Confusion over bearer bonds

There is a continuing controversy over a recent issue of bearer bonds by the Central Bank (CB). The issue is compounded by the intrusion of uninformed comment and political prejudice. This comment is an attempt to clear the cobwebs of confusion and prejudice.

Whenever the government commits itself to spend substantially for the public welfare, the Ministry of Finance (M/F) is tasked by the Cabinet to raise the money for the intended purpose. The Treasury Secretary (S/F) is then instructed by the M/F to raise the sum required. The S/F then requests the CB to raise the money needed. One of the usual means used by the CB for this purpose is to issue bearer bonds. Treasury Bonds are issued by the CB under government authority in terms of the Registered Stock and Securities Amendment Act 32 of 1995. The statutory functions of the CB to issue and record a bond issue are set out in the provisions of Section 21C which I shall not describe because it is not of direct relevance for my purpose but it is important to observe that the Act binds the CB authorities to act statutorily and not arbitrarily.

The discretion or judgement of the CB in the matter of fixing the terms of issue of a bond is vested by the statute and the nature of the statutory exercise of discretion is such that a third party ought not to intervene cursorily to question the exercise of statutory discretion unless there is good ground to allege that the discretion had been exercised improperly and such impropriety is established before a competent court of law. Journalists and politicians in this country often have the bad habit of questioning lightly the discretionary acts of public officials. I recall from my past experience as a tax official when I had to defend an assessment made on Commercial Bank of Ceylon for the tax year 1970/1971. What gave rise to the appeal was the inclusion of the profit for the period 1/1/1970 to 31/3/1970 for the tax year 1970/1971 when in fact the same profit was included in the profit for the period 1/1/1970 to 31/12/1970 in the assessment of statutory income for tax year 1971/1972. The taxation of the profit for the period 1/1/1970 to 31/3/ 1970 twice in the assessments for the two years 1970/1971,1971/1972 was vigorously contested by counsel for the bank on the ground that such "double taxation" was unjust and contrary to law. My contention was that in so far as the Commissioner had not directed me to do otherwise, I was obliged to do what I had done. The Board of Review accepted the submissions made for the bank and ordered the annulment of the assessment for 1970/1971. We appealed to the Supreme Court against the Board's decision and the Court reversed the Board's decision. The Court held that since the Commissioner in his discretion had not directed to the contrary, the assessor was obliged to do what he had done. The Court's ruling was ex- pressed as follows: "The statute vests the discretion only in the Commissioner and provided he has acted in good faith his decision is final and cannot be questioned before the Board or the Court.." (Reports of Sri Lanka Tax Cases, Vol. IV page 61.) The important general principle is that the exercise of statutory discretion vested solely in a public official cannot be trifled with and is perhaps alien to the popular mind as well as ignorant and prejudiced politicians.

Those who continue to rave and rant over the bond issue in question could demonstrate their legal acumen by instituting a legal review of the impugned transaction in the Courts. The fact that they have not dared to litigate the matter is perhaps an indication that they stand naked before the law.

M.S.M.T. Samaratunga (The writer is retired Deputy Tax Commisssioner and

a Tax Consultant)