No smoke without fire!

Sri Lanka’s tax net presents loopholes which are duly exploited for their benefit by various elements of the public, but its ineptitude is also due to the lack of awareness and administration muscle by enforcement agencies, sometimes mulled by political interfering. Despite the budget deficit narrowing to 5.4% in 2016, a gap of Rs. 640 billion – largely financed by foreign borrowings – only serves to hamper our development prospects. Whilst Government and Treasury officials need no sermons on how to restructure or overcome the external debt situation, it could still use some insights on improving domestic production and plugging holes in its basket of revenues.

One aspect that the exchequer must seriously consider is more stringent targeted financing schemes for business; one that would not help fuel the consumption mindset of our aspiring public. The automobile sector also provides ample opportunities for improvement in foreign exchange loss and money laundering. A recent article by a retired senior SLAS official put the annual cost figure on luxury vehicles imports into the country close to $ 3 billion, which is phenomenal.

It is also timely to reconsider and review some of the unwarranted benefits that have been handed down to industry and trade – largely for political gain. These have only contributed towards growing Government expenditure and a welfare mindset amongst the public that has spiralled out of control. The need of the hour is a tight set of policy, effectively communicated to procure the political will and power for implementation over a considerable period of time.

The growth and development we espouse and supplementary policy must be reflected in every sector, in the both formal and informal economies and permeate to the traditional sectors too. There are many industries that exploit loopholes in the system under the guise of cottage industries, assisted by the lack of knowledge amongst officials, criminal elements and political privilege. The loss and impact to Government and public health from the beedi trade sets a prime example; having observed its unabated growth during our research visits island wide.

Official statistics still place island wide beedi consumption at less than two billion sticks annually, but based on conservative ground estimates the real figure is well over four billion. In Polonnaruwa, a bundle of 25 sticks cost just Rs. 90 with shop keepers reporting over half of daily tobacco sales being beedi for popular brands such as PS and RK. The longer in length PS brand retails for just Rs. 3.50 a stick, whilst others like RK, Nile, Seyyadu Lalana and more retailed for Rs. 5.00 in varying bundles.

This indicates the lack of regulation, standards, or a pricing mechanism and thereby the absence of a system of tax or meaningful data collection. The customary calculation of beedi production via Tendu leaf imports is archaic and irrelevant, as the market has long moved on to other alternatives.

As alluded before in a previous report, in Kegalle we observed over 200 families in a village of 350 rolling beedis for livelihoods; they alone generated an estimated 5 million sticks a month earning on average Rs. 600 a day per 1,000 sticks. In Pettah – the heart of Colombo city – low-income families earned Rs. 80 for labelling and bundling 1,000 sticks for a daily target of 10,000. At 100 families that’s a minimum of 1 million sticks ready for market daily – from Gunasinghpura in Colombo.

Once again, conservative estimates put the annual loss to Government revenue from the beedi trade at over Rs. 9 billion that’s over 1.5%o of our budget deficit for last year. This does not factor health costs and impact on society by criminal and other unlawful elements. There are a number industries and trade that must be brought within the formal sector, for better regulation, revenue, public health and safety.

Once again, this requires an open, meaningful forthright research and dialogue that will consider existing ground realities with a view for the future, whilst governments find the political will and courage to see through their implementation. Even in the case of beedi, some of these producers are directly linked to powerful political elements, and it is time that the state leadership consider the future of the nation and its people over the profit and gain of a connected few.

By reigning in these informal sectors through a cohesive and effective program of implementation, the Government will be well on course to erase its deficit; but it needs to be tactful and firm with the implementation of policy. Our policies need to be all-encompassing, pragmatic and enduring; they need to move away from serving romantic welfare mindsets.

Effective policy needs to be backed by communication; educate and explain to our people what such policy entails and how it will benefit our future generations. In my opinion, the Malaysian model from 1983 presents some sound examples, and Sri Lanka is in dire need of some Mahathir-type policies and actions to get it right.