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Thursday May 13th, 2021

Sri Lanka opposition praises privatization, warns on retrospective tax fallout

COLOMBO (EconomyNext) – In a sharp role reversal, Sri Lanka’s main opposition party praised the benefits of privatization and warned the new regime that ad hoc taxes in an interim budget may harm investor confidence.

When telecommunications was a state monopoly, ordinary Sri Lankans had to wait 10 to 15 years to get a phone and the lack of telecom facilities was a perennial complaint of foreign and local investors.

"When telecom was a government department it was very difficult to get a phone," Sri Lanka Freedom Party heavy weigh Anura Yapa told parliament this week.

"Today we have one of the best telecom networks in Asia. The main reason was that the private sector was allowed to enter the sector.

"Because of that large investments were made in the sector. The technology changed."

The comments came as Sri Lanka’s United National Party, which initiated the country’s privatization drive in the 1980s is running scared of mentioning the word, despite extraordinary large losses being made by state enterprises during ousted Rajapaksa regime.

It was a SLFP led administration that allowed wireless fixed operators to enter the sector and also sold down a stake of the state wireline monopoly, Sri Lanka Telecom to Japan’s NTT in the 1990s.

But the last SLFP regime led by Mahinda Rajapaksa reversed several privatized deals, including SriLankan Airlines which then led to unprecedented losses.

SriLankan Airlines had lost about 110 billion rupees since a management deal with Dubai’s Emirates was scrapped.

Yapa said if any administration wanted to bring investments into the country, the road and telecom infrastructure had to be built.

Referring to controversial one-off and retrospective taxes imposed in a revised budget by the new administration, he said extreme care had to be taken.

"The taxes may have unintended consequences," Yapa said. "We may lose people who invest in the country. There are now several companies competing in the sector and taxation has to be fair.

"So we have to be careful in about retrospective taxes."

There were also one-off taxes billion rupees taxes slapped on telecom companies, a sports television channel and casinos.

"Some of the taxes are inexplicable," Yapa said. "There is a doubt whether some of the taxes are based on vengeance (vairaya padaka karagena).

"You have to move away from such situations. There is no point in imposing ‘vaira tax’

He said the tax on sports channels was not fair, though he was not going to argue the merits of the channel itself.

Critics have said the Carlton Sports Network, set up by a Rajapaksa offspring had blatantly mis-used public money and privileges.

The Rajapaksa regime also taxed television stations using imported and translated programming, which was believed to be aimed at the privately owned MTV group.

Yapa said he was voting for the budget, as it had taken forward some aspects of a budget presented by the last regime though in some areas it had regressed.

He said a new political culture was being initiated and he was presenting the criticisms constructively.

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