December 2023

Rebuild Trust To Achieve Success Even By 2048 - Jehan Perera

Jehan Perera Colombo TelegraphThe change that the country is looking for lies in the future possibly stretching to 2048 when the country will celebrate its century of independence. The change that the government has brought may have been sufficient unto the day, especially for the upper classes and the international community they fraternize with, but insufficient for the future progress and wellbeing of the masses of people. This past year and a half has been sufficient to stop the breakneck fall down the economic precipice and into social chaos. The reversal of the bizarre fertilizer ban, the imposition of necessary taxes, the law and order crackdown and negotiations with the international community have sufficed to bring the country to the point where it can climb out of the economic hole it fell into. But the country is still not out of the hole. The shrunken economy will take at least another two years to reach the level it was before the government-made crisis slammed it down with full force of corruption and mis-governance.

In the meantime, the people’s attention is being diverted away from ongoing corruption and mis-governance by an unexpected war against drugs undertaken with induced fervor by the police. Thousands of drug peddlers, dealers, addicts and petty criminals are being arrested and put into remand custody. The prisons that were already overcrowded and starved of resources in the aftermath of the economic crisis are being packed to the brim as more and more arrests of those accused of being part of the underworld and with drug connections are being taken into custody. The situation inside the prisons can only be imagined when the government hospitals are starved of medicine and supplies which they used to dispense to patients too poor to afford them. Now the patients have to fend for themselves.

Whether the spate of arrests will do any good in the longer term is much in doubt. When the house on the hill is pouring out its putrid refuse material on the poor streets below, no amount of catching the rats that breed in the filth will make the problem go away. The house on the hill needs to be persuaded, or compelled by law, to stop pouring its putrid refuse material on the poor streets below. When government ministers have been shown to have assets in offshore accounts and heads of security forces have been convicted by the courts of illegal actions, but they remain in occupation of the house on the hill, it may be said, “Ill fares the land, to hastening ills a prey, Where wealth accumulates and men decay.” (Oliver Goldsmith, 1770)

Grim Economics
Unfortunately, the prospects of making the country another Singapore, Malaysia or even an India keeps receding into the indeterminate future. The grim reality is that corruption and economic mismanagement continue without a break as before. One of the fundamentals of economic development theory and practice is that tax breaks and tax holidays to encourage foreign investment are unnecessary and do not work. The reason that foreign investors decide to invest in a country is not because they are attracted by the tax incentives on offer but because they feel that their investments will be safe, they will not be looted by corrupt government ministers and economic policy will be stable so that they can make their profits. They would want to have tax concessions also, but this will be an add-on, never the sole or main reason to come into a country.

The news in the weekend newspapers that the government is offering massive tax incentives and tax holidays to a Chinese company that has already invested handsomely in Sri Lanka and has already got a very good deal including a 99-year lease on Hambantota port is beyond belief. This is not to invest in some high risk or novel project, but in Colombo Port which is well known to be one of the most profitable and excellent ports in the Indian Ocean. President Ranil Wickremesinghe has gazetted these tax incentives under the Strategic Development Projects Act of 2008 which will be applicable to the Chinese company and its local collaborators. The IMF has said that this law should either be abolished or suspended until a proper evaluation has been done on whether the tax breaks given under it have been worth the cost to the country. This is because the losses in terms of tax revenues by giving tax holidays can be very large indeed.

According to the news story, “The company is also not expected to pay withholding tax for the entire project period of two years. The corporate income tax exemption is for profits and gains generated from its activities and will start from the first year in which the company makes taxable profits or after two years from the commencement of commercial operations (whichever occurs earlier). Dividends distributed and received by shareholders out of the exempted profits and gains shall be free from income tax for 15 years and one year thereafter. The Value-Added Tax (VAT), the Ports and Airports Development Levy, cess and Customs duties will not apply to imports of any project-related goods, as approved by the Board of Investment (BOI), for two years. The expatriate employees of the project company shall be exempted from income tax for five years (subject to a maximum of 30 expatriates).” These may in effect cost the country more than what they may provide by investments.

Real Reconciliation
It is not only with regard to the country’s economy that the hope of positive change lies in the indeterminate future. This also holds true for the ethnic conflict which lies at the root of the country’s woes. In countries like Singapore, Malaysia and India, enlightened leaders were able to create a family out of the diversity of their ethnic and religious communities. Sri Lanka’s political leaders sought to win elections even at the cost of dividing the family. This continues to be the tragic reality even today, 75 years after the country’s independence from colonial rulers and more than a year after President Wickremesinghe made his bold and shining pledge to bring about a lasting political solution that would resolve the problem before Independence Day, February 4, 2023.

This weekend a big people’s protest took place in Batticaloa in the country’s east to mark 100 Days of Protest against the takeover of grazing land traditionally used by Tamil farmers and herders and its occupation by Sinhala farmers coming from outside the Batticaloa district. This incident has generated so much passion among the Tamil community across the north and east that a professor in Jaffna University tweeted that “Today marks the 100th day of the protests against the illegal, state-aided land grabs and illegal occupation of grazing lands in Myilathamadu and Mathavani in Batticaloa district by forces aligned with Sinhala-Buddhist chauvinism. These illegal land grabs need to be seen as part of the decades-long process of altering the cultural and demographic make-up of the North-East. This violence seeks to erase Tamil and Muslim communities in the North-East and their cultures and economy.”

Seemingly oblivious of this reality on the ground, the government is working to strengthen the reconciliation process through new laws that will establish an Office for National Unity and Reconciliation (ONUR) and a Commission for Truth, Harmony and Reconciliation of Sri Lanka. The problem is that the larger enabling environment for such good and wholesome laws to be operational does not exist at the present time. People in the north and east are living in constrained circumstances with security forces and intelligence operatives from a number of different units constantly questioning them. In these circumstances, there cannot be truth, accountability, reparations or institutional reforms. As a priority the people need a government they can trust, one that will safeguard their land and ensure their personal safety and provide for them a government administration where they could use their language, freely. The provincial councils were meant to do this, but elections to them have been deliberately suppressed for more than five years and continue to be suppressed.

As in the case of the economy and the drug problem, the fundamentals need to be in place and diversions will not do. The longer it takes the broader the gap and mistrust and this may cost the country more and more over time. Unless these problems are honestly, boldly and skillfully addressed, the development that the president has promised and the people sigh for may be a mirage even in 2048.