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ECONOMYNEXT – Sri Lanka’s parliament’s Committee on Public Finance has approved a cascading turnover tax proposed by the last administration ignoring advise to include it as part of value added tax to help turn the country into a competitive economy.
Business chambers and tax analysts have said that increasing value added tax even by a large amount would be less distortionary than the 2.5 percent turnover tax which would hit value chains with taxes being heaped on top of taxes.
A single simple, value added tax would also make exports more competitive and take the country on the path of a ‘Social Market Economy’, which President Ranil Wickremesinghe has said he wants to create.
A ‘Social Market Economy’ (a term coined in post-World War II West Germany based on strong Deutsche Mark) however requires monetary stability to protect the poor, analysts warned in 2015 when the idea was first proposed.
Instead of Social Market Economy Sri Lanka would end up with as dollar debt defaulting
Marxist tinged Weimar Republic, analysts warned as early as 2015 when the first moves for interventions, price controls and easy money under output targeting began.
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By going ahead with a Rajapaksa regime’s cascading tax instead of adding it to VAT Sri Lanka has lost an opportunity to create a competitive export economy.
Some interventionist policymakers of the Rajapaksa regime systematically undermined the VAT regime, critics say for reasons that are not clear.
To make export competitive Sri Lanka should also take turnover taxes off energy and replace them with value added tax.
The Committee on Public Finance has also approved changes to the 2022 budget law paving the way for an interim budget to be presented which will qualify for International Monetary Fund program.
The committee has also rubber-stamped a ‘shoot first ask questions later tax’ under the Special Commodities Levy which is usually slammed at midnight as legislators and the citizenry is sleeping sometimes based on various special interests violating the principle of taxation by consent.
Sri Lanka’s economists are reluctant to charge a few percent of taxes but cry from the rooftops to depreciate the currency after printing money, destroying pensions, banks savings, salaries and triggering malnutrition and social unrest due to an unusual desire to operate a policy rate with liquidity injections. (Colombo/Aug25/2022)