SLFP Maithri Faction and UPFA Joint Opposition Are Both Against UNP Over Value Added Tax(VAT) Issue

By The Sunday Times Political Editor

Storm clouds are building over Government’s main partners on the impact of the Value Added Tax (VAT) which has dealt a blow to a large segment of Sri Lankans.

The pro-Maithripala Sirisena Sri Lanka Freedom Party (SLFP), or the United People’s Freedom Alliance (UPFA), segment is unhappy over the political fallout from this exercise. The issue has been the main subject of conversation during informal meetings. At a dinner this week at the Colombo residence of a Galle District parliamentarian, their UNP counterparts came in for bitter criticism. The reason, they said, was the embarrassment caused to them and the damage to their party. It was a recipe, they noted, for their certain defeat at next year’s planned local government elections.

The UPFA position was articulated by Minister Mahinda Amaraweera who is the General Secretary. He told the Sunday Times later; “We are of the opinion that the VAT, introduced in May, should be amended in such a way as to provide relief to those worst affected. The manner in which the tax was increased was wrong. There should have been a process to educate the public before it was enforced.”
Amaraweera said just like the public, “we too have issues with the VAT. As members of the Government we have to face the people. You cannot introduce such measures by force.” He said in the next two weeks, members in the Government would meet President Sirisena and frankly express their views on the many implications of introducing VAT. “We need to keep the President informed about the impact, particularly at a time when we are facing a local government election,” he added.


March from Kandy

Even if Amaraweera did not say it, UPFA leaders in the Government are also concerned about a build-up against the Government of National Unity by different opposition groups. This has formed the subject of discussion by President Sirisena and his close allies in the recent weeks. Their attention has been focused on a protest march from Kandy to Colombo by Opposition groups on July 28. Those in the ‘Joint Opposition’ and former Minister Basil Rajapaksa’s unnamed political movement are co-ordinating this event with like-minded groups, including members of the Buddhist clergy. Rajapaksa is also trying to bring together chairpersons and members of the local government bodies which now remain dissolved.

On the night of July 27, the Opposition groups will attend a special ‘pooja’ at Sri Dalada Maligawa (Temple of the Tooth) in Kandy and begin their protest march the next day. The first leg of their march will be from Kandy to Mawanella. Thereafter, there will be overnight stops in Kegalle, Warakapola, Nittambuwa, Kadawatha and Colombo. Though there is pressure on former President Mahinda Rajapaksa to take part in the protest, he is most likely to receive them when they arrive in Colombo on August 1. It is here that the organisers have proposed to name Basil Rajapaksa’s new movement which is a precursor to a new political party. At least for Basil Rajapaksa, it comes at a time when he is indicted for the alleged misappropriation of Rs. 33 million from the Divineguma Department Fund which was under his Economic Affairs Ministry. Further legal action against him on the misuse of Government property and related matters is also under active consideration.

Last Tuesday, the ‘Joint Opposition’ parliamentary group met with former President Rajapaksa in the chair. Behind-the-scenes moves have gone on to pressure him to play a more active role. The meeting was at their ‘Nelum Pokuna’ office in Battaramulla. They decided to appoint a committee headed by G.L. Peiris to formulate a common position on the proposed Sri Lanka Constitution. Other members are Basil Rajapaksa, Raja Collure, Tissa Vithana, Jayantha Seneviratne, Sisira Jayakody and A.H.M. Azwer. They also discussed the need to step up their campaign for the planned local government elections.

Former President Mahinda Rajapaksa’s son and Parliamentarian Namal Rajapaksa being led to the prison after he was arrested and remanded on charges of a financial fraud. Pic by Indika Handuwela
The new turn of events for the Government over the VAT came after a ruling last Monday by a three judge bench of the Supreme Court – Chief Justice K. Sri Pavan, Justice Buvenaka Aluvihare and Justice Prasanna Jayawardena. Acting on a petition filed by National Freedom Front (NFF) leader Wimal Weerawansa, the court granted interim relief suspending the operation of the VAT and NBT (Nation Building Tax) revisions carried out by the Minister of Finance and the Commissioner General of Inland Revenue from May 2. The order will be valid until the relevant amendments to the Acts are passed by Parliament. As a result, the VAT revisions made — new rates, thresholds pertaining to VAT and NBT — by the Government remain on hold. Yet, many establishments continued to charge the same rate of VAT.

In making the order, the Supreme Court ruled that revisions made were illegal since they violate Article 148 of the Constitution which deals with parliamentary control of public finance. The application challenged the tax revisions on the basis that those revisions were illegal since they were not approved by parliament. They sought the courts intervention to annul the revisions. The next SC hearing on this case will be on December 6. Article 148 of the Constitution dealing with Finance states, “Parliament shall have full control over public finance. No tax, rate or any other levy shall be imposed by any local authority or any other public authority, except by or under the authority of a law passed by Parliament or of any existing law.”

On Thursday, UPFA parliamentarian Sisira Jayakody (Gampaha District) challenged before the Supreme Court the constitutionality of the Value Added Tax (Amendment) Bill. This Bill was tabled in Parliament to obtain its approval for the VAT revisions made on May 2. Jayakody is seeking a declaration that the Bill should become law only if it is passed by a two-thirds majority in Parliament and by the approval of the people at a referendum. He has said that certain clauses were inconsistent with provisions of the Constitution. Jayakody also said in his petition that the Bill, if it becomes law would be with retrospective effect. He has claimed that the Bill in its current form would contradict the interim order of the Supreme Court that temporally suspended the tax revisions on the basis that it was illegal.

The second reading of this Bill was originally scheduled up for debate on July 23. Prime Minister Ranil Wickremesinghe told media that it would be with retrospective effect thus giving legal effect to the imposition of VAT from May 2. Finance Minister Ravi Karunanayake told the Sunday Times; “We will of course, give all possible relief. In fact President Sirisena is discussing the matter with Prime Minister Wickremesinghe”, he said. He added that the duo had met last Monday, a day ahead of the weekly ministerial meeting, to discuss issues relating to VAT.


CoL committee under Sirisena

For the Government, the VAT and the NBT have become thorny issues. If it has displeased UPFA members and even a substantial section of the UNP, though they have not publicly voiced their views, the commitments in this regard made to the International Monetary Fund (IMF), will have to be honoured. It was one of the main assurances on which the IMF granted an Extended Fund Facility of US$ 1.5 billion in June. This will be spread over three years. The first tranche of this facility, nearly 168.1 million dollars (SDR 119.90m), has already been drawn. Just days earlier US$ 3 billion was raised with two different bond issues, each US$ 1.5 billion.

At the ministerial meeting on July 5, VAT and issues related to rising cost of living were discussed. More details of this session have now emerged. Reporting to ministers on his meeting with traders, Sirisena said some traders had even inflated prices of consumer items that did not come under VAT. He said the ministers should raise this issue when they attend meetings of the District Co-ordinating Committees in their respective areas. Sirisena will now chair a 12-member ministerial team that will monitor the cost of living periodically. Other members are Prime Minister Ranil Wickremesinghe, Ministers Ravi Karunanayake, Sarath Amunugama, Susil Premajayantha, Rishad Bathiuddin, Champika Ranawaka, Mahinda Amaraweera, Duminda Dissanayake, Kabir Hashim, Akila Viraj Kariyawasam and Malik Samarawickrema.

The same ministerial meeting on July 5 discussed what was titled “Resettlement of Protracted IDPs in the Northern Province.” The IDPs or Internally Displaced Persons were those forced to leave their homes during various stages of the separatist war. Resettlement programmes for them still continue and some still remain in refugee camps. The Ministers decided to “include traditional Sinhala villages in the resettlement programmes.” A Task Force for this purpose has been set up under the chairmanship of Minister Rishad Bathiuddin. Other members are Secretary to the Ministry of National Policies and Economic Affairs, Secretary to the Ministry of Finance (or his nominee), Secretary to the Ministry of Industries and Commerce, Secretary to the Ministry of Housing and Construction, Secretary to the Ministry of Provincial Councils and Local Government and Secretary to the Ministry of Rehabilitation, Resettlement and Prison Reforms and Hindu Religious Affairs. The ministers have decided that District Secretaries (Government Agents) should be called upon to extend their assistance and cooperation to the Task Force.

Ministers are to soon give approval to a string of new arrangements which will see the return of China in a pre-eminent role in Sri Lanka’s economic development. This will be good news to former President Rajapaksa too. The projects he initiated with Chinese assistance in the Hambantota District will be carried through with the involvement of Chinese companies though the modalities are not known. These measures were worked out by Development Strategies and International Trade Minister Malik Samarawickrema during a visit to Beijing early this month.

Arrangements are to be worked out with China’s IZP group to operate the Mahinda Rajapaksa International Airport, more commonly referred to as Mattala Airport. This group recently purchased Italy’s Parma International Airport. Mattala airport has been described in travel magazines as the only non-operational international airport in the world and was built with a Chinese loan of US $ 210 million. The airport has now become a standby facility whenever incoming aircraft are unable to land at the Bandaranaike International Airport due to bad weather conditions. Such usage has been mostly by SriLankan Airlines, the national carrier, already facing huge debts of its own.

The Magampura Mahinda Rajapaksa port is to be operated by China Merchants Holding (International) Company Limited. This major conglomerate is based in Hong Kong and is engaged in a variety of business ventures like port operations, general and bulk cargo transportation, container and shipping business among others. The port was built at a cost of US$ 361 million. China’s Exim Bank funded 85 percent of the cost.

Chinese loans

The Government found that the repayment of Chinese loans was becoming a burden since the airport and the port were not commercially viable ventures earning any income. They proposed to the Chinese Government that their loan commitments on these two projects be converted to equity. Whether the Chinese have accepted this offer or the projects will become joint ventures is not known. The stalled Colombo Port City project is also to be resumed most likely by October. Some issues in a proposed new agreement, Government sources said, were now being negotiated. One is an undertaking sought by China that no such project be undertaken 20 kilometres north or south of the port city. More extents of reclaimed land is being sought by China to offset over US$ 175 million due as compensation for work stoppage.

In addition, two other multi-million dollar projects are also to get under way in the Hambantota area. One is a proposed Petroleum Refinery to be set up by Shan Dong Dongming Petrochemical Group. The group is described as a large scale petrochemical enterprise integrating crude oil processing, petrochemical industry and natural gas among others.

The second major project proposed is a LNG (Liquefied Natural Gas) power plant to initially produce 500 megawatts of power to be extended later to 1000 megawatts. It is to be undertaken by China Machinery Engineering Corporation (CMEC), the same company that built the misfiring Lakvijaya (Norochcholai) coal fired power plant. This plant has been subject to repeated breakdowns though it was expected to augment hydropower resources to provide nearly half of the country’s electricity requirements. The 900 megawatts power production facility cost US$ 1.35 billion.

The Government has also decided to enter into military deals with China to provide aircraft for the Sri Lanka Air Force (SLAF). Air Force Commander Air Marshal Gagan Bulathsinhala had sought to purchase six PT-6 single engine primary trainer aircraft from CATIC or China National Aero Technical Import Export Corporation. However, due to the adverse balance of payments situation the Cabinet of Ministers rejected the Defence Ministry’s recommendation to obtain the six aircraft. Instead, it decided to purchase two aircraft. The purchase of remaining aircraft will depend on the provisions for 2017-2019 medium-term budget, the ministers decided.

The trainer aircraft are needed, particularly during peacetimes, to ensure pilots are trained. On August 2, 2000, the SLAF procured ten P-6 trainer aircraft in a package from CATIC. This cost US$ 4,353,273. Each trainer aircraft then cost US$ 300,000. In addition, two more engines and spares cost US$ 156,000 whilst spares cost a further US$ 60,000. A further US$ 200,000 were spent on spares, tools and the freight cost US$ 210,000. These purchases were also made from CATIC. Besides all this, the SLAF also obtained a repair facility for the P-6 trainers.

Air Force Commander Bulathsinhala had also recommended to the Cabinet of Ministers, through the Ministry of Defence, to purchase two Harbin Y 12 Four Series light aircraft for transport purposes. Here again, due to the adverse balance of payments situation, the MoD has been asked to discuss with the Secretary to the Treasury the availability of funds for such a procurement. The SLAF already has a fleet of Y-12 transport aircraft from an earlier series and is operating most of them. Earlier, Air Marshal Bulathsinhala recommended the purchase of two C-130 transport planes from the Royal Air Force in Britain after they had been laid by. They were to be purchased and refurbished. He led an SLAF delegation to inspect the aircraft. However, there was no ministerial approval for this. A similar purchase earlier of two C-130s, also laid by, led to only one aircraft being operational. The other was grounded for lack of spares and was cannibalised to keep one in the air. Restrictions then by the United States Government prevented the procurement of spares.

FCID investigations

These developments come as the Financial Crimes Investigation Division (FCID) has begun probes on other matters related to the military and the defence establishment. The latest relates to the construction of the new defence complex at Akuregoda in the Greater Colombo area. Sme officials refer to this as Sri Lanka’s Pentagon.

FCID detectives are set to question those connected with the construction. In one instance, it has come to light, that a lead consultancy firm assigned to the project had been selected even before the company had obtained registration with the Registrar General of Companies and with the Sri Lanka Institute of Architects. Payment to the firm had been Rs. 509,926 million – an 83 percent payment against 30.02 percent of work completed. This has been an over expenditure of Rs. 173.5 million. The ministers have tasked a four member Committee that probed this matter to conduct a further probe into how approval had been granted by the Cabinet of Ministers to the firm concerned and how the firm came to be allocated a large amount of money. The FCID investigation comes in this backdrop.

Investigations by the FCID, the Criminal Investigation Department (CID) and the Special Investigation Unit (SIU) of the Police came up for scrutiny at a meeting of the Progress Review Committee on Friday June 8. The meeting was chaired by President Sirisena. Among those attending it were Prime Minister Ranil Wickremesinghe, Ministers Patali Champika Ranawaka, Rajitha Senaratne, Sarath Fonseka, Sagala Ratnayake and heads of the investigative agencies.

The meeting, among other matters, reviewed the progress made during different investigations and the delays involved in others. One such case related to Hambantota District parliamentarian Namal Rajapaksa and his possible arrest the next day. No sooner had the meeting ended did sections of the local media and web sites report that Namal was to be arrested. Senior Police officials were furious that the information had leaked. They feared there would now be accusations that the arrest was a politically motivated exercise. Still, at least one influential minister insisted that the arrest should go ahead.

He said that such accusations would come no matter when the arrest was carried out.

Namal’s father, former President Mahinda Rajapaksa, was aware that the arrest was going to take place. “Arayawa daanawa athulata” or they are putting him inside, he told a confidant. At his Mirihana residence, he was watching a Hindi movie but was interrupted several times by telephone calls. Unlike the arrest of his other son Yoshitha, the former President did not display strong anger or emotion over Namal’s arrest. That is by no means to say he was unconcerned. To the contrary, he told those who spoke to him that Namal was a politician and should learn to cope with such situations. As has been the case in such circumstances, there was no attempt by those in the Government to explain to the public why Namal was arrested, produced before a Magistrate and remanded. It came only three days later during the weekly media briefing that follows the previous day’s ministerial meeting.

The task fell on Ajith Perera, Deputy Minister of Power and Renewable Energy. Other than explain the detailed reasons for the arrest, he laboured hard to make clear that the arrest was not politically motivated. He was distracted by trying to respond to the former President’s comment that the arrest of Namal must make Government leaders now very happy. The fact that the Government’s communications machinery does not work in harmony with the outcome of investigations, no doubt, raises the oft repeated question of their credibility. The ad hoc move to ask a Deputy Minister in charge of power and renewable energy to speak on the subject speaks for itself. The legitimate question would be why those directly connected are reluctant to speak out publicly?

It transpired at the Progress Review Committee meeting that the FCID was probing 493 cases. Some 36 files have been sent to the Attorney General’s Department which had prepared a few indictments to be presented in court. The CID is probing another 15 cases whilst the SIU is investigating five cases. Mahinda Rajapaksa’s immediate family members are facing a total of 58 cases. They are still under investigation, however.

This week has bared clear indications that the two major partners in the Government – the UNP and the SLFP – are having sharp differences over key issues. This is not something unusual when there is a coalition, call it by whatever name.

However, this is the first time the issues are playing out eloquently before the public with the Opposition groups reaping the benefits from it. It has exposed what appears to be “compartmentalised governance” with no one in full control and all of them running the show in different directions.

Courtesy:Sunday Times