President Wickremesinghe’s tax proposals constitute a commendable first step. These are probably the most progressive taxation measures proposed by a Lankan administration in decades

By Tisaranee Gunasekara

“The Basil Rajapaksa faction…were demanding positions as state ministers…with perks and privileges (including) one private secretary, one media secretary, and three coordinating secretaries. All are entitled to separate vehicles… State ministers are also entitled to five office staff members, three vehicles, and other perks and privileges enjoyed by the ministers.” – The Sunday Times (28.8.2022)

Public policy subverted for private gain; laws broken with impunity in the certain knowledge there will never be a reckoning. Unintelligent governance brought us to our knees. Lankagama-Neluwa road is a microcosm of that expressway to disaster.

In 2020, President Gotabaya ordered the army to build the road in 90 days. About 8 km sliced through Sinharaja, a world heritage primary rain forest. No Environment Impact Assessment was obtained. In 2021, Minister Johnston Fernando proclaimed that the road was built without harming the environment.

Environmentalists claimed that the real purpose of the road was to service a hotel owned by a Rajapaksa offspring. PM Mahinda’s second son Yoshitha’s name was widely mentioned. He rejected the charges and threatened legal action. A Ravindu Soyza came forward claiming the hotel as his. The story became buried under an avalanche of newer troubles: exploding gas cylinders, fertiliser ban, COVID-19.

Turns out a Rajapaksa scion did own the hotel. Not Yoshitha but Rohitha; the youngest of Mahinda Rajapaksa’s three sons; the one who told an interviewer that he’d seen the world and would travel to space next. The hotel, Sinharaja Green Ecolodge, was burned down on 10 May. The police, investigating that crime of arson, revealed the name of the true owner in an official announcement.

While apprehending the arsonists, there are some related matters the authorities should not disregard. Why did Ravindu Soyza claim ownership of the hotel? When his older brother Yoshitha was accused of being the owner, why didn’t Rohitha Rajapaksa come forward to reveal the truth? How did Rohitha Rajapaksa, who has no known locus of employment or source of income, raise funds to purchase a hotel in such a prized location? Does he pay personal income taxes? Did President Gotabaya order the construction of the Lankagama-Neluwa road sans an EIA as an uncle’s gift to a nephew?

Michael Kazin, historian and former editor of the Dissent Magazine, in his recent book ‘What it took to win – A history of the Democratic Party’ makes a powerful and cogent argument for ‘Moral capitalism’ (a term borrowed from historian Lizabeth Cohen). According to Prof. Kazin, Moral capitalism aims to make “life more prosperous or at least more secure for ordinary people.” He identifies its two main pillars as opposition to “concentrated elite power” (both economic and political) and “oppression in the workplace” (low wages, abysmal working conditions, etc.).

The tale of Green Ecolodge illustrates the antitheses of Moral Capitalism, a capitalism that is viscerally unjust, an immoral capitalism aimed at promoting and safeguarding concentrated elite power. A system consisting of concentric circles of power and patronage serving kin, kith, and party supporters in the name of nation, race, and religion.

Sinharaja Green Ecolodge is a test case. Will Rohitha Rajapaksa be questioned about his sources of income? Or will he also qualify for compensation, from public funds, for lost property? Will light be shed on why and how the Lankagama-Neluwa road was built or will the familiar veil of silence descend on that outrage? Will the arsonist-sprats be punished while the sharks who evaded taxes and violated a world heritage site go free? Will Sri Lanka opt for a way that is less suicidal or stride down the same old path to perdition?

Repression or reform?

If Lanka’s economic fall has an original sin, it was the Gotabaya-Mahinda-Basil regime’s 2019 tax cut. Yet a narrow tax base and a lax attitude to tax collection were key structural issues preceding the Rajapaksas. Fixing it is a must if Sri Lanka is to embark on the long road to recovery. It is also necessary to help those worst affected by the crisis without a money-printing binge.

A broader tax base is on the top of the IMF’s reform agenda for Sri Lanka. In his recent interview with ‘The Economist’, President Ranil Wickremesinghe highlighted the need to raise taxes, widen the tax net, and tax both capital and wealth.

The saga of Green Ecolodge is symbolic of the need for such a tax policy and the consequences of its absence. The abysmal imbalance in our ratio of direct to indirect taxes (20:80) is not only unjust but also anti-development. A new tax policy is necessary to build up public finances driven to the ground by Gota-economics and to restructure the economy without placing a politically destabilising burden on the old and the new poor and the lower middle class.

President Wickremesinghe’s tax proposal constitutes a commendable first step. It reduces personal income tax and VAT exemption thresholds, makes advanced personal income tax mandatory, and requires advanced income tax and withholding tax to be deducted at the source including for interest, dividend and rent incomes. It also increases corporate income tax, removes several tax holidays, subjects condominiums to VAT, increases betting and gaming taxes, and provides tax relief to senior citizens. These are probably the most progressive taxation measures proposed by a Lankan administration in decades.

A functioning economy has to be understood as an economy that functions for the majority of people, at least in basic terms. In Sri Lanka, politicians instead of improving the functionality of the economy opted for diversionary tactics. Minority phobia was used to make the Sinhala majority forget their economic ills.

Instead of improving educational facilities in the periphery, district-wise standardisation was introduced, turning universities into not centres of excellence but its opposite. State institutions were used as employment agencies by successive governments, a spurious solution to lack of real employment opportunities. Politicians led the way down this self-defeating path and the voting public followed eagerly.

Now’s the crunch time. The dysfuntionality of the economy is too massive to be hidden by spurious palliatives, not when a father is forced to steal two kilos of rice and a packet of samaposha for his children who had gone hungry for four days. The recent electricity and water rate hikes and the increase of kerosene oil price, however necessary, would deal a body blow to the old and new poor and those middle class families a step or two away from the abyss of poverty.

Children from these families are already suffering from malnutrition and loss of educational opportunities. An exponential increase in school dropout rates, child labour and child prostitution could result. As the UNICEF regional director for South Asia announced, “If the current trend continues, hard earned progress for children in Sri Lanka is at risk of being reversed and in some cases erased permanently.”

The present ‘stability’ is built on shifting sands. If miles-long fuel and gas queues resume, a new, and far more violent, upheaval could become unavoidable. A desperate people are a people primed for extreme measures.

President Wickremesinghe’s new budget includes important palliative measures. But the outbreak of repression could impede the task of coalition building, without which many of the Budget’s reform measures might remain dead letters.

It is one thing to arrest those suspected of murder and arson. That must be done. Instead, the police are on a path that is both grotesque and stupid, combing the land for those who stole presidential bed-linen, slept in a presidential bed or wore clothes similar to security forces’ uniforms. They tried to stop a politically-themed kite festival at Galle Face and crashed into a press conference at the Centre for Society and Religion looking for a JVP student leader, sans an arrest order.

The use of the PTA against key Aragalaya activists is an ominous development. While denouncing the arrest of Wasantha Mudalige and others, let us take time to remember the recent suffering of Hejaz Hisbullah and Ahnaf Jazeen, held under the PTA, in far worse conditions, for months. Hopefully the targeting of Sinhala activists will make the South rethink its twisted stance on the PTA: elevating the defence of that monstrous piece of law to a badge of patriotism and denouncing demands for its abolition as marks of treachery.

Despite its barbaric excesses, the Aragalaya was a national endeavour. Its darker side was reflective of the pathologies of a nation that had visited gruesome mob violence on perceived ‘Others’ time and again. Even the horrendous burning of Ranil Wickremesinghe’s book collection had a precedent; the torching of the Jaffna Library, both irreparable losses no civilised people could condone.

The public will not oppose the arrest of those who lynched parliamentarian Amarakeerthi and his security officer. But arresting someone for soaping himself while dipping in the presidential pool? This is not the way to acceptance and hegemony but to ridicule and rejection.

The ongoing repression can have international repercussions as well, including the risking of the GSP facility. Since China persists in opposing debt restructuring, an IMF deal is likely to be delayed. We need all the bilateral help and no new trouble in Geneva.

Aragalaya is now effectively over, ended more by its own extremist actions than by any governmental counteraction. Instead of flogging that dead horse, the Government should focus on building the necessary public consensus for positive economic and welfare measures contained in the Budget. As Ariel Dorfman said in ‘Other Septembers’, the challenge is turn loss into maturity. The prize is survival.

Still out there

“Children need to be placed squarely at the heart of the solution as the country works to resolve the crisis,” UNICEF regional director for South Asia reminded us.

The SLPP, that quintessential Rajapaksa party, is doing the opposite. According to reports, the SLPP’s demands include its nominees being made cabinet and state ministers with all privileges. If they don’t get their pound of flesh, they will defeat the budget.

The threat is probably an empty one. If the budget is defeated, the Parliament will stand dissolved, not a risk the SLPP would want to take now. The real salient point is the SLPP’s willingness to undermine national good for personal and partisan political gains in such an in-your-face manner. The Rajapaksa family and party are undead and striving to rise.

Sri Lanka is probably unique in the privileges it accords its politicians. Not just retired presidents but also their widows/widowers are guaranteed official residences. Parliamentarians get a pension by serving five years. Until recently, they were also entitled to a duty free vehicle permit to use or sell. Ministers get official residences. State and deputy ministers, provincial governors and ministers, mayors and chairpersons of local councils enjoy a heap of privileges.

There is a nexus between the top heavy political system and the obese State sector revolving around the patron-client relationship. Politicians need to provide supporters and voters with jobs.

The State sector is how they do it. Every facility built with public funds is used to puff up the image of some politico. Procurements, approvals, and appointments create a reliable source of corrupted largesse.

A pared down and efficient State sector will work for the country but not for politicians. Remember President Gotabaya’s scheme to provide State sector employment to graduates and those who failed ordinary levels? That is the logical end to the counter-meritocratic ethos of our system. Unless we are ready for structural and attitudinal reforms, ‘system change’ will remain a cry in the wilderness of patronage politics and patronage economics.

In a recent interview, Mahinda Rajapaksa said he will not leave politics. A few days later, the cabinet reportedly approved a proposal to provide Rs. 400 million to renovate the former president’s official residence. Whether President Wickremesinghe gives in to the SLPP’s demands for more State and cabinet ministers as well, remains to be seen. If he does, it will cause a serious depletion of whatever political capital he has gained by reducing fuel and gas queues. It will also seriously undermine his ability to carry through the necessary structural reforms without which Sri Lanka can never escape this purgatory.

Courtesy:Daily FT