Sri Lanka Finance Minister warns of vehicle tax hike in November budget

ECONOMYNEXT – Sri Lanka’s Finance Minister Ravi Karunanayake had warned that new vehicle taxes would apply from the day of the budget on November 22, seen as an indication that taxes would go up.

The warning to citizens of an impending tax rise is an improvement on the earlier practice of hatching taxes in secret and slamming them on the people through a mid-night gazette while the citizenry is sleeping, a practice established by post-independent rulers.

The Daily Mirror newspaper quoted Karunanayake as saying the administration came under fire for suddenly imposing taxes on cars in January 2015.

Import duties through secretly hatched mid-night gazette was done by rulers, especially in the 1970s to prevent citizens from gaining any benefit before taxes went up.

In the 1970s, the rulers also suddenly started imposing taxes outside the budget, denying even the stability of one year to taxes.

Analysts have pointed out that the tyranny of the midnight gazette violates a fundamental principle of parliamentary democracy.

The practice of taxing people without parliamentary debate by ‘Royal Prerogative’ ended in Britain in 1689 with a English Bill of Rights. But in Sri Lanka in the 21st century taxation is still imposed by a ‘minister’s prerogative’, through a mid-night gazette.

In a ‘shoot first, ask questions later’ strategy parliament is informed of midnight gazette taxes after the fact.

The new administration has to take more taxes from private citizens to pay higher salaries to state workers.

At the moment large volumes of money is being printed to finance the budget deficit, which has brought the currency down and generated forex reserve losses and undermined the credibility of the soft-dollar peg triggering capital flight.

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Instead of following prudent monetary policy in the face of an expanded higher borrowing to finance an expanded deficit in January, the central bank cut rates in April, pushing the country into a balance of payments crisis.

Rates are still low and authorities are now trying to control imports and credit through non-market administrative measures involving trade controls.

Analysts have called for a reform of the Central Bank or its abolition and a return to a currency board arrangement to prevent future balance of payments crises. (Colombo/Oct07/2015)

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