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Monday June 24th, 2024

Sri Lanka VFS Global visa deal despite IMF anti-corruption requirements: opposition

ECONOMYNEXT – Sri Lanka’s controversial visa deal with IVS-GBS and VFS Global is coming despite the country being required to reduce corruption stemming from an International Monetary Fund governance assessment, the island’s main opposition has said.

The main opposition has also slammed the unsolicited deal with VFS Global, a private contractor, as being bigger than a central bank linked bondscam in 2015.

“This is three or four times bigger than the bondscam,” opposition legislator Rauff Hakeem told parliament.

“I am bringing to the attention of this house this massive fraud (visharler wanchawak).

IMF Governance Benchmarks

The deal came despite procurement requirements and anti-corruption roadmap required in an International Monetary Fund deal, following a ‘governance diagnostic assessment’.

“Having pledged all those new measures, and agreed to the IMF conditions, what does the government do?,” Hakeem asked in parliament.

VFS Global and two other firms named in a consortium, IVS-GBS were allowed to collect 18.5 dollars per tourist from a visa. Previously a double entry visa was given at 50 dollars.

VFS Global was selling a double entry visa at 100.77 dollars with actual visa being hiked to 75 dollars and two fees of 18.50 and 7.27 being charged from tourists.

It has now turned out that the visa validity period of the e-visa has been suddenly halved to three months from six, and money has been taken from unfortunate tourists without informing them of the change.

Sri Lanka Parliament’s Committee on Public Finance has also questioned the charges of VFS Global, which now has a monopoly.

The committee has called senior officials to examine the issue.

Massive Costs

Hakeem said if 2.5 million tourists came in 2024 VFS Global would earn around 18.7 billion rupees in the year. In 2024, however the target is around 2.3 million.

He did not say what exchange rate he was using to make the calculation.

In 2024 the entire Department of Immigration’s wage bill in the budget was only 992 million rupees, Hakeem said.

“The total recurrent expenditure of the Department of Immigration and Emigration is 2.57 billion rupees,” he said.

“The amount that goes to the company is 7.2 times bigger.

The total recurrent expenditure of the Department of Immigration and ICT Agency put together was 5.2 billion rupees.

“Whereas we are paying 6.2 times more to some outside company,” Hakeem asked. “How is this happening?”

“Who is pocketing this money. This is the question. This is a massive fraud that is taking place.”

Following protests by Tourism Minister Harin Fernando who reportedly threatened to resign at cabinet, a 50 dollar single entry visa was proposed.

20-pct revenue loss?

VFS Global was expected to get 10 dollars from the new 50 dollar visa, opposition legislator S M Marikkar charged, leading to a 20 percent loss in revenue to the country per visa.

“The government has thrown sand on the face of the people (mooneter weli gahala), trying to convince everyone that things are back to normal now that a 50 dollar visa is now available,” Marikkar charged in pithy Sinhalese.

“Doesn’t’ 10 dollars from that go to the company?

There was no answer from government benches.

“We will continue fight against this robbery,” Marikkar said. “We will expose more details relating to this robbery.”

VFS Global in a statement issued before the controvery over the possible 10 dollar payment said there was no ‘cost’ to the government.

“The solution is offered through a user-pay model, at no cost to the government. All investments related to technology, infrastructure and staff are borne by the company,” VGS Global said in a statement.

“The total service fee approved by the Cabinet is US$ 18.50 across all visa categories. Payment processing charges and applicable local taxes are in addition to the service fee.”

Related VFS Global issues statement on Sri Lanka visa deal

The VFS Global deal hit the Indian Ocean island just as tourism was recovering from the worst economic crisis in recent history leaving a large section of the population mal-nourished and the country is struggling to restructure foreign debt with the help of the IMF.

National Security Minister Tiran Alles, under whose ministry the Department of Immigration comes has said there was no need to call competitive tenders because no one would compete against VFS Global.

“Just think about this, because I say it,” Minister Alles told reporters in Colombo. “If we called tenders who is there to tender for this and compete against VFS?

“We went to cabinet. Committees were appointed. It was studied. Against went to cabinet. That was the correct process that was done.”

Opposition legislators meanwhile said VFS Global was charging 21.65 dollars from tourists from several countries where the cabinet of ministers have decided to give free visas to promote tourism

“Visa cost is zero. Then here is a service free of 18.50 for a free visa,” Opposition legislator Nalin Bandara told parliament.

“There is another charge for 3.11 dollars. So they are taking 21.65 dollars for a gratis visa when a tourist comes to Sri Lanka.” (Colombo/May15/2024)

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Sri Lanka central bank appoints two Deputy Governors

ECONOMYNEXT – Sri Lanka’s central bank said Assistant Governors A A M Thassim and J P R Karunaratne were promoted to the post of Deputy Governor.

The full statement is reproduced below:

APPOINTMENT OF NEW DEPUTY GOVERNORS OF THE CENTRAL BANK OF SRI LANKA

In terms of the provisions in the Central Bank of Sri Lanka Act, No. 16 of 2023, Hon. Minister of Finance, as recommended by the Governing Board, has appointed Mr. A A M Thassim, Assistant Governor and Secretary to the Governing Board, and Mr. J P R Karunaratne, Assistant Governor, as Deputy Governors of the Central Bank of Sri Lanka with effect from 20.06.2024 and 24.06.2024, respectively.

Mr. A A M Thassim

Mr. A.A.M. Thassim has over 31 years of service at Central Bank of Sri Lanka (CBSL) in different capacities in the areas of Supervision and Regulation of Banking Institutions, International Operations, Communication, Payments and Settlements, Employees Provident Fund, Finance, Risk Management, Deposit Insurance, Security Services and Information Technology.

He has served as the Director of Bank Supervision (DBS), Director of International Operation (DIO) and Director of Communications (DCM) and has contributed towards strengthening the legal framework, governance, implementation the Basel 3 international guidelines for capital and liquidity and adoption of International Financial Reporting Standards (IFRS) 9 to the banking sector, thereby strengthening the resilience of the Financial Sector.

Further, as the DIO, Mr. Thassim was responsible for the investments and management of foreign reserves of the country and exchange rate management. Mr. Thassim has also gained experience and knowledge in the field of payment systems and was involved in the implementation of the Cheque Imaging and Truncation System. In addition, he has also served on several high-level internal committees including in the areas of monetary policy, financial system stability and international reserves.

Prior to the appointment as the Deputy Governor, Mr. Thassim held the position of Assistant Governor and was in charge of several key departments including the Bank Supervision Department. He also served as the Secretary to the Governing Board, Monetary Policy Board, Audit Committee, Board Risk Oversight Committee, Ethics Committee and Financial Sector Crisis Management Committee.

At present, Mr. Thassim is a board member of the Sri Lanka Export Credit Insurance Corporation and the Vice Chairman of the Institute of Bankers of Sri Lanka (IBSL). Further, he has also served as a board member of the Credit Information Bureau of Sri Lanka and LankaClear (Pvt) Ltd.,

Mr. Thassim is an Associate member of the Chartered Institute of Management Accountants (ACMA) United Kingdom and possesses a Masters in Business Administration (MBA) from the Postgraduate Institute of Management (PIM), University of Sri Jayewardenepura (USJ). He has also completed a programme on Gold Reserves Management from Hass School of Business, University of California, Berkeley, USA.

He is also an Alumni of Harvard University, USA having successfully completed the executive programme on Leaders in Development conducted by the John F. Kennedy School of Government.

Mr. J P R Karunaratne

Mr. J P R Karunaratne has over 33 years of service at the Central Bank of Sri Lanka in different capacities in the areas of supervision and regulation of Banks and Non-Bank financial institutions, Currency management, public debt, Secretariat, Finance, policy review and monitoring. He has served as the Director of Supervision of Non-Bank Financial Institutions (DSNBFI) and the Superintendent of Currency (SC) and has contributed towards strengthening the legal and regulatory framework in the Non-Bank Financial Institutions sector and has played a prominent role in the consolidation of the Non-Bank Financial Institutions sector. Prior to the appointment as a Deputy Governor, Mr. J P R Karunaratne held the position of Assistant Governor and was in-charge of the Department of Supervision of Non-Bank Financial Institutions, Finance Department and the Facilities Management Department.

As an Assistant Governor Mr. Karunaratne has previously overseen several other departments namely, Macroprudential Surveillance, Resolution and Enforcement, Foreign Exchange, Currency, Regional Development, Legal and Compliance, Risk Management, Center for Banking Studies, Security Services and Staff Services Management.

He has also served as the Secretary to the Monetary Board, Secretary to the Board Risk Oversight Committee, Monetary Board Advisory Audit Committee and the Ethics Committee. Further, He was on release to the Ministry of Defence, where he served as a Financial Advisor. He was also appointed as the Chief Operating Officer for the Secretariat of Committee of Chartered Accountants appointed by the Supreme Court in 2009.

He has served as the Chairman of the Sri Lanka Accounting and Auditing Standards Monitoring Board and has been a Council Member of the Certified Management Accountants (CMA) of Sri Lanka. Mr. Karunaratne was awarded the CMA Sri Lanka Business Excellence Award at the CMA Sri Lanka National Management Accounting Conference 2023 in recognition of his service to the profession. He has also received “Long Service Award” of the IBSL in 2019 in recognition of his long career and contribution as a resource person at IBSL.

He was the Project Team Leader of the South East Asian Central Banks (SEACEN) Malaysia, research project on “Implementation of Basel III Challenges and Opportunities in SEACEN Countries” and SEACEN published the research in 2013. He serves as a member of several internal and external committees at present.

Mr. Karunaratne holds a Master of Commerce Degree in Finance from the University of New South Wales, Australia and a Postgraduate Diploma in Applied Statistics and a Bachelor of Science (Physical Science) Degree with a First class from the University of Colombo. He is a Fellow Member of the Chartered Institute of Management Accountants (CIMA), UK and a Chartered Global Management Accountant (CGMA). Further, he is an Associate Member of the CMA Sri Lanka.

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Sri Lanka opposition questions claims that IMF housing tax is only for kulaks

ECONOMYNEXT – Sri Lanka’s opposition has questioned claims made by government spokesmen that a tax on housing proposed in an International Monetary Fund deal is only limited to rich people but if as promised by President one house is exempt, it is welcome, legislator Harsha de Silva said.

Sri Lanka President Ranil Wickremesinghe made a promise in parliament that the first house of a citizen will be excluded from the property tax.

Related Sri Lanka to exempt one house from imputed rent wealth tax: President

But opposition legislator Harsha de Silva pointed out that the IMF program documents clearly says taxes will be levied on owner occupied houses on ‘imputed taxes’, not second houses.

Under current inland revenue laws, actual rent income from a second house is already captured as part of taxable income.

The IMF document mentions a threshold value from which taxes will be exempt but not that a whole owner-occupied primary residence will be exempt.

“The tax is imposed on the income of individuals (rather than real property itself) and thus raises central government revenue in accordance with the constitution,” IMF staff said in their report.

“A similar tax was previously included in the Inland Revenue Act. No. 10 of 2006.

“Under this regime, primary residences were exempt and the assessed values for rating purposes were used to determine the base.

“Given the broad exemption and the use of outdated and downward biased annual values, the tax generated hardly any revenue.”

Meanwhile Sri Lanka has promised to impose the housing tax from April 01, 2025.

“…[W]e will introduce an imputed rental income tax on owner-occupied and vacant residential properties before the beginning of the tax year on April 1st, 2025,” the memorandum of economic policies agreed with the IMF said.

“An exemption threshold and a graduated tax rate schedule would make this tax highly progressive.

“The full revenue yield from this tax is estimated at 0.4 percent and would materialize in 2026 (with a partial yield of 0.15 percent in 2025).

“This yield would still fall short by 1 percent of GDP relative to the expected yield of 1.2 percent of GDP from the property tax envisaged for 2025 onwards.”

Presidential Undertaking

“Whatever the President said the IMF agreement says owner occupied house,” De Silva told in parliament.

“It is not the second house that is mentioned in the agreement.

“But there is one thing. I am happy as Samagi Jana Balawegaya, that we have been able to save the middle class in society from a massive tax that was to be imposed.”

In Sri Lanka there is a belief that the most productive citizens are fair game for excessive or expropriationary taxation, just like kulaks were targeted in the Soviet Union for actual expropriation, critics say.

Wealth taxes have had disastrous effects on some US cities like Baltimore, leading to falling populations and dilapidated houses.

Sri Lanka is currently facing a brain drain due to high income tax after on top of depreciation from severe monetary debasement from a flexible exchange rate, which is neither a hard peg nor a clean float.

Sri Lanka has imposed a wide range of taxes on the people to maintain a bloated state, after inflationists engaged in extreme macro-economic policy (tax and rate cuts) glorified in Saltwater-Cambridge doctrine to boost growth, throwing classical economic principles and monetary stability to the winds and driving the country into external default.

The IMF itself gave technical assistance the central bank to calculate potential output inviting the agency to cut rates to close the perceived econometric ‘output gap’.

In the run up to the default, rate cuts triggered multiple external crises, leading to output shocks as stabilization programs were implemented.

Macro-economic Policy

Macro-economic policy as known now was devised by Cambridge academic J M Keynes in the wake of the Great Depression triggered by the Federal Reserve after it invented open market operations and policy rates in the 1920s and also popularized by Harvard academic Alvin Hansen among others.

Macro-economic policy started to de-stabilize countries in peacetime in the interwar years and after World War II it led to the collapse of the Bretton Woods system.

The Great Depression was also a peacetime collapse of what was later known as the roaring 20s’ monetary bubble.

“They have blithely ignored the warnings of economists,” classical economist Ludwig von Mises wrote of European nations which got into trouble from rate cuts and Keynesian stimulus, which brought currency depreciation and protectionism in its wake from the 1930s.

“They have erected trade barriers, they have fostered credit expansion and an easy money policy, they have taken recourse to price control, to minimum wage rates, and to subsidies.

“They have transformed taxation into confiscation and expropriation; they have proclaimed heedless spending as the best method to increase wealth and welfare.

“But when the inevitable consequences of such policies, long before predicted by the economists, became more and more obvious, public opinion did not place the blame on these cherished policies…”

Who….?

In Sri Lanka however there is some understanding of the role played by macro-economists in the most recent crisis.

There are rumblings of unhappiness about ‘central bank independence’ given to an agency to create 5 to 7 percent inflation and currency debasement under a flexible exchange rate and its constitutional status relating to parliamentary control of public finances.

Sri Lanka’s central bank’s current flexible inflation targeting (inflation targeting without a floating rate) regime as well as its 1980s money supply targeting without floating rate has busted the national currency for decades and made it impossible to run budgets, made it difficult for people build houses which are now to be taxed, and also for millions to live and work in the country of their birth.

Fiscal metrics deteriorate each time rate cuts drive the country into currency crises and new taxes are brought in stabilization programs, ousting reformist governments and leading to policy reversals.

Sri Lanka’s citizens have suffered for decades from the privilege given to a few macroeconomists to print money to cut rates with inflationary open market operations and trigger forex shortages.

Related How Sri Lanka’s elections are decided by macro-economists and the IMF: Bellwether

Critics have pointed out that since 1954 in particular, central bank rates cuts which drive the country into external crises and the stabilization programs that follow, have been the main determinant of elections in the country and election of fringe political parties. (Colombo/June13/2024)

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India supports Sri Lanka Coast Guard to boost maritime security

ECONOMYNEXT – India has given 1.2 million US dollars’ worth spare parts to Sri Lanka’s Coast Guard to be used in a vessel also gifted to the Indian Ocean Island on an earlier occasion, the Indian High Commission in Colombo said.

“Handing over of the large consignment of spares symbolizes India’s commitment to support capability building towards addressing the shared challenges of Maritime Security in the region,” the Indian High Commission said

The spare parts were brought to Sri Lanka on the Indian Coast Guard Ship Sachet, an offshore patrol vessel that was on a two-day visit to the island.

The spares were formally handed over to the Sri Lanka Coast Guard Ship Suraksha which was gifted to Sri Lanka in October 2017 by India.

India has gifted spare parts for the ship in June 2021 and April 2022 and also provided assistance in refilling of Halon cylinders in January 2024. (Colombo/June23/2024)

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