How politicians squander taxpayers’ money

A National Savings Bank (NSB) official admitted to the recruitment of 1,707 staff assistants and office assistants since 2015 of which 390 recruitments have taken place since 2017 based on name lists provided by Finance Minister Mangala Samaraweera’s private secretary. So much for recruitment based on meritocracy!.

Direct taxation is essentially the transfer of wealth in the form of cash from one’s pocket to the state

In the case of indirect taxes such as Value Added Tax (VAT), Goods & Service Tax (GST), etc., the tax is not so visible to the individual consumer A recent newspaper report stated, The Inland Revenue Department (IRD) has set an additional target of Rs. 40 billion for collection from tax evading professionals. According to Commissioner-General Nadun Guruge, a special team of two senior commissioners and twenty deputy commissioners has been set up to collect the said amount before the end of the year. He had further stated, IRD believes around 10,600 professionals and those providing professional services were currently evading taxes.These include doctors, engineers, lawyers, beauty parlour operators, wedding and event planners suspected of either underpaying or evading taxes.   

Surprisingly, tuition masters/mistresses are missing from the list.   

Guruge has also stated, most of those underpaying and or evading taxes deposit money in banks and purchase vehicles and property under different names.   

A primary reason attributed in most developing countries for low  compliance in the payment of direct taxes is the concern among people of  their tax money being wasted and siphoned off instead of being spent on  education, health and other public services

In my opinion, people in the world over are unhappy paying direct taxes such as income tax and wealth tax. Direct taxation is essentially the transfer of wealth in the form of cash from one’s pocket to the state. The payment of direct tax is transparent and visible and as such causes some degree of pain of mind at the point of payment. In the case of indirect taxes such as Value Added Tax (VAT), Goods & Service Tax (GST), etc., the tax is not so visible to the individual consumer. It is in-built in the price. In fact,according to IRD regulations, the seller is not supposed to disclose the VAT element within an invoice/bill presented to a customer. The rationale is to avoid causing pain of mind to the customer of seeing the tax component of the purchase!  

In developed countries the majority of citizens tend to voluntarily declare their assets, disclose income, and pay taxes at the end of each year as a result of the punitive action taken against those not complying.  

In Sri Lanka too there is legal provision for individuals and businesses to submit their tax returns by declaring their assets, liabilities, and income for each financial year by November 30th each year and legal provision exists to punish those who don’t comply. However, as in most cases, official lethargy and corruption stand in the way.   

As per the IRD website, as of December 31st, 2017 Sri Lanka had 1,198,946 non-corporate taxpayers. 1,051,364 or (88%) thereof were employees taxed under the Pay-As-You-Earn scheme (PAYE). These would primarily be private-sector employees who earn more than Rs. 100,000 per month.   

According to the Sri Lanka Labour Force Survey compiled by the Department of Census and Statistics, 8,387,759 persons were economically active as of 2018. It indicates scope for the IRD to increase the number of taxpayers/files. However, the entire difference cannot be assumed to be tax evaders.  

A primary reason attributed in most developing countries for low compliance in the payment of direct taxes is the concern among people of their tax money being wasted and siphoned off instead of being spent on education, health and other public services.  

In such a backdrop, it would be appropriate to highlight some of the dastardly acts committed by our politicians in terms of wasting taxpayers’ money.  

Wastage of taxpayers’ money takes place due to corruption and sheer mismanagement by politicians. A bloated, unproductive, servile and inefficient public service, contributes to this in no small measure.   

By all accounts, the public sector is significantly over-staffed. According to the Ministry of Finance, there were 1,375,499 public servants employed in the entire state sector by the end of 2017. It includes government ministries, departments, corporations, provincial councils and local government institutions as well as other public enterprises, government-owned institutions and state banks.   

For several decades, Government Ministers and Members of Parliament (MPs) have abused staffing of ministries and state enterprises. They grant employment to party supporters despite the fact that most recruitments are in excess of what is required. In many instances, those employed are not suitably qualified and not trained to do the job. As per the Labour Force census, more than 80% of these employees are in permanent job positions which are also pensionable. Therefore, the financial burden carried by the taxpayers of this country is not only the current employment cost but also the cost of paying their pensions upon retirement.  

A case in point is some of the recent disclosures by the Committee on Public Enterprises (COPE).

One such investigation revealed a staggering sum of Rs.160 million paid as salaries to 85 employees of the National Water Supply and Drainage Board (NWSDB). They had been recruited since 2015 as ministerial co-ordinating officers by the subject Minister Rauff Hakeem. 35 out of 85 co-ordinating officers continue to receive a monthly remuneration of Rs. 250,000 including a fuel allowance. COPE Chairman Sunil Handunnetti’s directive to NWSDB officials to submit a comprehensive report on the said co-ordinating officers to determine their roles remain unanswered to date. It affirms the ineffectiveness of COPE entrusted to ensure compliance of financial discipline in the public sector.  

This wastage has taken place under Minister Rauf Hakeem, who is an attorney-at-law and a product of a prestigious Colombo school. It gives the lie to the common assumption of the lack of educational qualifications and family background as the cause for the alarming decline in standards of our elected MPs.  

During COPE hearings two weeks ago, a National Savings Bank (NSB) official admitted to the recruitment of 1,707 staff assistants and office assistants since 2015 of which 390 recruitments have taken place since 2017 based on name lists provided by Finance Minister Mangala Samaraweera’s private secretary. So much for recruitment based on meritocracy!.  

Another outrageous act of financial misconduct and transgression by politicians currently in the public domain is the monthly rental payment of Rs. 21mn to a private company on behalf of the Ministry of Agriculture since 2016. The total commitment over a 5-year period is estimated to be in excess of Rs. 1.3bn. A PCoI is presently investigating this issue. The former Agriculture Minister, giving evidence during PCoI hearings stated, the relocation of his Ministry was instructed by the Prime Minister who had also signed off the cabinet paper.   

As I write this article, President Sirisena whilst declaring open the Lotus Tower stated that Rs. 2bn paid to a Chinese construction company in 2012 has vanished as there is no trace of such a company. Although this fact was discovered in 2016 no action has still been taken against those who perpetrated this financial fraud on the taxpayers.  

The Finance Minister recently disclosed, the net loss reported by 16 SOE’s in 2018 had nearly doubled to Rs. 157bn from Rs.87bn in 2017. It is an indication that no meaningful action has been taken to stop the bleeding. Most of the electorates in all probability might be blissfully unaware of these losses which they are funding. Those in the know tend to shrug their shoulders and pretend it is not their problem even though it involves the future of our children.  

Advocata Insitute, a private and independent policy think tank, recently compiled an excellent research paper on State-Owned Enterprises (SOEs) captioned “Systemic Mis governance.” In my view, this document should be mandatory reading material for all Sri Lankans who are eligible to vote. It is a shocking disclosure of the way this country is governed by those we elect every few years.   

It is also an indictment on all of us. Despite the many frauds and cases of financial impropriety over the years in the public domain, we continue to elect the same set of crooks without rejecting them.   

COPE Chairman Sunil Handunnetti’s directive to NWSDB officials to submit a comprehensive report on the said co-ordinating officers to determine their roles remain unanswered to date. It affirms the ineffectiveness of COPE

As per Advocata’s document, 55 (10%) of the 527 SOEs have been classified by the Treasury as strategically important. It further states SOEs such as Ceylon Petroleum Corporation, Ceylon Electricity Board, Sri Lanka Transport Board and SriLankan Airlines have posted accumulated losses of Rs. 580 billion between 2006 and 2017.   

The report highlights many instances of fraud besides commercial and financial impropriety as disclosed by investigations conducted by COPE and the Auditor General (AG). All of them are scandalous. However, I shall summarize a few of them for readers to appreciate the magnitude of political abuse better.  

One such instance is the case of the import of 257,559 metric tons of rice by Lanka Sathosa at the cost of Rs. 27bn between 2014-2016. 233,807 metric tons had been sold realizing Rs. 11.8bn thus incurring a net loss of Rs. 15bn. The AG’s report states, 7,947 metric tons equivalent to 361 containers (20 Foot) lost or unaccounted. Furthermore, 23,751 metric tons of the consignment remain in various warehouses as unsaleable stock, 19 months after the import.   

A special investigation by the Auditor General has estimated a loss of Rs. 4bn between 2009 and 2016 in the procurement of Coal for the Norochcholai power plant.  

Another outrageous transaction is a loan of Rupees Three hundred and ninety-five million granted by People’s Bank in 2009 to a customer for the construction of a facility named Kandy City Centre. The loan was in the form of Rs. 245 million by way of an overdraft facility and Rs. 150 million as a long-term loan. However, within three months, the entire amount was classified as non-performing loans. The customer had offered to pay back the money in installments of Rs one million, resulting in the Bank having to wait for 62 years to recover the amount. People’s Bank Management had decided to offset this amount against the rent to be paid by the Bank.   

The research paper highlights the need for a concerted effort to improve oversight at all state enterprises. Non-adherence to systems and procedures compounded by politicians and senior public servants lacking in the traits of honesty, integrity and accountability has resulted in the colossal waste of taxpayers’ money. Resources thus squandered could have funded critical areas such as education, health and better infrastructure. The report has correctly identified, in Sri Lanka patronage wins elections, which may be the reason for 166,588 Office Assistants (Peons or KKSs) and 25,645 drivers in public service as against 19,612 medical officers and 32,399 nurses.   

All right-thinking citizens should support IRD’s initiative to go after tax-evading professionals and non-professionals. Tax laws need strict enforcement without any discrimination.   

Another critical area of leakage of direct taxation is in the sale of duty-free vehicle permits granted to MPs and Provincial Councilors. Most MPs, including cabinet ministers, sell their duty-free permits for a substantial profit, thus causing a revenue loss to the state. Based on news reports, it is scandalous that Minister Vajira Abeywardena has at the last two cabinet meetings presented a paper seeking approval to grant duty-free car permits to 421 Ex Provincial Councilors. Thankfully, the Finance Minister is reported to have objected to the proposal although Abeywardena is expected to present it again: third time lucky?. It is astonishing that politicians are so utterly insensitive to public opinion and this reflects the contempt with which they hold the public and our opinion. In my view, the profit gained by selling the permit is taxable and it would be beneficial if the IRD could disclose the amount of tax collected from MPs and Provincial Councilors in the last decade on the sale of their permits.  

In conclusion, voters need to hold politicians accountable for the colossal amounts they squander from taxpayers of this country and reject them at elections whilst demanding legal action including imprisonment and sequestration of their assets. This should also apply to all public servants guilty of aiding and abetting and in some instances perpetrating the financial crime.  

It should be one of the critical factors for consideration by voters when exercising their franchise in the coming months as to which of the candidates are prepared to take tough decisions to restructure the loss-making SOE’s, prune the bloated public sector and do away with the duty-free vehicle permits to MP’s and Provincial Councilors.