Dr. Amunugama on achieving tax targets, increasing national wealth

Wednesday, 2 July 2014 00:00 - - {{hitsCtrl.values.hits}}

Following is the speech made by Senior Minister for International Monetary Co-operation and Deputy Minister of Finance and Planning Dr. Sarath Amunugama at the 14th AGM of the Inland Revenue Commissioner’s Association: The main institutions under the Finance Ministry earning income for the Government are the Inland Revenue, Customs and Excise Departments. These three institutions are normally dreaded by society. We have given targets to the income earning departments, but these targets could not be achieved last year. The target as I remember was Rs. 411 billion but collection was only Rs. 353 billion. This year the target has been increased to Rs. 494 billion, roughly Rs. 500 billion. Therefore we should chase after the target as it would help us to chart our future programs under the budget. The cwountry has shown a good growth rate during the last five years after ending the war. It was nearly 7%. We have been accepted as the country with the fastest growth rate in our region.

Promising growth rate The Chairman of the Asian Development Bank who visited Sri Lanka recently said that Asia is driving the world economy forward and the Sri Lanka economy has shown a promising growth rate within the Asian economy. It was not a careless or a political statement but a responsible statement made after research done by the ADB. We ought to be happy about it. If we are to continue this growth and energy, we should invest a set amount. This is a cycle. We should increase the percentage of GDP channelled for investment. Then we can attain an 8% growth rate. But we have to investigate the manner in which we can obtain this money. We have to modernise our present systems, technology and concepts and get used to new concepts. We have not been able to earn the money needed for an 8% growth rate from these three institutions. We have not achieved our target from the income tax, customs and excise net. Apart from those getting caught in this net, a considerable number escapes from the net. It can be considered as black money. "Whatever the team we use, the Government is not receiving the expected amount of tax. When you look at the income tax scheme, everyone is making a voluntary declaration. Thereafter you audit them. We see that the same people who are caught in the income tax net being investigated over and over again. But there is a sizeable amount of people who don’t get caught in this net. You should therefore discover a system to identify them If anyone raises a quest ion in Parliament, we always provide positive answers. We act in Parliament on the basis that we have full confidence in public servants. We are all one group engaged in an important endeavour, namely to ensure a better future to the people of this country. If we are to succeed in this endeavour, we have to make our country rich. When the country becomes rich, it is your duty and responsibility to give its share due to the Government and society" Tax collection Whatever the team we use, the Government is not receiving the expected amount of tax. When you look at the income tax scheme, everyone is making a voluntary declaration. Thereafter you audit them. We see that the same people who are caught in the income tax net being investigated over and over again. But there is a sizeable amount of people who don’t get caught in this net. You should therefore discover a system to identify them. Although regional income tax offices have been opened a fair system of tax collection had still not been devised, as such modern technological schemes should be used. Income of those who evade the tax net can be caught into other lists by using technology. They will be recorded in customs, excise or bank records. We have still not been able to consolidate and enter them into the computer. Therefore these new technologies should be used urgently and correctly. Today customs is using modern technological equipment. I imported four such machines when I was Finance Minister. Every item imported to the country is recorded in this camera. We can also take follow up action anytime. I don’t know whether it is 100% foolproof because machines are normally subjected to wear and tear. I doubt whether they break down or are broken down intentionally. We should examine whether they are 100% operative and foolproof. We should also investigate BOI reports, coordinate records in those factories and devise a more pragmatic tax scheme. Attitudinal change required The normal criticism levelled is that various laws and regulation are imposed on regular taxpayers and those making voluntary declaration and they are addressed in a rude manner and that we are not looking into other parties. We should treat taxpayers in an honourable manner. If a company had paid proper taxes continuously for 20 to 30 years, we should pay special attention to them. Pestering them over and over again would not be favourable for the tax collection process. If there are people in the business would who work with us in fair and true manner we should give them their due place. When you waste time by arguing with genuine taxpayers, others get an opportunity to escape from the tax net. As such there should be an attitudinal change. We should mandatorily go in for new technology. This is the challenge in the next few years. We should eliminate the gap between our tax targets and economic development. When there is a quality administration, economic development and Government income will increase concurrently. Policy decisions The Department of Inland Revenue is unable to manage certain things. When policy decisions are taken, taxes increase for certain sections while taxes decrease for certain others. A question raised in Parliament is why taxes are decreased for certain items. If we take vehicles for example there is a deluge of vehicle imports during certain seasons. Then we can rake in more taxes. But there is an attendant foreign exchange problem. When more vehicles are imported, there is a heavy drain on foreign exchange. Although sales and taxes increase, our foreign exchange reserves tend to decrease. Taking all this into account we decided to limit vehicle imports. Then the taxes are limited. There is a decrease or increase in money in money according to these policies. Therefore when we hold discussions to decide on targets, we make an effort to make existing laws and regulations and tax structure more effective. Technology We should look at the staff quota problem in coordination with technology. Correction done manually can be performed more effectively through technology. You will be surprised to see even massive financial institutions operating from very small rooms. That is done by using computers and technology. We should undertake an investigation to find out the future cadre needs and what technology is needed for it. The State sector in Sri Lanka occupies a large floor area when compared to the private sector. There is a large amount of rooms, furniture and support groups in the private sector. I am not trying to find fault with anyone. This is a system handed down from colonial times. We should try to work more efficiently. We have to spend a large amount of money on the public sector and private sector. That’s no problem. We have increased the cadre in the Inland Revenue, Excise and Customs Departments. We have given them increased facilities. But all that should be redesigned according to technology. That means training should be given again. A person recounted for Government service cannot be discontinued from service. Therefore they should be trained once more and assigned to needy sections. This is an urgent necessity. Today, the Inland Revenue Department is rendering a great service. We can formulate our future plans based on it. New challenges We are no more an underdeveloped country. We have moved into the countries belonging to the middle income group level. Then our challenges too tend to change. If we are underdeveloped country, we can obtain credit (loans) on concessionary terms. But as a middle level country we can seek credit on concessionary terms. We can obtain increased credit, but the conditions are not that simple. Therefore, we should think of increasing savings. Credit is needed for development work. But we should think of utilising every cent of it properly by acting in a responsible manner. One solution is to increase the ratio of domestic savings. Departments from which we earn income are also rendering a vital service towards development. Depending on the friend ship, incentives and efficiency of these departments, institutions and private companies can take a giant leap forward. If we think of obtaining our pound of flesh without looking at their plans, it would cause obstructions to the development program. Therefore, we should always encourage them to increase our country’s capital. Increasing national wealth We should provide a good service for those increasing national wealth. A Government cannot always engage in trading. A Government cannot undertake the industrial, agriculture and service sectors all by itself. Therefore the private sector should be encouraged to undertake these sectors in order to make it rich by increasing earnings and part of those earnings should be obtained for the society as taxes. If we take an attitude of hatred towards local industrialists and others increasing national wealth, it would be an obstruction towards the country’s development. In encouraging the private sector we as public servants should think that we have no differences as to race, religion or caste. All communities should make a united effort to increase the country’s wealth. An environment should be made to increase the country’s wealth. A part of that wealth could be obtained by the Government and utilised for infrastructure, social welfare and saving for the future. If anyone raises a quest ion in Parliament, we always provide positive answers. We act in Parliament on the basis that we have full confidence in public servants. We are all one group engaged in an important endeavour, namely to ensure a better future to the people of this country. If we are to succeed in this endeavour, we have to make our country rich. When the country becomes rich, it is your duty and responsibility to give its share due to the Government and society.