Sri Lanka to move towards taxing capital: PM

ECONOMYNEXT - Sri Lanka will progressively move to tax capital in the future and reduce dependence of taxing less rich people through import duties, Prime Minister Ranil Wickremesinghe said.

"Now 80 percent of the tax is paid by the poor and rich and the super-rich who own 80 percent of the wealth pay only 20 percent," Prime Minister Ranil Wickremesinghe said at a forum releasing a poverty analysis data by the World Bank, a multilateral lender.

"When we were young our parent paid estate tax, wealth tax, capital gains tax."

"We have to move towards taxing capital in a systematic way (kramaanukoolawa)." 

However analysts say the danger of taxing capital is that it is a tax on investments which will discourage job creation and improvements in labour productivity (higher salaries) which depend on capital investment.

However taxing capital gains, is not the same as simply taxing capital stock. 

Elected rulers who get their hands on capital tends to fritter them away on current spending (consumption subsidies).

However Prime Minister Wickremesinghe said he was keen to put capital into the hands of poor.

"I also have land, but the difference between myself and a poor farmer is that I have capital and he does not," Wickremesinghe said.

"Instead of giving subsidies we have to give them capital."

Wickremesinghe said his administration will give freehold land to farmers and others who have been using state land on other arrangements.

Though the British ended Wedawassam (service tenure) which should have led to faster development of freehold land, a 'waste land ordinance' put breaks on the process. 

Post independent expropriation put even more land in the hands of the state, which have were with the people from around Dutch rule.

"We have to get out of this South Asian mentality and move to the East Asia model," Prime Minister Wikremesinghe said.

"In 1948 we were a leading nation in Asia. Japan was destroyed by war, but where are we now?"

He said a national government was now in power with President Maithripala Sirisena and policies could set in place to take the people forward.
 
Japan's modernization also began with giving freehold land to the people during the so-called 'Meiji Restoration' in 1867, which broke the feudal Tokugawa Shogunate. By the turn of the 20th century Japan was an industrial exporter.  

By World War II Japan was a fully industrialized nation that had built, submarines, aircraft carriers and aircraft, but rising economic intervention and nationalism put the country on the side of Nazi Germany economic philosophers say.

East Asian nations also have better central bank, which provide low inflation and strong currencies. Only Indonesia's central bank has not been able to safeguard the people as much as countries like Singapore, Hong Kong, Japan and Korea. 

Inflation and currency depreciation destroys investible capital (financial savings) and also real salaries .