Sri Lanka’s prerogative tax impunity checked in Magna Carta moment
ECONOMYNEXT – When King John imposed yet another scutage, the main tax of the times that was the basis of a feudal serfdom, on the barons of England without discussion in 1214 – and in peacetime not in war like in Sri Lanka in 2016- they revolted.
Out of that revolt was born the Magna Carta, where instead of toppling the king, a change in the system was made and the king was restrained in charging taxes without discussion, eventually leading to the establishment of modern democracy.
Thus was born the most important modern principle of representative government – taxation by consent and the ending of taxation by prerogative.
This column pointed out in May that (Sri Lanka’s state aristocracy by popular vote; ‘King’ unware of tax by ‘Royal Prerogative’) even the President was not aware of the tax hikes imposed on Sri Lanka by the Minister’s prerogative by gazette and newspaper notification.
Now this prerogative tax has been halted by the Supreme Court in a Magna Carta moment, leaving the rulers scratching their heads in puzzlement.
21st Century Serfdom
Britain eventually moved out of serfdom. Scutage (the owning of military service to the king/state or taxes in lieu for land) also eventually ended. With the end of feudal serfdom freehold land ownership came other taxes.
Taxation by consent was solidified in the British Bill of Rights in 1689 that no taxes should be levied without the authority of Parliament.
In Sri Lanka serfdom and slavery was ended by British liberals. British liberal gave us universal franchise. But universal franchise in the hand of native rulers have led to nationalist hate, and discriminatory and retrospective taxation.
It is sad indeed that 2016, a little over 1000 years after Magna Carta and 60 years after self-determination from Britain, Prime Minister Ranil Wickremesinghe and Finance Minister Ravi Karunanayake is imposing taxes without parliamentary debate through midnight gazette and other means.
Some opposition activists went to Supreme Court and got a court order against the value added tax imposed without parliamentary consent. But mid night taxes to help special interest lobbies continue.
In 2015 the current administration which came to power promising ‘yahapalanaya’ or ‘good governance’ also imposed retrospective taxes. It is not clear which is worse.
Sri Lanka’s 21st century serfdom and tax tyranny was not started by the Ranil-Ravi duo.
The illiberal serfdom, the nationalist tyranny, which is the most likely outcome of the popular vote, if not checked by a philosophy of freedom – as Eastern Europeans found to their cost – has been creeping up from the time of Sri Lanka’s self-determination from the British.
It was then Finance Minister N M Perera who made wide use of the mid-night gazette. This was to thwart traders from ‘hoarding’ goods before a tax hike.
Hatched in Secret
Far from getting consent of the subject – even through the less than perfect representative government – in Sri Lanka taxes are hatched in secret and sprung upon the people.
Why are these taxes hatched in secret?
Because Sri Lanka’s rulers are illiberal they don’t just increase taxes on the people in small incremental steps like two or three percent or even 5 percent. Even 5 percent is a big burden on the people.
They make massive tax increases of 10, 20, or even 50 to a 100 percent. Take the case of cars for example.
The native rulers have no compunction. Having got a veneer of legitimacy of the popular vote, the increasingly hereditary ruling class tax people by large increments. King John raised scutage two three marks from two, an increase of 33 percent.
But Sri Lanka’s post-independence rulers have raised car taxes by greater amounts than king john.
And like some feudal aristocracy they do not pay the tax themselves.
Their minions, the state workers also do not pay the same tax that ordinary (serf) citizens do, getting tax slashed cars.
Ironically Sri Lanka’s VAT like, King John’s taxes are being charged to pay the hiked salaries of these very servants of the elected ruling class. It is not to pay any old loans of the last regime as is popularly made out.
If taxes are changed in small incremental amounts, there will no widespread hoarding of goods.
Contrast today’s taxes with the practices of early British rule when the people of this country was not free.
Many people were surprised to see merchants protesting against value added tax. Merchants actually do not pay VAT – the customers do – but they have to keep records and will get caught to income tax because it is less easy to under-report revenue.
A tax revolt was seen when a so-called ‘coconut tax’ was imposed on the Ceylon by the British East India Company which was operating out of the Madras presidency, when the British first attempted to end ‘rajakariya’ with taxes.
The sudden change upset the status of caste based headmen and Governor North who took over administration later restored the system after committee that went into the causes of the 1897 rebellion.
There is no such committee to go into the causes of the tax revolt or any other illiberal intervention done under native rule, though taxes are no changed with frightening rapidity to serve special interest groups and state workers.
It is interesting to note that the need to raise cash taxes to pay government officials also came with the end of land based serfdom.
The British in fact had VAT like consumption tax called ‘bazar tax’ in 1807, which was a novel tax of the time. It was charged at 2 percent on grain and 3 percent on all other articles.
Contrast this with the 25 rupees import tax charged on onions which supposedly has a retail price of less than 80 rupees.
Anthony Bertolacci, a senior official of the North’s administration lamented in A View of the Agricultural, Commercial and Financial Interests of Ceylon, that a tax "so wide in nature, which affected at once, every article of commerce" on top of other taxes.
He noted that it was also cascading or in his own words "it contributed two or three times upon the same goods". No such concerns were noted by native finance ministers and bureaucrats when they imposed defence levy and the now abolished turnover tax.
No such concern was expressed by native ruler when they imposed nation building tax on top of value added tax which was supposed to fix that problem.
Bertolacci recommended the repeal of the "most baneful and oppressive tax" in favour of an increase in import duty, which the British government did in July 1813, which he notes "was received by the natives and inhabitants of Ceylon with the strongest expression of joy".
Steadiness of taxes
Bertolacci advocated the setting up of a ‘Board’ to administer taxes instead of leaving it to the prerogative of the Governor, who was a single individual, who may make arbitrary changes even with good intentions and a reform zeal.
Bertolacci’s following words should be kept in mid by all native Finance Ministers and Treasury officials who arbitrarily and secretly hatch massive taxes on cars or food items using a European system and slams it on the hapless citizenry.
"…[W]e ought to keep in mind, that in no department of Government is the advantage pursuing a steady and undisturbed system of more marked consequence, than in matters of taxation," Bertolacci wrote.
"Upon that steadiness of system very frequently depend, not only the profitableness of those taxes, but also the prosperity and happiness of the people upon those taxes are imposed.
"All changes in taxation are prejudicial unless they are very much for the better; because they disturb the established economy, and the application of capital and industry of the country."
"The want of steadiness is perhaps a defect which has been attached to the Government of all colonies, ancient and modern.
He noted that in Ceylon, the Governor had the legislative and executive power and a Board was "far more preferable to an individual".
"Without this Board, the system of revenue and taxation is more in danger of suffering un-necessary or prejudicial alterations, with every new Governor, or when a new commissioner is appointed by him to act in that department."
The supreme irony is that 200 years later, in 2016, with a rubber stamp European legislative body in place, with a new Governor/Government and a new Commissioner/Finance Minister appointed, Sri Lanka is arbitrarily changing taxes overnight despite supposedly gaining ‘freedom’ from colonial rule in 1948. (Colombo/Nov07/2016)
This column is based on ‘The Price Signal by Bellwether‘ published in the September 2016 issue of the Echelon Magazine. To read Bellwether columns as soon as they are published, subscribe to Echelon Magazine at this link. The i-tunes app can be downloaded from here.