As taxes raise public ire, Sri Lanka faces big hurdles in carrying out IMF reforms

While Sri Lanka has secured a $2.9 billion bailout package from the International Monetary Fund (IMF), a massive island-wide strike by a collective of nearly 50 trade unions highlighted the difficulties the government faces in enforcing painful economic reforms.

On March 20, the Executive Board of the IMF approved a 48‑month extended arrangement under the Extended Fund Facility (EFF) with an amount of SDR (Special Drawing Rights) 2.286 billion (395 per cent of quota, or about $3 billion). The decision will enable an immediate disbursement equivalent to SDR 254 million (about $333 million) and catalyse financial support from other development partners, the IMF said.

IMF Managing Director Kristalina Georgieva stated that “the momentum of ongoing progressive tax reforms should be maintained, and social safety nets should be strengthened and better targeted to the poor”.

But those tax reforms are facing a severe backlash. The one-day strike on March 15 by 47 member unions representing the Professionals’ Trade Union Alliance (PTUA) against the tax reforms all but crippled some sectors.

Worst hit

Among the worst affected were state-run schools and hospitals, along with postal and railways services.

As part of tax reforms needed to secure the IMF bailout, the government has hiked existing taxes and imposed some new ones. This includes a controversial Pay-As-You-Earn (PAYE) tax on anyone earning above LKR 100,000 a month. This affects professionals including doctors, engineers and university lecturers and has come in for severe criticism.

The government says the PAYE tax only affects a small segment. State Minister of Finance Ranjith Siyambalapitiya said only 2.6 per cent of the workforce of 4.64 million is subject to it.

In the lead-up to the strike, the government declared certain services as “essential services,” making it illegal for workers there to halt work. Transport and postal services were among those declared essential services.

Government threats

A pro-government MP warned that striking workers could be jailed for up to five years and their moveable and immovable assets could be confiscated. Yet many employees went on strike. In some sectors, the vast majority stayed away.

State-run hospitals were crippled. Besides the Government Medical Officers Association (GMOA), unions representing nurses and other healthcare workers too joined them. Most hospital activities, except for emergency services and surgeries, came to a standstill.

All post offices were shut as postal workers joined the strike. Many branches of state banks including the Central Bank were also closed. Most schools around the country did not function as teachers stayed away.

The President’s Media Division claimed that various sectors where the strike was to take place functioned without a hindrance. But Union leaders claimed the strike was a resounding success.

Some worked

Those in some vital sectors did keep services running. They included those operating privately owned buses, which ensured that the country did not come to a complete standstill owing to a breakdown in transport services.

“We need money to maintain our families and our buses. I have three children, my wife and mother at home. Who will feed them if I don’t work today?” asked a bus driver in Colombo.

The GMOA had earlier threatened to convert the token strike to a continuous one if the authorities did not respond positively to their demands.

However, it suspended that action after President’s Secretary Saman Ekanayake expressed the government’s desire to continue discussions on the alternative proposals on tax amendments submitted by the PTUA. Representatives of GMOA and other unions of PTUA met Ekanayake on March 17.

Alternative proposals

The government has agreed to consider proposals for alternative tax amendments submitted by the unions during the first progress review of the IMF agreement, GMOA spokesman Dr Chamil Wijesinghe told The Federal. But this could take six months.

Trade union representatives are expected to meet President Wickremesinghe soon to discuss the government’s interim solution, now that the IMF has approved Sri Lanka’s bailout package.

Dr Wijesinghe said: “We are not against taxes, but our argument is that the tax system should be fair and transparent. We believe the proposals we have submitted is a step towards that direction.”

Unions are not inflexible in their demands, insisted Channa Dissanayake, President of the Ceylon Bank Employees’ Union. “We have no hidden agenda.”

Teachers flayed

Government Ministers and MPs have been vocally critical of teachers and principal who joined the strike, particularly given that most teachers don’t come under the PAYE tax bracket. Foreign Minister Ali Sabry accused the teacher unions of launching a politically motivated strike that victimized 4.5 million students in state schools.

Teachers and principals joined the strike to highlight their own demands, Ceylon Teachers Union (CTU) General Secretary Joseph Stalin said.

“Our demands are not related to taxes but deal with issues directly affecting teachers and the working class,” said Stalin. He said salaries of all public servants must be hiked by Rs. 20, 000 due to the high cost of living.

Other demands include call for an end to stopping its “repression” of opposition activists and ensure the local council elections. “Yes, these are political demands but why shouldn’t we raise them?” asked Stalin.

Nevertheless, unions in some sectors insisted the strike was indeed politically motivated and a bid to scuttle the IMF deal.

Bus owners

“We believe that there should be some relief for healthcare workers, given the sacrifices they made during the COVID pandemic. But we all need the IMF’s assistance if we are to come out of this crisis,” said Lanka Private Bus Owners Association (LPBOA) President Gemunu Wijeratne.

He said government employees can go on strike and yet get paid. “It was the same during the pandemic. We could only afford to pay our workers half their salaries. We are a bankrupt nation. We need this (IMF bailout).”

The country’s private bus fleet numbered about 18, 000 before COVID-19 but the pandemic and the economic and fuel crisis has left only about 13, 000 in operation now, Wijeratne said. Some have been seized by leasing companies for failing to pay their leases. Even now, more than 1,000 buses are in danger of being seized, he said.