by Gomi Senadhira
In June of this year, Cabinet Spokesperson Dr. Bandula Gunawardana told reporters that the Cabinet of Ministers has decided to award 40-year tax concessions for investments in the Colombo Port City as other countries have attractive concessionary packages for foreign investors. “Sri Lankans are operating businesses in Bangladesh, Ethiopia and even Kenya as investing in those countries are more beneficial. We are trying to attract foreign investors to our country. This means we will have to offer more competitive packages,” he had also said at that media briefing. However, soon after the statement by the Cabinet Spokesman, Secretary to the Ministry of Finance, Dr. K M M Siriwardana, stated that the government has not yet taken any decision about granting a 40-year tax concession to investors at the Colombo Port City! With mixed signals from the Cabinet Spokesperson and Secretary, Finance, we do not know if the concessions are approved for investments in the Port City, or not. Haven’t the Chinese investors, in the Port City, and elsewhere, already received enough concessions?
Then came the public exposure, at the Committee on Public Finance (COPF), about the competence and preparedness of the government agencies which provide such concessions. Here I am referring to the performance of the Chairman Board of Investment of Sri Lanka, Raja Edirisuriya, who earlier served as the Executive Director of the Colombo Port City Development Project, when he was questioned about the loss to the Treasury, due to the huge tax breaks given to the Indian Fortune 500 company, HCL Technologies, which has partnered with John Keels Holdings. The Chairman and the BOI officials admitted that they were totally clueless about the revenue loss Sri Lanka would incur due to the long tax holiday extended to the HCL/JKH joint venture. Don’t they calculate this before the concessions are given?
Interestingly, HCL Technologies has been operating in Sri Lanka for about two years. Then why this sudden decision to give additional concessions? Was it in its original agreement with the BOI? Or was it agreed after the HCL decided to occupy 80% of the office space, in Cinnamon Life, by John Keels, and the new office of the HCL in ‘The Offices’ in Cinnamon Life was inaugurated towards the end of last year by then Finance Minister Basil Rajapaksa in the presence Prateek Aggarwal, Chief Financial Officer, HCL Technologies and Krishan Balendra, Chairman, John Keells Holdings. Perhaps, if we ask Mr. Aggarwal, CFO, HCL Technologies, or Mr. Balendra about the revenue loss Sri Lanka would suffer due to the long tax holiday, or additional income HCL and JKH would gain, then we may get a prompt response. After all, these multimillion-dollar deals are calculated, and negotiated, by the parties involved, well in advance. Not done arbitrarily and subjectively, based on the personal whims and fancies of BOI officials, or politicians.
I also believe, the John Keells Group, as stated in its own media release in April this year a “… corporate citizen … gravely concerned with the dire economic circumstances facing the country” and which “… empathize with the hardships and tribulations faced by the people and stand with … fellow citizens in the calls for improved governance, accountability, and transparency,” would explain why this joint venture needs this tax concession, at this juncture, when people, particularly the poor and the vulnerable, are required to pay more and more taxes. After all, any revenue loss needs to be collected through additional taxes.
While awarding blank cheques to foreign and local multinationals, the government is passing on the burden of these concessions by introducing new taxes on Sri Lankan citizens. For example, tax on exporters and the new social security levy.
Now let’s go back to the Cabinet spokesman’s statement about Sri Lankans, particularly our exporters, investing in Bangladesh, Ethiopia, and Kenya “… as investing in those countries are more beneficial.” If so, then what is the objective of raising taxes on exporters? Make investing in Sri Lanka less beneficial for them? Force them out of Sri Lanka? Force them to invest in Chinese Port City where investing is more beneficial for them?
We know, our exporters go to countries like Bangladesh and Ethiopia, mainly because they get a better level of market access into developed country markets from those countries than from Sri Lanka. Not due to tax concessions. We also know that sweeping tax exemptions, awarded arbitrarily, normally attract criminal cartels and money launderers. Good investors go to countries with good governance. Countries where rules and regulations are clear, where governments are accountable and transparent, and where there are reliable tax structures, attract good foreign investors.
Then take the impact of some of the new regressive taxes on the poor and lower-middle-class families. For example, the social security levy of 2.5%. According to media reports, the expected revenue from this tax per year is 140 billion rupees. The rich and the poor will have to pay this. The impact of the tax on the rich may perhaps be manageable. But the impact of it on the poor will be brutal. At least, it appears the government had calculated the revenue gains from the tax hikes! Then why don’t they calculate revenue losses from exceptions? Yes, all kinds of exceptions, including multimillion-dollar exceptions to Port City to multimillion-rupee exceptions given to politicians and senior public servants through car permits. If they do that they can identify more reasonable sources for raising government revenue than taxing the poor to pay the poor.