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By Pravin Mendis

The first budget of the United National Front Government and the 56th after Sri Lanka's independence will be presented to Parliament today by the Minister of Finance, K.N.Choksy PC.

What will this budget contain in terms of burdens or relief on the ordinary masses and the business community? Will the Goods and Services Tax (GST) remain? What happens to the National Security Levy (NSL)? The Income Tax ratio? Will it be reduced or increased?

The Daily News spoke to N.R. Gajendran, Chartered Accountant and reputed tax consultant for his views on the tax matters concerning the budget and the GST and NSL.

"In finding solutions, the fiscal policy may become a predominant tool to manage the economy and also a social consideration to the country. The fiscal policy becomes an effective tool to sustain growth, development, sustenance, employment and also a tool to manage the social equity of the country. There will be conflicting and contradictory objectives that have to be managed to move at a sustainable balance."

From a revenue perspective, the Govermnment will have two forms in income tax and indirect tax(GST and NSL), Mr.Gajendran said.

Income tax is a form of progressive tax which goes in line with the philosophy of capacity to pay. The indirect tax or consumption tax is regressive in nature and has a greater impact on society and the people, he said.

The Government will be considered to have managed its fiscal policy prudently if the revenue collected from income tax is more than that of which is collected through consumption taxes like the GST and NSL. This is the ideal objective to be achieved in the medium term.

This is a challenging task since those in a position to lobby the Government will repeatedly request the reduction of income tax whereas the less privileged who are the victims of the consumption tax are generally not heard. Therefore, the Government will have to balance and manage it effectively.

It is therefore, felititious that the Government introduces a multi-rate system for GST ideally in three rates, Mr.Gajendran said.

These can be classified as the common rate, standard rate and the luxury rate of which the first will apply to consumer items and basic essential commodities and services in the education, health, medical care, water, sanitation and electricity. The standard rate will be the rate for most of the goods and services.

The luxuries can be taxed at a higher rate. The NSL should fade away when the need for it no longer prevails. There is an impression that NSL will be withdrawn. However, unless the Government is prepared to forego that revenue the lost revenue will have to be recouped from other means as the country needs revenue to service the debt. A reduction in the NSL and gradually phasing it out would be the ideal scenario.

Income tax as a revenue measure can be strengthened with more focus on income tax with the idea of providing relief to the ordinary person burdened by the consumption taxes.

Reducing the ratio of income tax on the premise that the income tax revenue will go up is not possible, according to Mr.Gajendran.

It cannot happen with a relatively low rate of 35% of the income, he said. Sri Lanka should also attract high net worth individuals and promote the country as an international financial hub in the region where the multi-national corporations will base their headquaters. This will increase the demand for space and rent and provide more employment opportunities.

The Government has not had adequate time to go into details to make significant changes to the fiscal policies. The best they could do is to refrain from dramatising and sensationalising and give more focus in the next budget and based on those findings make decisions without being influenced by lobby groups.

Sri Lanka should also actively promote itself as a Financial Offshore Centre like the Labuan, Mauritius or Bahamas. However, these have to be regulated to cover issues of money laundering.

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