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| Thursday, 1 April 2004 |
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Boost Government revenue to escape debt trap by R. A. Jayaweera, Chartered Accountant A two way access to country's development without entangling in the debt trap is open to us. 1. Restraining of foreign exchange demand 2. Intensification of government revenue Our objective in this exercise should be to achieve every development target and satisfying current demand for consumption while at the same time meeting the development related investment by a minimum of overseas borrowings. Efficient and effective utilization of resources, transparency and controlling waste, theft and fraud are vital in this manoeuvre.
Furnishing an interpretation of our own to "development" is a fundamental issue of equal importance. Let us call it "Sri Lankan development". No attempt should be made to reconcile or link it with any other model or vision because every country is endowed with temperaments hereditary to it springing from its own historical, economical, geographical, cultural, social and regional backgrounds. Out of the two approaches cited above, this article discusses a few issues relating to intensifying government revenue. First and foremost the revenue bases must flourish and blossom for the society acting through its government to collect its share as tax without harming the revenue source. It should be like a butterfly taking nectar without harming the flower. Contributing to society by way of taxes must be emphasized as a social responsibility of every business unit and income earner using all mass media. However, the gravity of such propaganda will be loosening unless we have a clean government. If fax rupees are spent on maintaining a lethargic and non-productive government machinery and luxury life style for those in power and their henchmen the propaganda will bounce back. It will loose its convincing potential. Good governance is a sine qua non for taxpayer compliance. The taxpayer should be given recognition as an honourable citizen. The responsibility of timely and proper payment of tax should be emphatically advocated. Consequences of false and wrongful declaration should be highlighted. A sense of shame and fear of making false and wrongful declarations should be cultivated while genuine tax payers should be honoured and commended. Payer of tax above a considerable ceiling should be afforded the opportunity of attending state functions as a distinguished invitee. In enhancing government revenue we must look at the following issues: 1. Raise profitability levels of revenue sources (business units) through improvements in productivity 2. Induce conditioning of unproductive revenue sources to be productive. 3. Sustain the restoration of deteriorating revenue sources. 4. Usher in a rapid economic development that generates more new revenue sources. 5. Ensure accuracy and credibility of accounting and reporting. 6. Widen the tax-net. 7. Increase efficiency of tax collecting mechanism. Revenue sources are the economic activities and business units that can be categorized into three major sectors namely industrial, agricultural and services. Their improvement, impregnation and uplift are discussed in another article on national economy. Our discussion in this paper will be on the last three issues cited above. Accountability crisis The Economist, in an article titled "A taxing battle" states, "Nobody wants to pay taxes. No wonder, then, that so many companies spend so much effort trying to avoid them. Almost every big corporates scandal of recent years, from Enron to Parmalat, has involved tax dodging in one form or another. In the latest revelation on January 26th, Dick Thornbough, the man appointed to look at the collapse of World Com, released a report claiming that, as well as the slew of other crooked dealings of which the bankrupted telecom company is guilty, it also bilked the Internal Revenue Service (IRS) of hundreds of millions of dollars in taxes through a tax shelter cooked up by KPMG, its auditor" @The Economist Newspapers Ltd London January 31-February 06, 2004). Achievement of accuracy and reliability in accounting and reporting though vigorous is yet indispensable because tax payable is determined on financial results recorded and reported by any enterprise. The fundamental responsibility for accountability rests with the business unit. Legislation should be formulated specifying the strength, qualifications and professional obligations of the accounting staff to be employed in any business. Formation, duties and responsibilities of the accounting staff should be governed by such law in relating to the size and nature of each business unit and as the completeness and reliability of accounting reports of business units where this preliminary requirement is not met, are at a lower level, special investigation units have to be geared for computation of their income tax. This legislation will be a catalyst for the fulfilment of social responsibility and will also offer beneifts to business units by opening more avenues of procure legal and commercial knowledge and professional approaches. Approximately one hundred thousand (100,000) of productive employment opportunities will be generated through this "accounting staff" proposal. The government's commitment in bearing fifty percent (50%) of the salary bill of new employees for two years will be a productive investment because avenues will be unfolded to augment government revenue as a result of such commitment. Qualifications and training of accounting staff employed at business units should be under continuous supervision by some government authority. The same authority should undertake preparation and surveillance of criteria for the proper and accurate utilization of computer programmes used by business units. This is very important as contrary to the general belief computer programmes can be used to generate misleading reports in a more sophisticated way. Training programmes should be conducted for the benefit of the accounting staff and elucidation of social responsibility should be a compulsory aspect in training programmes. Government expenditure in this regard is an investment yielding profound socio-economic dividends. Reliability gap As it goads business units to be efficient, the potential of the business community to successfully face the competitive world will thereby be sharpened. This programme resembles a health programme forcibly implemented. The second responsibility for accountability and reporting lies with the auditing process, which is answerable for examination of accounting reports. The obligation and accountability for making an independent assessment and evaluation are incumbent on auditing process but the satisfactory accomplishment of that task is subject to doubt. Professional ethics and disciplinary procedures administered by professional organizations and federations are confined to over-decorated narratives. The fact that governments should control the obligations and responsibilities has been substantiated by the large-scale corporate scandals that surfaced in USA and Europe during the last few years. Heads of world's largest auditing companies have been questioned while some others have been taken into custody. Charges of criminal conduct have been instituted against several others. The 'Economist' discussing the subject of auditing in an article on "Still counting the cost" states, "Thus Dennis Kozlowski, the former boss of Tyco now on trial for defrauding his old company, is trying to push responsibility on to Tyco's auditor, PricewaterhouseCoopers, one of the Big Four firms that dominate auditing worldwide. Last month, a former partner of Ernst & Young, another Big Four firm, was arrested for shredding documents related to the audit of Next Card, an online credit-card issuer that went bankrupt in late 2002. The Securities and Exchange Commission (SEC) charged a fifth partner of another top firm, KPMG, for his alleged role in Xerox's $ 3 billion accounting fraud." The article goes on to say "They (regulators) also concluded that long term relationships between companies and accountants corrupted the standard of book-keeping" (The Economist Newspapers Ltd. London October 18th-24th 2003) The disintegration of finance companies during the 1980s and the collapse of the Pramuka Bank in Sri Lanka are some unfortunate examples from Sri Lanka. (To be continued) |
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