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Monday, July 15, 2024

IMF has become a part of the problem of Sri Lanka crisis

Nishan de Mel. @NCdeMel

Property Tax as an “Imputed Rental Income Tax” mentioned by the govt and IMF has a serious problem. It has no known analytical basis for its design as an efficient and effective tax measure for #SriLanka This is unfortunately the case for many other tax measures as well, under the current IMF program.

Verité Research has published many pieces of analysis since 2022, showing a better set of tax/revenue policies than several in the IMF program. But there has been too little take up of such rationally supported publicly available analysis. (Plus, some of rationally supported measures are now being reversed after being previously adopted — vested interests are prevailing over public interest).

It is expected that IMF Programme policies are supported by IMF analysis that is given to govt in the form of Technical Assistance reports (TA reports), which are referenced widely in IMF reviews. That means the future economic trajectory is somewhat contingent on the quality of these TA reports. But who knows what they say or show? When asked, the President promised these TA reports to parliament many months ago.

See below MA Sumanthiran speaking of his request for the TA reports, and the President’s immediate good faith response. Who can then tell us why the IMF has not published these TA reports underlying its tax recommendations, even after the President of Sri Lanka publicly agreed to provide them to the Parliament? The result is what we have: Rationally unsupported, arbitrary policy making, like the proposed “Imputed Rental Income Tax”.

This sort of policy making has been destructive for Sri Lanka in the past. It’s a pity then that the IMF has now become part of that problem — of rationally unsupported arbitrary policy making, rather than part of the solution to that problem in Sri Lanka. There is no point in different groups selectively objecting to taxes only when they are affected.

The essence of successful democratic economic governance is for the selection and construction of taxes to be supported by rational economic analysis that is published. The non publication of the IMF TA reports which purport to justify the current taxes, (contrary to the available published analysis of Verité Research and others) is not only a problem for the economy, it is also a problem for democracy in Sri Lanka. Who shall we hold accountable for these suboptimal policies (which time will reveal as failing the country) that are deemed to be based upon the secret analysis of the IMF?

 

 

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