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From the keynote address delivered by Commerce and Consumer Affairs Minister Ravi Karunanayake at the seminar on taxation organised by International Fiscal Association of Sri Lanka, held on July 5, 2002 at TransAsia Hotel Colombo.

I am sure you will forgive me for striking a humorous note without diluting the serious nature of the seminar, at the commencement of my speech. It has been said that a man owes it to himself to become successful - after that, he owes it to the Department of Inland Revenue!

It was the view of an eminent economist, that each citizen must contribute to the revenues of the State as tax, a portion of his property, in order to ensure that the tenure of the rest is secure. But then it has been mentioned that the difference between a tax collector and a taxidermist is that the latter takes only your hide!!

Although that is a seemingly lighthearted opinion of tax officials, it is worthwhile observing that the taxpayers perception of the role played by the tax authorities is that of suspicion and even intimidation. It is my considered view that immediate steps are taken to erase this impression in the minds of the public and that tax administration / tax payers move from a relationship of mistrust to one of mutual cooperation.

It is needless emphasising that the continuance of the present position has a negative impact even on development proposals made by the Government.

It is obvious, that much time and thought has been spent in the selection of subjects in the program this morning. In this regard, it is both opportune and appropriate therefore that time has been allocated for a talk entitled "from GST to VAT". The abolition of GST and NSL and their transformation into a Value Added Tax (VAT) is one of the cornerstones of the Government's fiscal policy.

As you are aware, the implementation of VAT has been delayed due to a few problems. It is hoped that the discussions today will result in a generation of ideas that would help streamline the system.

It is well to reflect at this stage that whatever the nomenclature, be it VAT, death duty or even wealth tax, it is unlikely that a day will dawn when taxes cease to exist. In point of fact history tells us that people have always had to pay rates and taxes to the Government or an Authority: it being immaterial whether they were Sumerians, Egyptians, or Romans there never been a State without taxes.

In Biblical times tax gatherers were literally outcasts of society. It is mentioned in the Gospel according to Matthew that "it came to pass, as Jesus sat at meal in the house, behold many tax gatherers came and sat down with him and his disciples, and when the Pharisees saw it they said unto his disciples - Why eateth your master with tax gatherers and sinners?!!

The word Fiscal - described as a Treasurer - is of absolute relevance today as it pertains to the public treasury and revenue. It is important for us to remember that the annual budget traditionally sets out inter alia the fiscal policy of the Government. The Finance Minister's speech on this occasion is most often, at least in the recent past, awaited with a degree of trepidation by businessmen and entrepreneurs and even by wage earners, retirees and pensioners.

In this regard if the public had any apprehensions, they would have been justified as, for the first time ever the economy registered a negative growth of 1.3% last year while the budget deficit was 10.8 per cent of GDP.

The task of fashioning out a budget to satisfy everyone was, therefore an impossibility: to strike a via media and balance much needed developmental measures while easing the economic burdens on the populace was itself a strenuous task.

For instance, in my capacity as the Minister for Trade and Consumer Affairs I am naturally concerned about the imposition of any taxes that would further increase living costs to the average citizen. That is why our Government has promulgated a two-tiered VAT system, with essential items taxed at a lower rate.

The Finance Ministers proposal to appoint a permanent Tariff Commission is a step that will be accepted by Chambers of Commerce and Industry and Trade Unions of all hues as it would act as a brake on the implementation of any ill-advised plans and also constitute a more competitive Customs regime.

In addition, the establishment of a Revenue Authority comprising experienced tax administrators and representatives of private sector Chambers will enable organisations to concentrate on productive business activity. At the present time in accordance with systems that have prevailed for years valuable executive time is wasted in complying with the requirements of a multitude of tax requirements such as the filling of forms and documents sufficient to set up a paper factory!

The future direction of the Government is to plan and implement well-considered and well structured fiscal measures and incentives to stimulate investor confidence and increase economic growth.

Plans have also been made to nationalize Fiscal Systems aimed at simplifying the Taxation System and making it less burdensome by deregulation.

It is also envisaged that the future fiscal policy is planned to pave the way for Sri Lanka to eventually adopt some of the methods on fiscal affairs used by the OECD such as:

* Guarantees of legal protection to tax payers i.e. a bill of rights for tax payers

* Rights to a fair and public hearing within a reasonable time by an independent tribunal

* Principles of taxation equality and social solidarity in the relationship between the financial needs of the state and economic justice

We have to also devise systems to cater to the modern economy. For example, gearing the taxation system to keep pace with the developments in electronic commerce transactions is worthy of consideration by Fiscal Authorities.

In this regard it is important that Tax Administrators address issues relating to electronic commerce such as the location of tax payers and their transactional records.

A code of conduct for business transaction may also be a necessity. It will be recalled that many of the proposals in the Budget were aimed at providing the private sector opportunities to carry on their activities without impediment. It was also stressed that the benefits accorded to the private sector to develop themselves also reach the less affluent in our society.

As a closing remark Edmund Burke's comment 'to tax and to please, no more than to love and to be wise, is not given to men' appears to be particularly apposite to win up my brief address. 

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