Taxing knowledge

Ijust couldn’t believe it! We have heard – over the years – of how the International Monetary Fund (IMF) tells governments what to do as a precondition to seeking IMF facilities. In such instances, the IMF has rejected the notion that it interferes in the workings of the government but sadly the truth lies elsewhere.

In the Sri Lankan case, just as the country ‘celebrated’ its 76th year of independence from centuries of colonial rule, such a situation has arisen, however much the IMF would choose to deny it. To the naked eye, this involvement in local tax matters would amount to interference but in this case tacitly endorsed by the government.

There are two cases where the government has told the parties – in this case the tourism industry and book publishers and booksellers - to discuss with the IMF a reduction in the VAT as the authorities’ are unable to accede to these requests. Isn’t that interference in local affairs? Would other industries also be forced to plead to the IMF for a cut in taxes, at the behest of the government? Shouldn’t the government discuss these requests with the IMF instead of asking individual groups to appeal to the IMF, and in doing so lose our independence in the process?

In recent times, the IMF has, apart from discussions with government authorities – also met political parties and gone way beyond by participating in local rituals when during a recent visit to Sri Lanka, Peter Breuer, IMF senior Mission Chief for Sri Lanka, took time off his busy schedule to participate in traditional Thai Pongal celebrations in Jaffna

In a recent newspaper interview, NPP MP Harini Amarasuriya said: “The IMF will tell you to balance the account. How you balance your account is up to your government. The IMF will say get your tax system in order. How you do that is up to each government. The IMF is not going to say or specify that you should raise your taxes up to 18 per cent or 25 per cent or whether it is that VAT that needs to be increased or some other tax. The IMF will say, come up with a rational tax policy. What we disagree on is the manner in which this government is using the IMF agreement or the IMF restructuring agreement to make decisions about the economy.”

According to a Business Times report, the IMF is said to be currently reconsidering conditions set on the imposition of the 18 per cent VAT on the tourism industry.

Concerns were raised by the Sri Lanka Association of Inbound Tour Operators (SLAITO) with the Tourism Ministry and the Finance Ministry on the sudden imposition of the 18 per cent VAT on Destination Management Companies (DMCs) for which a decision is being awaited from the IMF. The report quoted the Sri Lanka Tourism Development Authority (SLTDA) Chairman Priyantha Fernando as saying that this was not a decision that could be taken by the Finance Ministry and as a result they had held a meeting with the IMF concerning this situation.

During the meeting, Mr. Fernando said they had requested the IMF to reconsider this condition placed on the tourism industry due to which it could impact heavily on an industry that is just reviving.

SLAITO President Nishad Wijetunga, who was present at the IMF meeting, had explained that the industry would not try to avoid this completely but would include this 18 per cent VAT from November onwards.

The second instance where the government told stakeholders to discuss directly with the IMF was in the case of the VAT imposition on books, a virtual tax on knowledge. Access to books and thereby knowledge is a fundamental right for every citizen and every child and by taxing books limits the allimportant access to knowledge.

According to a report in the Business Times last week, the Sri Lanka Book Publishers Association (SLPBA) had expressed displeasure over the 18 per VAT that was imposed on books since the beginning of this year.

During a media briefing at the Sri Lanka Foundation Institute, SLPBA Past President, Vijitha Yapa said: “After lobbying and writing letters to the Finance Ministry, relevant authorities and various ministers, we were asked to write to the IMF directly and sort things out as it was an IMF condition and the authorities have no control over it.”

So isn’t this proof that like-it-or-not, the IMF is entrenched in local affairs far more than one would expect?

As I reflected on these issues, the home phone rang. It was Ruwanputha, the young economist, seeking a conversation on – you guessed it right – IMF conditions.

“There are two instances where government authorities have told stakeholders to discuss directly with the IMF to get tax relief. Isn’t this an interference of our freedom?” he asked.

“It is. It is the government that should be discussing these requests from the industry instead of the industry being asked to deal with the IMF directly,” I said.

“Furthermore should the IMF be involved in the nittygritty of tax implementation? The IMF sets the policy of seeking an assurance from the authorities of more tax revenue, less government expenditure and cut debt. But should it engage in suggesting the rate of taxation for various sectors?” he asked.

It was at this point that the column was distracted by the loud conversation by the trio under the margosa tree in the garden. “Mae sumane bohoma naraka puwathak thibba paththare meda peradiga inna ape gruha sevikawakata hondatama gahala karadara karala thibba kiyala (There was a terrible report in the newspapers this week of a housemaid being assaulted and harassed in the workplace in West Asia),” said Kussi Amma Sera.

“Mae prashna kavadawath wisadenne nae. Aanduwa yedenna oney mae lamayinta honda contharaththu labadenna. Ethakota duk karadara godak adu wei (These problems would never end. The government needs to get its act together and ensure better work contracts and minimise the sufferings of Sri Lankan migrant workers),” noted Serapina.

“Lankawe mae davas wala thibba karadara walata dollar hoya gaththey aanduwata videsha gatha wuna kattiya nae. (In the recent crisis, it was the migrant worker sector that helped raise a lot of dollars for the government),” said Mabel Rasthiyadu.

Indeed, migrant remittances was the only silver lining in the recent crisis as the dollars kept coming in while exporters held onto their foreign earnings to cash in on an inflated dollar level versus the rupee.

As I walked into the kitchen to get a second mug of tea, my thoughts were on the recent developments vis-à-vis the IMF and whether the government is losing its grip on the economy, and allowing others to run the show?