Sri Lanka’s taxation by ‘Royal Prerogative’ progressively built by the elected ruling class and bureaucrats after independence from British has seen a new twist, with the ‘King’ apparently unaware of taxes being slapped on citizens without parliamentary consent.
The time has come for tax equity, where citizens on the street and the ‘state aristocracy’ of the elected ruling class and bureaucrats will be treated equally in taxation. Sri Lanka’s discriminatory serfdom, where taxes are imposed without consent, must also end. In Sri Lanka’s new constitution, specific provisions must be enshrined to re-establish taxation by consent of the parliament and guarantee the right to equal taxation of all citizens. There is already a greater understanding that tax holidays for private companies are bad. The last regime also gave tax exemptions for highly paid workers of ‘strategic enterprises’ enjoying tax holidays. What is needed is a low-uniform tax rate, where bureaucrats cannot misallocate capital into ‘thrust sectors’ and not offer long-term tax holidays.
Tax serfdom
President Maithripala Sirisena reportedly said that he saw in newspapers that value-added tax was going to be increased and that he was against increasing taxes, which will be a ‘burden’ on the people. This is dis-ingenuous to say the least. The burden on the people was not created by the VAT hike. The ‘burden’ was created by the state worker salary and pension hike and subsidies in January 2015 in particular, and the bloated state and ministers this country has in general.
A cabinet paper had been presented in March by Prime Minister Ranil Wickremesinghe showing how taxes were to be raised. It must be pointed out that raising taxes is the most responsible way of funding state spending, and maintaining a bloated public sector and ministers. Printing money has already destroyed the rupee and created a currency crisis. The administration has exempted electricity, and is taxing education and health supplies by private entities as if they are serfs who should be penalised. It is the height of cheek to say that fee-based medical services are enjoyed by the rich. A cursory glance at any channelling centre will show that many people are far from rich.
It is unpardonable to charge VAT from health services, whether from the rich or poor. It is not relevant whether the health service is supplied by a state aristocracy or the community. Instead of playing politics to the gallery, a ruler with real concern for the people should charge tax from power every month (like an insurance premium) so that sudden large expenses from healthcare would be mitigated. Even in Singapore, an authoritarian state, there are hardly any exemptions to VAT; there is a Medisave scheme, with periodic top-ups. It must always be remembered that it is less harmful to print money than to tax.
Taxation by consent; ending ‘Royal Prerogative’
That taxes are imposed without thought or evidence-based policy making is a result of imposing taxation without consent. Taxes are devised without wide examination and evidence-based policy. Many taxes are imposed by midnight gazette, without parliamentary approval. The Parliament, a tool developed in Western Europe to improve people’s freedom and reduce the arbitrary powers of rulers, is simply a rubber stamp in Sri Lanka.
In Britain, King John was forced to sign the Magna Carta because he imposed a series of taxes (scutage) without consultation. This was the origin of parliamentary democracy as we know it today.
The British Bill of Rights of 1689, which is part of the un-codified constitution of that country, strengthened the principle that “no taxes should be levied without the authority of the Parliament” after King James II was seen to have arrogated many arbitrary powers. The Bill of Rights put to an end taxation by Royal Prerogative.
But in Sri Lanka, taxation by the finance minister’s prerogative continues with the midnight gazette, where taxes are slapped on people while they are sleeping in a shameful exercise.
Cabinet’s prerogative
VAT was expected to be imposed on 1 April. Then, it was delayed to 2 May. This is apparently ‘legal’ because the law provides for it. There was a cabinet discussion of the bill, but there was no discussion in parliament. It can be argued (not satisfactorily) that, once a budget has been passed, parliamentary consent has been given, since taxes are announced even if the enabling legislation has not been passed. But this time, the taxes in the budget were suspended by the cabinet.
The entire confusion over the date of imposition of taxes and the claim by the president who is like a King of yester year (royal prerogative in some matters are now exercised by some constitutional monarch on the advice of the prime minister, who is expected to represent the Parliament) that he had no knowledge of it is all due to the lack of proper parliamentary consent to taxes in the country.
When parliaments originated in Western Europe, only taxpayers could vote. That prevented the misuse of taxes by the King to some extent. There are no such safeguards in Sri Lanka now and the elected ruling class itself is exempt from taxes.
‘Royal’ tax haven
With the exposure of Panama Papers, leaders of some countries have been accused of trying to evade taxes by using tax havens. Under Sri Lanka’s income tax law, the president is exempt from taxes, and this country is a tax haven for the modern day head of state. The Inland Revenue Act of Sri Lanka says: There shall be exempt from income tax… the emoluments, pension and any other benefits arising to any person from the office of the President of the Republic of Sri Lanka.
In Britain, the Queen is exempt from income tax.
This is from an arrangement dating back to King George the III in 1760, where all income from the Crown Estate was surrendered to the state in return for expenses to be borne by parliamentary funding. To date, profits from the Crown Estate to the Treasury (over £200 million a year) has exceeded any funding for the royal family (about £30-40 million a year).
State aristocracy
In Sri Lanka, the entire parliament is made up of a state aristocracy that avoids key taxes that ordinary people pay, and get a pension from their money. They and their coordinating secretaries – usually members of the family, like a wife and child – get pensions after just five years. This is like the decision of the British Parliament to pay an annuity to minor royals some time ago.
However, at least the Crown Estate gives enough and more money for such a thing to be done in Britain. Here, ordinary people have to pay taxes to finance the pensions of the rulers and their acolytes. Until ex-President Mahinda Rajapaksa came, state workers paid no income taxes. But they pay now.The elected ruling class gets tax-free cars in a blatant, discriminatory state aristocracy. Or they sell it. Finance Minister Ravi Karunanayake tried to end this, but the elected aristocracy protested. State works are getting tax-slashed cars. It was an administration by the United National Party that created this situation in the 1980s.
Under British rule, everyone paid taxes on their cars. Car taxes are very significant, because for a poor man, a motorcycle or a small car is a very large purchase and is probably the biggest tax he will pay. The secondary market price of a tax-free ‘MP’s permit’ is now Rs22 million. For an owner of a motor cycle, this is an unimaginable sum of money.
Everyone, rulers and citizens, should pay taxes for the upkeep of roads. It is one thing to pay a higher salary for the rulers, but it is completely different to tax ordinary citizens and exempt rulers from taxes. This discrimination against the ordinary citizen is one of the worst example of an iniquitous state aristocracy.
Parliament is a label given to an institution in Sri Lanka that neither guards people’s freedom nor the right to equality that they are born with. Instead, it collects money and gives it to special interest sections, key among whom are a bloated state worker cadre and loss-making state enterprises.
In the new constitution that is being fashioned for Sri Lanka, the right to equal taxation should be enshrined. Sri Lanka’s arbitrary constitution has a few guaranteed liberties in any case and heavily favours the elected ruling class. The Parliament of Sri Lanka is behaving like the parlements of France’s Ancient Regime, which gave rise to the French revolution.
Alfred Cobban, a British academic, said the following of the Paris parlement, which seems very true of Sri Lanka’s legislature now: “The Parlement of Paris, though no more in fact than a small, selfish, proud and venal oligarchy, regarded itself, and was regarded by public opinion, as the guardian of the constitutional liberties of France.”