ECONOMYNEXT – Sri Lanka’s taxation by ‘Royal Prerogative’ progressively built by the elected ruling class and bureaucrats after independence from British has seen a new twist with the ‘King’ apparently unaware taxes being slapped on citizens without parliamentary consent.
The time has come to re-establish taxation by consent and stop the parliament from being a rubber stamp.
In Sri Lanka’s new constitution, specific provisions must be enshrined to re-establish taxation by consent of the parliament and guarantee the right to equal taxation of all citizens ending the existing serfdom of tax discrimination.
Already, there is a greater understanding that tax holidays for private companies are bad. The last regime gave tax exemption for highly paid workers foreign workers of ‘strategic enterprises’ in another travesty.
President Maithripala Sirisena, has reportedly said he saw in newspapers that value added tax was going to be increased and he was against increasing taxes which will be a ‘burden’ on the people.
This is dis-ingenuous to say the least.
The burden on the people was not created by the VAT hike. The ‘burden’ was created by the state worker salary and pension hike and subsidies in January 2015 in particular and the bloated state and ministers this country has in general.
A cabinet paper had already been presented in March by Prime Minister Ranil Wickremesinghe in March showing how taxes were to be raised.
Raising taxes it must be pointed out is the most responsible way of funding state spending and maintaining bloated public sector and ministers. Printing money has already destroyed the rupee and created a currency crisis.
The administration has exempted electricity and is taxing education and health supplies by private entities as if they are serfs who should be penalised.
It is the height of cheek to say that fee based medical services are enjoyed by the rich. A cursory glance at any channelling centre will show that many people are far from rich.
It is unpardonable to charge VAT from health services, whether from the rich or poor. It is not relevant whether the health service supplied by a state aristocracy or the community.
Instead of playing politics to the gallery, a ruler with real concern for the people should charge tax from power every month (like an insurance premium) so that sudden large expenses from healthcare would be mitigated.
Even in Singapore, an authoritarian where there are hardly any exemption to VAT, there is a Medisave scheme, with periodic top ups.
It must always be remembered that it is less harmful to print money than to tax.
Taxation by consent; ending Royal Prerogative
That taxes are imposed without thought or evidence based policy making is result of imposing taxation without consent.
Taxes are devised without wide examination and evidence based policy. Many taxes are imposed by midnight gazette without parliamentary approval.
Parliament, a tool developed in Western Europe to improve people’s freedom and reduce the arbitrary powers of the rulers, is simply a rubber stamp in Sri Lanka.
In Britain King John was forced to sign the Magna Carta because he imposed a series of taxes (scutage) without consultation. This was the origin of parliamentary democracy as we know it today.
The British Bill of Rights of 1689 which is part of the uncodified constitution of that country strengthened the principle that "no taxes should be levied without the authority of Parliament" after King James II was seen to have arrogated many arbitrary powers.
The Bill of Rights put to an end taxation by Royal Prerogative.
But in Sri Lanka taxation by Finance Minister’s Prerogative still continues with the midnight gazette, where taxes are slapped on people while they are sleeping in a shameful exercise.
The VAT was expected to be imposed on April 01. Then it was delayed to May 02. This is apparently ‘legal’ because the law provides for it.
There was cabinet discussion of the bill. But there was no discussion in parliament.
It can be argued (not satisfactorily) that once a budget has been passed, parliamentary consent has been given since taxes are announced, even if the enabling legislation has not been passed.
But this time the taxes in the budget were suspended by the cabinet.
The entire confusion over the date of imposition of taxes, and the claim by the President who is like a King of yester year (Royal prerogative in some matters are now exercised by some constitutional monarch on the advice of the Prime Minister who is expected to represent the Parliament) that he had no knowledge is all due to the lack of a proper parliamentary consent to taxes in the country.
When parliaments originated in Western Europe only taxpayers could vote.
That prevented the mis-use of taxes by the King to some extent. There is no such safeguards in Sri Lanka now and the elected ruling class itself is exempted form taxes.
‘Royal’ Tax Haven
With the exposure of Panama Papers, leaders of some countries have been accused of trying to evade taxes by using tax havens.
Under Sri Lanka’s income tax law, the President is exempt from taxes and this country is a tax haven for the modern day head of state.
The Inland Revenue Act of Sri Lanka says: There shall be exempt from income tax… the emoluments, pension and any other benefits arising to any person from the office of the President of the Republic of Sri Lanka.
In Britain the Queen is exempt from income tax.
This dates back from an arrangement dating back to King George the III in 1760 where all the income from Crown estate was surrendered to the state in return for expenses to be borne by parliamentary funding.
To date the profits on the Crown estate to the Treasury (over 200 million pounds a year) has exceeded any funding for the Royal family (about 30 to 40 million pounds a year).
In Sri Lanka the entire parliament is made up of a state aristocracy that avoids key taxes that ordinary people pay and get a pension from their money.
They and their co-ordinating secretaries – usually members of the family like a wife and a child – get pensions after just five years.
This is like the decision of the British parliament to pay an annuity to minor Royals some time ago.
However at least the Crown estate gives enough and more money for such a thing to be done in Britain. Here the ordinary people have to pay taxes to finance the pensions of the ruler’s and their acolytes.
Until ex-President Mahinda Rajapaksa came, state workers paid no income taxes. But they pay now.
The elected ruling class gets tax free cars, in a blatant discriminatory state aristocracy. Or they sell it.
Finance Minister Ravi Karunanayake tried to end this, but the elected aristocracy protested.
The state works are getting tax slashed cars. It was an administration by the United National Party that created this situation in the 1980s.
Under British rule everyone paid taxes on their cars. Car taxes are very significant because for a poor man a motorcycle, a small car is a very large purchase and is probably the biggest tax he will pay.
The secondary market price of a tax free ‘MP’s permit’ is now 22 million rupees. For an owner of a motor cycle this is an unimaginable sum of money.
Everyone, ruler and citizen should pay taxes for the upkeep of the roads.
It is one thing to pay a higher salary for the rulers, but it is completely different to tax ordinary citizens and exempt rulers from taxes.
This is discrimination against the ordinary citizen is one of the worst example of an iniquitous state aristocracy.
Parliament is a label given to an institution in Sri Lanka which neither guards peoples freedoms nor the right to equality they are born with.
Instead it collects money and gives it to special interest sections, key among whom are a bloated state worker cadre and loss making state enterprises.
In the new constitution that is being fashioned for Sri Lanka the right to equal taxation should be enshrined. Sri Lanka’s arbitrary constitution has a few guaranteed liberties in any case and heavily favours the elected ruling class. v The parliament in Sri Lanka is behaving like the parlements of France’s Ancient regime which gave rise to the French revolution.
Alfred Cobban a British academic, said of the Paris parlement, the following, which seems very true of the legislature of Sri Lanka now which is only represents the people in name.
"The Parlement of Paris, though no more in fact than a small, selfish, proud and venal oligarchy, regarded itself, and was regarded by public opinion, as the guardian of the constitutional liberties of France."
This column is based on ‘The Price Signal by Bellwether‘ published in the May 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.