Sri Lanka eco tax could be a first step on a deadly road

Nov 09, 2008 (LBO) – “I, therefore propose to introduce an Environment Conservation Levy Act ensuring environment conservation. Individuals, businesses or items considered as harmful to the environment will be subject to this levy.

The Central Environmental Authority will be empowered to register relevant Chief Occupant to enable the process of recovering of this levy.

Further, provision will be made in the Act to enable the gazetting of any items or businesses considered as harmful to the environment as well as the relevant tax rates pertaining to which the gazette will be submitted to the Parliament.

It is estimated to raise Rs.1,000 million from this Environment Conservation Levy that will be introduced from 2008.” –2008 Budget Speech (official English version)

Leaving aside the implication that permanent households (as opposed to temporary ones like Ministerial bungalows) are harmful to the environment, the proposed Environment Conservation Levy (ECL) thought up by the extremist JHU which controls the Environment portfolio is perhaps the most pernicious of all the revenue proposals made in the 2008 Budget Speech.

On the face, it makes no sense (but by digging further, one begins to see some Orwellian possibilities). But first, let us see what is being proposed.

The creation of an entirely new, free-standing machinery within the Central Environmental Authority (CEA) to

  • Register all 4.6 million plus householders in the country;
  • Record the ownership of vehicles, telephones and electricity connections in each of these households plus classify them as temporary/permanent, in order to identify the qualifying households; and
  • Collect a monthly fee of Rupees twenty from each of the qualifying households

is a truly daunting task.

In addition, one would have to have an army of inspectors checking if the levy had indeed been paid by the qualifying households and if hitherto non-qualifying households had entered the fold, but had neglected to tell the government about it.

The only thing close in recent experience was the TV and radio set levies (license fees) that the current Secretary to the Treasury scrapped, to his lasting credit, in around 2000.

That was a tough levy to enforce in Sri Lanka, as in many other countries. Netherlands gave up its TV & Radio fees in 2000, because it cost too much to collect (27 million Euros). For the same reason, Pakistan collects its TV &Radio fees through utility bills now.

Collecting TV and radio set license fees or levies was hard, even though the relevant criterion was extremely simple: if you had a TV or radio set you had to pay; and you had to keep evidence that you had paid in your possession.

So, for example, the government collected the radio license fee from vendors of radio sets and even from car dealers to establish a record of who was liable. I recall an over-zealous and half-educated government official once proposing to convert all computer vendors into tax collectors because computers were technically capable of performing the functions of radios and TVs!

The JHU levy does not have easy “grab points” like the TV & radio levy. It requires active registration of chief householders by the CEA (stated in the speech itself) and the qualification process requires extensive data collection.

The qualification, as presently stated, requires all the conditions to be satisfied: vehicle AND telephone AND electricity AND permanent (though the analysis of the projection in Table 1 shows otherwise). This will be a hard task even for the Census and Statistics Department, if they decide to violate their confidentiality rules.

And all the government gets from this massive exercise is Rs 240 a year each from around 90 per cent of the households (see Table 1). Most probably, it will cost at least Rs 200 to collect the levy, which causes one to wonder what the whole thing is about.

Table 1:  Basic data on ECL

Est. population 20,000,000
Household size 4.31
Total households 4,640,371
ECL per household per year (Rs.) 240
Max yield (Rs) 1,113,689,095
Stated yield (Rs) 1,000,000,000
Difference (Rs) 113,689,095
Number of households excluded 473,705
Excluded households as % of total 10.21

Source:  2008 Budget Speech and Central Bank Annual Report 2007

Poll tax

Excluding the possibility that the designers of this monstrosity are stupid and/or ignorant, one has to search for a deeper rationale. The first is the poll tax.

A poll tax (also known as a head tax or capitation) is a tax of a uniform, fixed amount per individual (as opposed to a percentage of income). The proposed levy is not to be imposed on individuals, but on heads of households; and it is not on every head of household but on those that meet the stated criteria (around 90 per cent by the government’s own calculation; see Table 1).

But the ECL is a fixed tax that is applied irrespective of income or use of services. It therefore is a form of a poll tax.

Furthermore, the criteria and the amounts are flexible and can be changed by Gazette, outside the control of Parliament. So it is easy to convert the ECL into a true poll tax or at least a poll tax that applies to all households.

Since the costs of establishing the collection/enforcement mechanism cannot be justified by the Rs 240 collection, one would have to assume that this is just the first step on the slippery slope of poll taxation by Gazette. Let us examine some likely routes for the slide.

Table 2:  Households with appliances/vehicles, 2003-04

% households, excl. 3 Northern Districts
Radio 78.3
TV 70.8
Fixed/mobile telephone 24.5
Motor cycle/scooter 16.3
Van/car 5.8
Refrigerator 29.7
Washing machine 7.6
Computer 4.1

Source:  Central Bank Consumer Finance Survey

So for example, assume a Gazette modifying the ECL to impose a levy of Rs 20 for each of the vehicles and appliances listed in Table 2 above, in addition to the base levy for permanent households. Actual yield will be higher because the data are from 2003-04.

At yields in the range of Rs 3.6 billion per year, which can be increased at will through gazette notifications, the Central Environmental Authority can give the Treasury a run for the money. Now, the elaborate poll-tax machinery begins to make sense.

Let us not dwell on the fact that poll taxes went out of fashion in the 19th century. From the perspective of the JHU, that would be a plus point. Their inspiration after all has to be Governor Torrington who imposed similar taxes on guns, dogs, carts and shops in 1848.

That attempt led to the 1848 rebellion, led by Puran Appu and Gongalegoda Banda.

Table 3:   Projected yield from imposing levy on households plus appliances, vehicles

Households Yield at Rs 240/yr
Radio 3,633,411 872,018,561
TV 3,285,383 788,491,879
Fixed/mobile telephone 1,136,891 272,853,828
Motor cycle/scooter 756,381 181,531,323
Van/car 269,142 64,593,968
Refrigerator 1,378,190 330,765,661
Washing machine 352,668 84,640,371
Computer 190,255 45,661,253
Total yield from appliances/vehicles 2,640,556,845
Proj. yield from permanent households 1,000,000,000
Total yield 3,640,556,845

Poll taxes are universally hated, not only in Sri Lanka. They are now always clothed in various mellifluous names. The references to environment and conservation in this instance are intended to blunt the bite of this regressive tax. But all that it is likely to do is give environmental activism a bad name.

Prime Minister Thatcher lost her job after she tried to impose a poll tax (called, like this, by another name: the community charge) in 1990. John of Gaunt’s attempt to impose poll taxes in England in 1381 was the cause of the Peasants’ Rebellion led by Wat Tyler, Jack Straw and John Ball.

While the return to the 19th Century (or even the 12th Century) may not bother the government too much, it is likely that the historical correlation of poll taxes and rebellions may.

Data Mine

As explained above, the enforcement of the ECL requires the collection of massive amounts of personal data and a large inspectorate.

This can of course solve one of the government’s urgent problems, which is where to stuff the tens of thousands of graduates it hires every year. But they may wish to consider the implications of putting this large and intrusive army under the command of the tactician of an extremist political party.

This brings up the alternative explanation for the levy, which if kept at present levels and collected as described through the CEA, will cost as much to collect as it will yield. It is possible that the JHU, as an ideological and non-democratic party that will never be able to come to power on its own in free and fair elections, is getting the Mahinda Rajapaksa government to pay for its databases.

Once it has this massive trove of data about every household, what cannot be done? Houses can be targeted for contributions/extortion, political organization, etc.

For an example of another organization that uses this kind of data collection and mining, see, ‘Terror Tax: Sri Lanka Tamil Tigers developing refined tax system’

Whatever be their ideological differences, extremist organizations are alike in their modes of operation and rhetoric. Popular parties like the SLFP which are committed to democratic pr0cesses as well their democratic allies must be cautious about allowing the JHU to develop an oppressive apparatus within the structures of government.