untested approach. It was contrary to the conventional wisdom then, that poor countries could achieve economic development through import substitution, and that MNCs were new colonial powers out to exploit impoverished workers in the Third World."
What are out leaders saying? They want to achieve self sufficiency, in milk, sugar, soybeans, maize, footwear, canned fish and whatnot. No longer is the term "import substitution" used, instead it is "self sufficiency" and support for "Sri Lankan entrepreneurs"; who are mostly cronies, the least enterprising lot who simply look for hefty taxes and subsidies that come at the cost of the consumer and  tax payer.

Apart from fiscal prudence, another of the principles that drove the founding fathers of Singapore was clean government. The PAP campaigned in white, to symbolise purity, and on being elected put in measures to stamp out corruption at all levels.

On March 7, 2013, during a congress session, Member of Parliament (MP) Sylvia Lim expressed her concern when Singapore ranked 5th on Transparency International (TI)’s Corruption Perceptions Index in 2012 and the year before. Singapore was rated joint number one in 2010. Read the story here.

Sri Lanka has been ranked No.79 and while the ministers in Singapore are concerned about the decline in their ranking and seeking ways to improve it Sri Lanka launches virulent attacks on the body and on NGO's in general.

Another overlooked factor is the importance of the rule of law. A vignette that illustrates this well is the way Lee Kuan Yew, a Cambridge educated Barrister, agonised over the appointment of a new Chief Justice when Sir Alan Rose was due to retire in 1953. The Chief Justice, he wrote, sets the tone for the whole judiciary, therefore it is is of utmost importance to select the right candidate. Interestingly, Sir Alan served as Chief Justice of Ceylon (1952-56)immediately after he retired from Singapore. The current incumbent of this office in Sri Lanka speaks volumes for the state of the rule of law in this country.

It is true that infrastructure is necessary, but it is not the most important thing. The rule of law and a functioning legal system, sound policy and an efficient and clean bureaucracy matter a lot more. They are much harder to create and sustain than big, grandiose infrastructure or smartening up the streets.

Trying to imitate Singapore is fine, but when it is done, imitate the real substance; not the obvious forms.

Tuesday, October 15, 2013

Panem et circenses

The Roman poet Juvenal coined this phrase, to describe a type of populist politics.

The lesson through the ages is that nobody cares about what politicians do, so long as people are well fed and entertained.

Indeed I would not mind too much myself, except that all we got was the bloody circus.

We'd like some bread now, please.

Already long ago, from when we sold our vote to no man, the People have abdicated our duties; for the People who once upon a time handed out military command, high civil office, legions — everything, now restrains itself and anxiously hopes for just two things: bread and circuses.

The Satires, Juvenal

Saturday, October 12, 2013

CHOGM: will we face a lock down of the city?

Perth, Australia hosted the CHOGM in 2011 and that city faced a virtual lock down, with even the police force of New Zealand joining in the security arrangements. An extra public holiday was declared (by shifting the Queen's birthday holiday back by a couple of weeks) to reduce public inconvenience.

If these were the arrangements in Australia, a place which is not security conscious in the least, the mind boggles at the thought of what arrangements will be made for Colombo.

So far, there is some speculation of a single public holiday, but nothing else. I have a feeling a good part of the roads in the centre will be closed with probably two official public holidays, but for all intents the entire week is likely to be a non-working one.

Not that I mind, I need a holiday and as I have almost no leave, any additional public holidays are only too welcome, especially since the poya in November falls on a Saturday. I just wish they would announce the holidays in advance, so that one can plan a getaway.

Sunday, October 06, 2013

The Face and the Dream

For something a bit lighter, one of my favourite poems:

A LONG and frantic search it has been

To find the face to match the dream.

Natasha! now that the face is seen,

The dream recedes, it would seem.

Another frantic search must start apace

To find the dream to match the face. 

-Guy Amirthanayagam

 Some details on the author are here.

How do you solve a problem like Ranil Wickremesinghe?

It was depressing to learn that internal conflicts within the UNP have now spilled out into open violence.  It is the very last thing that we need.

The problem is with the leadership of the party. Dayan Jayatilleka presents a decent analysis of why Ranil must go, while Mangala Samaraweera explains why he feels he needs to support Ranil.

I agree with everything that Samaraweera says save his conclusion. Ranil Wickremesinghe cannot be elected, his reputation has been tarnished beyond repair and the whole party offering looks tired, dispirited and disorganised.

In political terms, Ranil has gone beyond his 'sell by' date; regardless of his intellect and abilities he cannot inspire or move people and therefore cannot lead. His time is up and he must go, as soon as possible.

The whole party apparatus is equally bad: I attended one of Eran Wickremeratne's forums on constitutional reform - it was an unmitigated disaster. They did not seem to have a clear idea of what they were hoping to achieve through public discussion, had not thought through their ideas properly, had not grasped that the public at large have no capacity to understand the intricacies of constitution making-unless the problems are simplified into real, tangible day-to-day issues, which was not done.

I came away from the meeting thinking that if this was the oppositions grand plan, the situation was beyond hopeless.

The UNP party constitution is structured in such a way that it is impossible to remove the leader, therefore the UNP'ers need to do the next best thing: walk out in a body and form a completely new party.

They need to take the core of the UNP and try to woo the few decent people in other parties. One or two walking out is not enough, there needs to be a large exodus and the new party must have enough critical mass to survive on its own. This is easier said than done, especially since there is so much money to be made by being with the Government, but there may be some who have by now put away enough to decide to take a stand on some principle.

This new party must form the core of a joint opposition, joining hands with all other opposition parties to present a single candidate. The face of the new party must be a new, technocratic one; someone who presents a break from the past, with no political baggage and can appeal to younger voters. Perhaps someone from overseas, like India's new Central Bank chief.   

Timed well and played right, this may work. The opposition needs to work fast, the next Presidential election is likely to be called in early 2014.

Residents of the Barnes Place "watta" being evicted

Heard that the people living in the Barnes Place "watta" have been asked to move. They have been given until Wednesday to move, armed guards have reportedly been stationed around the premises.

These people are squatters, the rightful owners being a Muslim family. The property was distributed to the descendents of the original owners and, according to what I have heard, some 24 members have titles to the property.

The property was once a large house and occupied an acre of land, much like the other houses in the area. Only the gateposts of the original grand structure seem to remain.

The squatters are probably the descendents of servants who worked in the house.

The rulers have long been eyeing this property and various attempts have been made in the past to evict the squatters, but they were not pursued with much seriousness. This time it looks like they mean business.

The rightful owners, should be rejoicing but they are probably not, because the last I heard, they were not going to collect a penny. 

Meanwhile, the eviction of another group of people, living opposite "Mount Mary" in Dematagoda is ongoing. The residents claim to be rightful owners, the descendents of railway employees who were given the land. They have been asked to move into flats and pay Rs.50,000 each for the priviledge, something that most cannot afford.

Update  -10th October
Heard that the squatters were paid some Rs.4m per family to vacate, a fair price in my view. I don't know if the rightful owners got anything; most probably not. In total 25 families lived in the watte.