Should Sri Lanka have lower taxes or more government?

Aug 19, 2008 (LBO) – “One out of five people between 18 and 60 works for the government. One out of 20 Sri Lankans works for the government. To serve 20 people we have one government servant. We have increased their salaries and strengthened government in order to serve you.”

This is a translated excerpt of a speech by President Mahinda Rajapaksa as reported in the Lankadeepa, Jan 22, 2008, p. 5 (The speech was made before the Provincial Council Elections, so actual numbers may be higher now)
Newspaper columns are required to contain references to conversations with taxi drivers. I mentioned a Hawai’ian taxi driver in my very first column in February 2005, but have since been neglectful of this long-standing journalistic tradition. This makes amends.

So, a taxi driver told me that the JHU had slapped another tax on mobile charges. I said yes, for every 100 rupees you spend on the phone, you’ll now be giving the government a little over 31 rupees on top as taxes from now.

He said, this is to make the President happy and to pay for SAARC expenses. I said, maybe, but the government has lots of continuing expenses; SAARC was just a one-time deal.

But this is crazy, he said, why are they taxing my mobile which I need to make a living (I had just called him to arrange the airport drop)? I said, but the government needs money to meet its expenses.

I said the people of this country deserve these taxes, because they oppose the shrinking of government. Somebody has to pay the bills. Government must get money from somewhere. You can’t have both your ravula and your kanda, I said.

Ah, he agreed, the UNP didn’t give one government job and see what happened to them, they got booted out in 2004.

I said, yes, the mobile taxes at that time were quite a bit lower. The 15 percent value added tax plus the social responsibility levy of 1.5 percent. In 2003 they started this nasty habit of mobile-specific taxes with a 2.5 percent levy (thinking it would get too complicated, I didn’t tell him that this levy was placed in lieu of an importation tax that was leading to a lot of smuggling of handsets). That amounted to 20.40 rupees, roughly two thirds of the present tax burden. With 8 million mobile customers paying 10 rupees more for every hundred rupees of use, that’s quite a bit of loose change, I said.

Ah, he said, this Professor Pieris was the man responsible for the VAT and all this, wasn’t he? Again, I said but the government has lots of expenses like maintaining this road we’re on and paying compensation to contractors for the highway on the left that wasn’t completed.

The VAT contributes 33 per cent of total government revenues, I said. I personally think it is very good compared to what existed before, if only we can prevent leakage. And Professor Pieris didn’t work up the mobile subscriber levy; the credit for that has to go to Mr Bandula Gunawardene.

Unhappy with this egregious violation of the principle of collective responsibility of the Cabinet, I tried a distraction. I pointed out that mobile prices had come down considerably since 2004.

I said you can call the US for 10 rupees and there are special packages to call cheaply to the Gulf. A minute of mobile calling at peak used to cost 11 rupees, I said; now it costs about half depending on the package. Calling at peak times now costs even less than calling at off-peak, which is very weird, I said. And all this with a devalued rupee.

The taxi driver was not to be distracted. How much cheaper it would be if not for these silly taxes, he said. I repeated my mantra about the government needing money. By this time we were on the approach road, which used to have all these hoardings about the sky being ours with Mihin Lanka, with the little swirl/wave thing at the bottom to connect it to that fantastic Triad campaign for the 2004 election.

They have to pay the 1.5 rupee billion debt of Mihin Lanka, I said. We need to keep all those people employed in a government-run airline. They cannot lose their jobs, even if the airline never flies again.

But he was fixated on taxes. How come I have to pay 31 rupees plus for every hundred rupees, when the taxes are 15 percent plus 1.5 percent plus 10 percent (I had by this time explained that the 2.5 percent levy had increased to 10 percent because Minister Bandula Gunawardene, now on the other side, had wanted to reduce some onion or lentil import taxes and had to collect some money to make up for the loss)? How come 15+1.5+10 adds up to over 31? Doesn’t the tuition master know how to add?

Ah, I said, don’t you know about tax-on-tax? We pay tax; then we pay tax-on-tax. This is not tuition-class arithmetic, but special stuff cooked up by the million plus people who work in government, I said.

This is terrible, he said. Their salaries have to be paid, I said, for them to come up with things like tax-on-tax. This advanced arithmetic is not taught in school, not even in tuition class. Ah, this is something like val poli (compound interest), he said.

I was now at the checkpoint. Time to end the conversation. The only people who have a right to object to these taxes are people who support the policy of freezing, if not contracting, government employment, I said.

That’s true, he agreed.

I got off the taxi and went to check in to my flight. Not on Mihin Lanka, which owns the sky but cannot fly because its plane was repossessed; but the other government airline run by the brother of the guy who ran Mihin Lanka into the ground; which will, in due course, need some infusions of public money too. Especially after they absorb Mihin Lanka, its losses and its employees.

What would the mobile levy be called then, I wondered, and how much would it be? Mihin Conservation Levy (MCL)? Twenty percent, which would take us to 58.20 rupees on top of every 100 rupees we spend on calls, with tax-on-tax? Or just 10 percent, which would take us to 45 rupees? What would it take to pay hundred rupees in tax for every hundred rupees of mobile use? Would the JHU be an endangered species by then, I wondered. Perhaps we could call that tax a JHU Conservation Levy.

What would be the tagline of the next Mihin Lanka advertising campaign, I wondered. When it was flying an ancient leased Airbus, the slogan was “Ahasa Apey” (the sky is ours). Now, when it is paying salaries, but not flying, would it be “Polova Apey” (the ground is ours)? And what would they be advertising? Rides on the baggage handling equipment they imported? May be a ride in an ancient leased Bus?

These were some of the things that went through my mind while waiting in line for 45 minutes to check in. If the government airline that actually flies had faster check-in, you’d be reading a shorter column. But then I have to be thankful to the taxi driver. Without him, there may be no column at all.