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By Pravin Mendis

The introduction of a Value Added Tax(VAT) which has a wider base than the Goods and Services Tax (GST) and aimed at being extended to a retail level will be conducive to eliminate the cascading effects of the prevailing taxes, Public Enterprise Reform Commission (PERC) and top bureaucrat, Dr.P.B.Jayasundera told a seminar organised by the Sri Lanka Institute of Taxation yesterday.

However, the creation of two positive band rates with a wide gap (10 and 20) is not healthy.It is advisable to narrow the difference between the two rates in order to make the system efficient Dr. Jayasundera said.

"The bugdet should not only look at rupees and cents.A simple and efficient tax structure without complicated tax systems to generate a decent level of revenue that addresses the country's structural problems will be the ideal," he said.

"The introduction of a bank debit tax, increased taxation on savings for lower and middle income families, taxes at ports, are steps in the wrong direction. These measures undermine financial sector reforms as well as the overall trust on taxation reforms"" "This year's proposals takes the ongoing reform process a step forward and is getting its macro-economic fundamentals right with a positive move towards consolidation," Dr.Jayasundara said.

No tax system can work if we address individual problems. A tax system needs to be simple and not complex if it is to make life for the citizens simple.The logic is to move away from nuisance taxes such as stamp duty and transfer tax on land by non-residents.

The deregulation of key infrastructure entities in ports, railway, water, telecommunications and the power sector will have to come with private sector investment opportunities which have not seen adequate investment to the country up to now, Dr.Jayasundara said.

A major problem for the Government in the 10-20 years will be the payment of pensions for the 800,000-strong public sector employees and the 370,000 who are already drawing pensions. The Government will be saddled with this aspect even with all the deregulation and liberalisation programs that are due in the coming months.

Dr. Jayasundara also voiced reservations on the tax amnesty given in the budget which he said purely from an economist's perspective that no black money is left idling. Black money is invested on other sectors such as vehicles, buildings and others.

The proposed Welfare Benefit Law will make statutory provisions for entry /exit criteria for such benefit schemes. This will enable the Government to depoliticise welfare expenditure while rationalising public expenditure.

"Given the macro economic challenges, it is not desirable to postpone public sector reforms, public entity reforms and welfare expenditure programs however difficult it may be. Adjustment efforts through further reductions in public investments and increased taxation will not be conducive for medium-term growth," Dr.Jayasundara said.

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