In an interview with the Sunday Observer, Samagi Jana Balawegaya (SJB) MP Eran Wickremaratne says a future SJB Government would continue the IMF, albeit by renegotiating salient points such as the VAT increase. Wickremaratne said the VAT rise has posed many problems for the public. He also says that direct tax collection should be streamlined to increase Government revenue without always resorting to indirect taxes such as VAT.
Q: Budget 2024 was passed with a majority of 41 votes in Parliament recently. However, at this challenging time, was the Opposition prepared to defeat the Budget?
A: No, the Government has a majority in Parliament. Even though there has not been any change in this, there has been a shift in the country’s opinion. While this Parliament is legally in place based on the 2020 General Election, it lacks recognition in reality. The situation of the President is the same. Parliament could thus pass the Budget with a majority. However, as the Opposition, we have presented the real facts before Parliament and the public.
But the Government has made a major mistake. They increased the VAT or Value-Added Tax to 18 percent from 15 percent. Many areas (goods and services) where VAT did not apply before have now been included. If such a VAT free item cost Rs.100 previously, it will now cost nearly Rs.120. This will impact the day-to-day lives of the people.
But we were not allowed to debate this, which is a breach of the Privilege of Members of Parliament. While the Government side can introduce a Bill in the House, the Opposition should be given a chance to debate it. Unfortunately, that opportunity was not properly provided.
Q: The International Monetary Fund (IMF) has now approved the second tranche of the Extended Fund Facility (EFF). Your comment?
A: It is good that we went to the IMF. Income should be increased, and there is no debate about that. However, the debate revolves around where the revenue will come from. As the main Opposition, we are concerned about the country. In my opinion, the second loan installment will be received very soon. The Opposition also demands that it should be granted in the face of the current crisis. However, after increasing indirect taxes like VAT which everyone has to pay, people will have to face significant problems.
We argue that money should be collected. But from whom? The Finance Ministry’s 2022 Annual Performance Report (APR) indicates that the value of uncollected taxes is Rs. 531 billion. When interest is added to it, the total surpasses Rs. 900 billion. This is very reasonable. Our position is that these taxes should first be collected from those who can afford to pay without necessarily resorting to a VAT increase.
Q: What are the benefits Sri Lanka will receive through the IMF second tranche?
A: Receiving the second installment of this IMF loan sends a signal to the market that we have some economic and financial discipline. According to the recent IMF Diagnostics Report, there are still many tasks ahead, particularly in addressing corruption. It should be given priority. They have discussed the proper management of the Inland Revenue Department (IRD), Sri Lanka Customs, and the Excise Department, emphasising the use of advanced technology for these purposes.
They also talk about procurement. In my estimation, corruption amounts to about Rs. 300 billion per year in Sri Lanka. However, others may have different figures. These facts are also mentioned in the report.
Q: Has the Government identified priority areas for the second tranche bailout from the IMF? What proposals does the Opposition have for these priorities?
A: For instance, the Government has allocated Rs.354 billion for transport and highways, with 85 percent earmarked for highways and only 5 percent of this allocated to public transport.
As far as I am aware, there is no country that allocates such a substantial amount of money exclusively for road development. Is this decision based on a lack of understanding or corruption? More emphasis should be placed on public transport. This is why the country went bankrupt.
It would be more appropriate if this amount were allocated for education. Even though the loan has to be repaid in 5-7 years, the benefits of investing in education will extend over many more years. Unfortunately, the same mistakes are being repeated in this Budget without learning any lessons.
If this money is invested in education, the benefits will be realised quickly.
Secondly, attention should be given to health, with more allocations for children and elderly people. After that, the focus should shift to other sectors, particularly industrial and vocational training, with exports also given top priority.
Q: The Opposition leader has claimed he will renegotiate the IMF deal if he comes into power. Why?
A: We will proceed with the IMF program. The IMF provides us with common policies. Discussions on these matters will continue. As an example, the VAT issue will likely be discussed.
Q: Has the Government successfully carried out the restructuring of foreign debt, and what challenges does the Government face in this regard?
A: Debt restructuring is imperative. The Government has agreed to lower its debt, which currently stands at about 128 percent of the Gross Domestic Product, by 2032. Restructuring the debt is crucial to achieving this goal.
In the process of debt restructuring, our lenders must be willing to write off a portion of our debt and reduce the interest rates. Only through such measures can we align with the objectives set by the IMF. This must be done through discussions.
Q: It is alleged that the Government’s direct tax collection process is still not being executed properly. Your comment?
A: There are numerous deficiencies in this area. This is why I emphasised that the IMF is addressing the issue of tax collection. In 2017, the IRD introduced an Act, and within two to three years of its implementation, government revenue increased to 10-13 percent of the GDP.
At that time, there were 690,000 tax files for collection. By 2019, it had increased to 1.7 million, indicating a significant challenge.
Our operations lack technological efficiency, and this issue extends to Customs and Excise as well. Billions of rupees are yet to be collected by the Excise Department. Therefore, establishing a dedicated tax collection authority is crucial, as successfully implemented in many other countries.
Currently, instances of theft and fraud cannot be concealed from the public eye.
Translated by Maneshka Borham
