|Wednesday, 29 September 2004|
Tax Amnesty Act of 2003 : 'a crime given legal sanction'
Speech by Constitutional Affairs, Minister DEW Gunasekara in Parliament on the Tax Amnesty Bill
Mr. Speaker, in 2002, the former Minister of Finance granted a tax amnesty through the Inland Revenue (Special Provision) Act No. 7 of 2002. As a matter of policy, there is nothing wrong basically in granting tax amnesties. Sri Lanka had in fact much experience of tax amnesties in the past on nine occasions before 2002 tax amnesty.
Strangely, Sir, the former Minister of Finance suddenly and hastily came to this House repealed the Act No. 7 of 2002 and brought in a fresh Act. No. 10 of 2003 in the midstream of the Amnesty Process further extending the operative period of the Act No. 7 of 2002 from June 30, 2003 upto August 31, 2003. This was done despite strong protests from the Opposition, Minister of Finance only turned deaf ear. The reason that prompted the ex-Minister to grant this extension of two months through a New Act is yet unknown and remains mysterious.
We were told that the total number of declarations seeking tax amnesty up to August 31, 2003 was 51,805. The so-called extension brought in an increase in the number of declarations, we were told. My information is that of the 51,805 over 30,000 declarations were received after the extension, after the 2nd Act came into force. Scrutiny of those declarations would reveal the real intention of Amended Act. Sir, there were peculiar features in the Tax Amnesty of Finance Minister Chocksy unlike those of previous Finance Ministers. It was made much more complicated. It covered not only taxes but also indirect taxes - duties, levies and penalties affecting 26 different Acts.
It indemnified not only liabilities but also prosecutions, investigations for that matter even closed court cases, where tax in default had been converted into fines. It caused refund of fines that had gone into the Consolidate Fund. What was the motive behind this whole exercise? Was it widening the tax net, roping in new tax payees? My answer is no and emphatically no.
Sir, who are these 50,000 odd amnesty declarants? No one except Commissioner General of Inland Revenue, knows? We do not want their names. But we, as legislators have a right to have at least an analysis of those declarants whether they were existing tax payers or would be tax payers. This clue is all important for us to determine the bonafides of this tax amnesty.
Judging from my own experience as an ex tax-man I can boldly state without any hesitation that they are by an large declarations relating to the exiting tax files. If at all there are new tax payers netted through the Amnesty, the number should be insignificant or minimal. There was special provision in the so-called Tax Amnesty Act of Chocksy to the effect that no information relating the tax amnesty could be revealed even to any officer in the Department of Inland Revenue.
Mystery lies there. There lies the vicious part of the Act, as in case of the proverbial scorpions tail. It is still mysterious even with a change of Government and with a change of Minister of Finance.
If you investigate into these declarations - leave out the persons concerned, so many undisclosed things would be revealed and made transparent. They would provide good raw materials for us to discover the negative features of open economy.
What really happened under the pretext of granting a tax amnesty, was that you brazenly allowed through this complicated, multifaceted all embracing tax amnesty all tax dodgers, defaulters to go scot free at a time when the revenue base of the state had been eroded and gone dry.
Sir, I wish to quote from the Central Bank Report of 2003, which clearly states that tax evasion has been recognized as a serious problem and that the ratio of tax to GDP has declined from 20% in 1990 to 13% by 2003. The decline amounts according to Central Bank, to an astronomical amount of Rs. 106 billion in 2003 which amount was more than the public sector wage bill or the total public investment.
Sir, What is the average tax ratio to GDP in the developed countries? It is 38%. In the case of developing countries the average is over 18%. So thanks to the economic fundamentalists of neo-liberalism, our revenue base has eroded and has reached the rock bottom.
I am happy that the Central Bank has realized or waken up from slumbers to warn the Government that fiscal consolidation is urgent.
There is another aspect to the tax amnesty, that is relating to tax dodgers in the Black economy. The tax amnesties have never been able to make even a dent into the Black economy. The position became far worse when the Department of Inland Revenue almost abandoned tax investigations at a time when tax investigation should be more effective and efficient under neo-liberalism. When the State abandons its role in the economic activities, and when the private sector becomes the engine of growth it becomes far more necessary and important to strengthen the tax policy, tax administration, and tax structure. The reverse has actually happened.
Sir, let us look at this question from another angle. Our per capita income has gone up from $ 286 (1980) to $ 947 (2003). Is this growth reflected in the revenue base? No, this again shows the extent of evasion - both extensive and intensive. In these circumstances, the Tax Amnesty Act of 2003 should be taken out of the statute. It was a loss, a fraud and a crime given legal sanction by the Parliament.
This is why the Supreme Court has determined that the public revenue in trust for the people cannot be denied of its benefits.
As a step in the direction of making corrections to the tax policy, tax structure and tax administration, this Tax Amnesty Bill should be passed.
Produced by Lake House