Sri Lankan Government ready for an Economic Turnaround (Part 3)

Proposal for a simple tax system

The newly elected government has introduced a simple low-rate tax system and a broader tax net to ease the burden on the existing taxpayers. The current tax system in Sri Lanka is like the scheme of Hindu deities. According to reports, there are 330 million deities, and the number is increasing every day when a new god is created to address a new human issue. Some of them overlap the functions of old ones since there is no rational basis for new deities to be created.

Similarly, a multitude of taxes to generate income from any tax base made it a very complex one that forced taxpayers to evade taxes, resulting in a low tax yield. Therefore, a prominent feature in the newly elected government is the abolition of several offshoot taxes and the reduction of the current tax rate. The new tax regime is a considerable gamble that President Gotabaya Rajapaksa takes as the Head of State. Both measures will reduce the ongoing cash inflow into the Treasury, which will require it to raise more liquid cash by issuing Treasury bills.

The challenge is to restrict this practice to a short period and decide on an exit. The gamble is if the tax net does not expand as expected, resulting in a permanent cash shortage. Then, instead of a blessing, the proposed strategy becomes a curse.

Implementing new technology

The measures to introduce new technology are an essential aspect of the newly elected government. It will prepare the country for the Fourth Industrial Revolution or Industry 4.0, although not expressed explicitly. The advent of more technology is a good step as it helps, on the one hand, to reduce the distrust of technology and, on the other, to accustom people to new technologies.

But the full responsibility of capacity-building has been shifted to the state university system because of the government's current cash position. The current status does not allow it to increase the capacity of the state university system instantly. The newly elected government will need to enable the higher learning network operated by the private sector to meet the demand.

Inviting high-ranked Indian universities to Sri Lanka

The government had an agreement with the Indian government in 2004 to have a few Technology Institutes on the model of the famous Indian Technology Institutes or IITs. The idea mentioned above was abandoned halfway through with that year's change in government.

Sri Lanka now is about to reopen this route. Sri Lanka will, therefore, benefit if President Gotabaya Rajapaksa resumes the abandoned dialogue by meeting Indian Premier Narendra Modi by the end of this month. Without higher learning institutions operated by the quality-minded private sector, it is unlikely that Sri Lanka will have the crucial pool of scientists and engineers needed to help it achieve its main economic goals.

Capacity improvement in the Government sector

The newly elected government is a new strategy of central government action involving the course of the economy. Can it turn the country's ailing economy into a turnaround? It may have worked successfully in Taiwan, Singapore, South Korea, and even Japan after the war. In these countries, the secret of success was the central government's ability to act with foresight. The newly elected government will, therefore, work if the same machinery of the central government is set up in Sri Lanka.

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