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The country is in dire economic crisis. Following a public uprising, there has been a change in the executive presidency. The new president is preparing to present an interim budget for an all-party government in a fortnight.
The time has come to scrutinize the taxes that eluded the coffers of the rupee less country. An example is the cigarette tax, which was manipulated and evaded by Finance Ministry officials as well as countries former Finance Ministers.
That is why “How should the excise duty be increased during the tax revision..” has become topic that should create a conversation at the national level. This discussion is with Prof. Wasantha Athukorala of Peradeniya University’s Department of Economics and Statistics.
Taxation is the main means used by a government to raise funds to meet its economic and social objectives. The government’s tax policy is implemented to redistribute the country’s income, to create and encourage efficient use of the country’s economy, and to encourage the leading sectors of the economy.
Tax policies without social objectives
The government’s tax policy is also helpful in discouraging the consumption of goods with high social costs, such as cigarettes, alcohol and tobacco. Overall demand supply management is done through tax policy. But the tax policy that has been implemented in Sri Lanka so far does not seem to attempted to fulfill any objective other than the increasing the government’s revenue objective.
And there are many principles that a government should basically follow in levying taxes. The principles are the principle of fairness, the principle of convenience, the principle of efficiency, the principle of efficiency and the principle of flexibility.
In order to introduce a successful tax system based on this to the country, a clear policy should be created for the country with the consultation of skilled economic and social scientists.
But unfortunately, during the past periods in our country, such a situation has never occurred. It is clear that the economic policy makers took steps to amend the existing tax system without understanding the economic policies of the country.
It is clear that the government’s tax revenue has gradually decreased and the public debt burden has increased, which has created an instability in the country’s macro economy over a period of time. Especially due to this, the increasing inflationary situation in the country has now become unbearable for the people of the country.
It is on a such a background that the government has decided to set aside the standard state budget of 2022 and prepare a new budget for the next few months.
A proper tax system
The tax system should be adjusted according to the economic and social system of the country. The tax system thus prepared should be implemented successfully in the country. But none of that is seem to be working in Sri Lanka. In order to increase revenue for the government, direct taxes should be increased away from indirect taxes. In many countries, the income tax rate is likely to increase to 60% for high earners.
Such a situation is not found in Sri Lanka. Although direct taxes should generate higher income, the government does not do so. It can be said that the number of tax evaders in Sri Lanka is high and high income earning businessmen and politicians are among them. These facts confirm over and over again a correct tax revenue collection method is not being implemented in the country.
Unweighted cigarette tax
In implementing the tax revisions, it is evident that a silent practice has been followed for excise duty or taxes levied on tobacco and alcohol. It is very clear the taxes were not increased properly on these sectors.
It is observed how the tax approach has been abandoned in a very strategic manner in the taxation of cigarettes.
When considering alcohol, it can be said that the policy makers have do not consider this in their tax policy, because many involved in these industries has financing and supporting these politicians in their elections and in returns politicians maintain s ‘deaf and dumb’ policy when it comes to designing the tax policies.
Taxation and tax reform is not an easy task. Policy makers should have the ability to make efficient and direct decisions regarding the sectors that can generate high revenue while formulating the country’s budget. But such a form is not seen in Sri Lanka
Drug addiction
Among the general public of Sri Lanka, forty percent of the total population is addicted to drugs and alcohol. It is about 9 million of the population. It has been confirmed that ninety-nine percent are men and one percent are women. Among these people, there are four million people who use alcohol and drugs on a daily basis. 65% of those people consume illegal liquor like ‘Kasippu’ and ‘Ra’. Research reports have confirmed this fact.
In further analysis, it is confirmed that Sri Lankans spend more than 250 million rupees per day on drug consumption.
A side effect of this is that the vast majority of people between the ages of 25 and 45 in Sri Lanka who suffer from various diseases directly related with alcoholics, smocking and drug use.
Ninety-eight percent of the total smokers in Sri Lanka is accounted to cigarette consumption and two percent is addicted to smoking ganja cigar beedis or other things.
Investigations have revealed that if in a village with over 300 families , 400,000 rupees is spent monthly on cigarettes and alcohol.
And reports have also confirmed that about fifteen percent of the population with in the age groups of 19-60 years in Sri Lanka are addicted to daily cigarette usage.
Health data revealed that a higher percentage of the total deaths in Sri Lanka amount from the ailments that is caused by smoking, use of drugs and alcohol.
However, the government spends a lot of money every year to treat people who are sick due to the addiction to tobacco, alcohol, drugs and tobacco-related other products.
It has been revealed that about forty percent of the expenses of a very poor families in the country, who are struggle duet to severe poverty, spend heavily on cigarettes and alcohol. The families fall within this category mostly reside in the plantation sector, slums, engaged as laborers , some living in flats. Among these groups, it is confirmed that even if they don’t have a rice to eat they will spend for drugs; such is the gravity of the addition.
It must be said that it is a national importance to take this social reality into sharp analysis and maintain a stable tax policy as a country. Irrational tax evasion for individual sectors based on individual ambitions and other factors is a disaster for a nation in short as well as longer run. Taxation on alcohol and cigarettes should be included in the macro-socio-economic dialogue. That is, the tax levied on alcohol and cigarettes should be logically reasonable. It has not happened as a tax principle so far.
Along with an increase in taxes, a social rehabilitation process should be launched and implemented to reduce the influence and temptation to use of this drug. The increase of taxed on these should effect an inelastic demand. The result will be a hugely productive investment for society.
– lankasara