Govt. tightens screws on media

*SLPF announces offensive against govt.
*IMF approves second tranche of loan to SL
*Warnings from the Ceylon Chamber of Commerce
*Media Secretary targets Derana TV after CSN


Last week was a good week for the Joint Opposition’s political party the Sri Lanka People’s Front. Even before it had enrolled its first member, LSSP Leader Tissa Vitarana LSSP made the offhand remark at a press conference that the Socialist Alliance made up of five left-wing political parties will be looking at working with the SLPF. Though the old left is now but a shadow of its former self and confined to pockets of support in the country, they still have a presence. Hence the fact that the old left ‘recognized’ the new political party gave it a new status. But the old left has very little prospect of getting elected to parliament on its own steam and has to depend on the UPFA then and the JO now so Vitarana’s position was unsurprising. Then came Mahinda Rajapaksa’s speech on the budget in parliament which was by far the best speech he had delivered in parliament after he lost power.

After he became president, MR would come to parliament to present the budget as the finance minister and the way he presented his views on the 2017 budget last week was reminiscent of the way he used to present the budget. Last Thursday, the Sri Lanka People’s Front held its first press conference at the Battaramulla office of the Joint Opposition. The conference room was packed with journalists and TV crews. Prof. G.L. Peiris, the Chairman of the new political party, explained that this party has been formed to fill a void in the political system and that there was a demand from all over the country for a new political party. He said that the SLFP was now a part of the government and has been reduced to the level of a tool of the UNP.

He said that all the decisions in the government were being made by the UNP with the SLFP members forced to play along. He took as an example the fact that this budget had discontinued the facility EPF members had to obtain loans up to 75% of their EPF balances and that the minister of labour John Seneviratne who is one of the most senior members of the SLFP serving in the government had not been consulted or even informed before this step was taken. He also said that the UNP, while using the SLFP in this manner, was also trying to destroy it at the same time with the FCID being used to hunt down and destroy opposition members of the SLFP or allies of the SLFP who are in opposition.

Former minister Basil Rajapaksa said that S.W.R.D.Bandaranaike had said after leaving the UNP that he was playing the role of a midwife to give birth to a new political force and that the SLPF too was engaged in a similar endeavour. The new party was not being built from the top down but from the bottom up - the members will get together first and chose the leader later. He said that the enrolling of members had commenced already. Asked whether the new party would have a future, he said that people had asked S.W.R.D.Bandaranaiake the same question when he broke away from the UNP and the celebrated cartoonist Colette had drawn a cartoon of Banda walking the streets as a gypsy (ahikuntikaya) with D.A.Rajapaksa  portrayed as his performing monkey but that the SLFP they founded became one of the two main political parties in the country.

The government too had cause to rejoice last week as the budget was passed with an overwhelming majority without becoming a fiasco like the budget for 2016. Fast on the heels of the passage of the budget came the news that the IMF executive board which met on 18 November had approved the second tranche of 162 million USD of the IMF loan to Sri Lanka. If this payment had been delayed that could have seriously affected Sri Lanka’s standing in the private credit markets. The passage of the VAT amendments before the budget and the revenue proposals in the budget had a lot to do with reassuring the IMF. The IMF observed that macroeconomic and financial conditions have begun to stabilize, inflation is on a downward trend, and the balance of payments has improved and that fiscal performance has been encouraging. They also expressed the hope that the new Inland Revenue Act scheduled for early next year would result in a more efficient, transparent, and broad-based tax system.  


Trying to milk the people dry? 

While the government has thus managed to satisfy the IMF, the tax proposals in the Budget gives us citizens cause for concern. Projections have been made to increase government tax income from an estimated Rs. 1,432 billion this year to to Rs. 1,821 billion in 2017 - an increase of Rs. 389 billion in a single year! Tax income cannot be increased by such amounts year on year without an impact on the public. If we take the past decade, the year on year increase in tax revenue was as follows (in billions of Rupees).


Thus we see that in the past decade, the year-on-year increase in tax revenue exceeded Rs. 100 billion only in 2010 and 2011. Even an increase of Rs. 100 billion in tax income year-on-year is a large amount of money because this tax income has to be obtained from the people. Now the government wants to increase tax income by Rs. 389 billion in just one year – the largest year-on-year jump in tax income since independence. The present government managed to achieve the previous record for increasing tax income when they increased it by Rs. 305 billion in 2015. In 2015, we see that the major contribution to the phenomenal increase in tax income that year came mainly from an increase in income taxes and excise taxes which rose by Rs. 112 billion and Rs. 87 billion respectively.

In 2015, the increase in income tax was achieved by various punitive one-off exactions imposed on the private sector in the form of the super gains tax, and the special levies on the casino industry, TV channels and the like. The increase in income from the excise tax was due to the one-off taxes on the alcohol producers and distributors as well as the increase in the alcohol and tobacco tax rates. The impact that these one-off levies had was quite palpable because in 2016 when they were no longer in force, there was actually a decline in the collection from income taxes by Rs. 36 billion and a decline in excise tax by nearly Rs. 54 billion.

However in the year 2016 there was a (projected) overall increase in the tax income by Rs. 76 billion due to the increase in the VAT which was projected to increase income year on year by Rs. 96 billion and from the Port and Airport Development Levy (PAL) which was projected to increase by Rs. 34 billion this year.  So what the experience of 2015 shows is that you can’t achieve such an increase without making punitive exactions on the public one way or the other. So what horrors await us in 2017? This budget introduced a 10% capital gains tax which applies to everybody who sells property and will be charged on the difference between the purchase price and the sale price of that property. One of the ways in which the people of this country kept their heads above water despite inflation and the depreciation of the rupee is because of the constant increase in real estate prices.

Now this capital gains tax is going to be charged even on that margin that everybody depended on for their financial security. One of craziest proposals in the budget was to increase the minimum traffic fine to Rs. 2,500. In this country most households have some kind of a fuel driven vehicle - a motorcycle, trishaw or a mini-lorry and had this proposal been actually implemented, the government would have lost future elections just on that.

One of the things that went almost unnoticed thanks to all the excitement over the COPE report and then the budget was the fact that the rupee has now depreciated to Rs. 150. The Central Bank report for 2015 says that during that year when the rupee depreciated to Rs. 144 from Rs. 131, the total indebtedness of the country increased by Rs. 285 billion. The reason why the government debt increases when the rupee depreciates is because the government collects income in rupees and has to buy the foreign exchange to service the foreign debt. Rs. 285 billion is enough to build the entire Norochcholai power plant, the Mattala airport and the Hambantota harbour and still have something left over. Now the government has to pay an amount equivalent to that – for nothing!

Since then the rupee has depreciated further to Rs. 150 and this would have added to our debt burden an amount at least equal to the combined cost of the Southern highway, the Colombo-Katunayke highway and the Mattala airport. If the rupee keeps depreciating like this, there will be no point in imposing all these taxes because the moment you increase the taxes and rake in more income, our indebtedness increases due to the depreciation of the rupee and then we end up back at square one. The worst part of it is that this government took more foreign loans in its first 18 months than any previous government. With the Indian currency swaps, the Sri Lanka Development Bonds and Sovereign bond issues and the IMF extended credit facility all combined, the government has taken 10.5 billion USD in foreign loans since last year.


Warnings by the Ceylon

Chamber of Commerce

The Ceylon Chamber of Commerce, the country’s premier trade chamber, had noted with some relief that the two partners in the government were working together on this budget and they welcomed the policy decision of the government to allow students who do not get into state universities to study in UGC-approved private higher education institutions. They also welcomed the shift towards expenditure-based incentives for investors in the form of capital allowances or accelerated depreciation, instead of profit-based incentives like tax holidays since capital expenditure based incentives had the effect of rewarding new capital infusion and new investment. Having said so however, the chamber issued a series of warnings which can be summarized as follows:

1.      The proposal to reduce the deficit to 4.6% in 2017 and raise the tax to GDP ratio to 13.5% are laudable, albeit ambitious. It is important that pronouncements on Budget deficits and tax revenues are met, in order to build credibility in the country’s fiscal management. (The CCC is obviously not overly confident of the government to meet the ambitious targets it has set.)

2.       The government must be cautious of what a tighter fiscal policy could do to aggregate demand in the midst of tighter monetary policy as well. In the absence of robust growth, and poor performance on exports and FDI, tighter fiscal policy could douse demand in the system. (A chilling warning about what the austerity measures being implemented can do to the overall economy. This was also the main concern expressed by the traders who came out onto the streets earlier this year against the VAT on the wholesale and retail trade.)

3.      The continuation of business unfriendly policies like price controls and making targeted exactions like directing one company (Ceylon Tobacco) to make a ‘donation’ to the President’s Fund will hurt domestic and foreign investor sentiment.

4.      Clarifications are needed on the implementation of several of the new tax measures such as taxation of institutional unit trust investors, the removal of the Notional Tax Credit, and the move back to VAT refunds from the SVAT scheme. The CCC urges the Ministry of Finance to consult relevant stakeholders fully before implementing these measures to avoid negative fallouts. (It was not just the 30% water rate hike and the Rs. 2,500 minimum traffic fine that may need rolling back and this shows that a degree of 2016-like confusion still remains as regards the governments tax proposals.)

5.      The proposal to limit the Regional Plantation Companies (RPCs) to 5,000 acres needs careful re-consideration, as many are CSE-listed entities and this proposal will have strong implications on their business structure.

6.      Measures to promote domestic industries, particularly primary industries, must be calibrated carefully so as to not foster under-performance and lethargy due to protectionism offered to specific industries.

7.      Some of the proposals presented fall under the purview of the Monetary Board of the Central Bank of Sri Lanka, and therefore need further clarity on implementation. (The same grouse expressed by the Joint Opposition and intellectuals like W.A.Wijewardena.)

8.      The efforts to introduce a state-linked e-commerce and online payments platform appear misguided as it can stifle entrepreneurship in the burgeoning digital economy.

9.      Implementation is often the ‘Achilles heel’ of successive Sri Lankan Budgets, and therefore successful implementation of Budget 2017 should be the benchmark against which the Budget is measured.


Sirisena faction’s bid to

silence the media

Last week we saw what was obviously an attempt to intimidate and silence the media. The Secretary to the Media Ministry had written to the Derana TV channel asking them to explain why a speech by President Maithripala Sirisena had been distorted in one of their news bulletins. Earlier, on 25 October the Media Ministry Secretary had written to them saying that an inquiry is being conducted into the distortion of a speech made by the president on October 12 at the Sri Lanka Foundation Institute where he had among other things said that the CID, FCID and Bribery Commission had been working to a political agenda and that he was against the manner in which the former defence secretary and three commanders of the navy were hauled before the courts.

When a storm of protest arose from the yahapalana NGOs about the president’s comments, Sirisena backtracked and said that his words had been distorted by the TV news bulletins. It was in pursuance of this that the media secretary who is an appointee of the Sirisena faction had written to Derana TV on 25 October saying that they were inquiring into the matter.  The very next day on 26 October Derana TV had replied to the media ministry saying that the management does not get involved in editing the footage shown on the news bulletins and that this is done at the discretion of the news director and that the practice is that of a speech lasting 30 or 45 minutes the most that would be included in a news bulletin would be a segment lasting one or two minutes. Derana TV had pointed out in this letter that there was no difference in the substance of the segment that they had broadcast and what had been stated as the president’s words in a statement issued by the presidential media division on the same day.

Despite this explanation, the media secretary had written to Derana TV stating that they had held an inquiry into this matter and that ‘before any further action is taken’ over the distortion of the president’s speech, for Derana TV to send in their explanation if there is anything to be said from their side. This letter was dated 11 November but had been sent to Derana TV only on 17 November and they had written back immediately saying that they will respond within seven days of the receipt of the letter.   

Three weeks ago, the Secretary to the Media Ministry issued a very similar letter to the CSN Channel stating that their broadcasting license had been revoked. In this instance too the Media Secretary had issued a letter to CSN saying that ‘an inquiry’ had been carried out and that their license had been suspended because the conditions under which it had been issued had been violated.  Three violations had been mentioned in the media secretary’s letter. The first was that if the name or address of the channel changes, it has to be notified to the media ministry. To this CSN had replied that the name or address of CSN had not been changed and that it had been operating from the same location in Battaramulla since the inception and that all correspondence from the media ministry and the Telecommunications Regulatory Authority had always been sent to its present address.

The second charge against CSN was that it had violated the licensing condition that none of its directors should be a member of a political party in Sri Lanka. To this CSN had replied that none of its directors, past or present had been members of any political party. The third accusation was that the licensing condition which requires that the previous years’s accounts be sent to the Media Ministry Secretary before 14 January each year had not been fulfilled. To this, CSN had replied that accounts are not submitted by any media organization to the Media Ministry and that the latter has also never pursued the matter either.

It is only too plain that the CSN license was suspended on trumped up charges. It is significant to note that this letter to CSN had been sent on October 25 - the same day on which the first letter was issued to Derana TV saying that an inquiry was being held against them. Rohan Welivita the Chairman of CSN said at a press conference that on 24 October, when the news bulletins had announced that CSN was to be banned, it was not told to them in a letter but ‘a key official’ in the Media ministry had phoned the various media institutions and said that the CSN license was going to be revoked. CSN had received the letter only later.  Welivita stated that though the letter issued to them says that an inquiry had been conducted, no official of CSN had ever been called for any inquiry by the media ministry and that this was a unilateral decision by the ministry.

At that press conference Welivita had warned the TV channels present that "What happened to us today will happen to you tomorrow. You will get a letter with some lies written in it and they will do as they please. If we try to take it up with the relevant authorities, they will say they got to know about it only through the newspapers." His words have proved to be prescient. Now Derana TV too has got an ominous letter from the media ministry and they are threatening further action. The banning of the Lanka News Web Today website was the beginning of all this. It is the TRC which can block websites and the TRC is under the president. The suspension of the CSN license and the action against Derana TV has also been taken by the Sirisena faction of the government.

The only cause for relief is that when CSN went to courts against the suspension of its license, the courts had said that the way the CSN broadcasting license was suspended does not appear to the court to be correct and ordered the Attorney General’s department which represented the media ministry to discuss the matter with the ministry and if any inquiry is being carried out, to allow CSN to continue broadcasting until the inquiry is over and to report back to courts on December 15. The nation is now counting on the courts to safeguard media freedom and democratic rights in the country.

In the late 1990s when the Chandrika Kumaratunga government was trying to misuse to the criminal defamation law to suppress the media, the courts used their discretion to hand down suspended sentences instead of imprisoning the newspaper editors against whom the government filed action. Two newspaper editors, Sinha Ratnatunga and Lasantha Wickremetunge were handed down suspended sentences. Had the courts not used its discretion in that manner at that time, that would have been the end of media freedom and democracy itself. There is a lot riding on the shoulders of individual judges in a situation like this.

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