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Econometric Model Building - by Haris Kodituwakku

According to the National Library of Sri Lanka, Econometric Model Building is the first book on the subject of econometrics, written and published by a Sri Lankan academic.

This 217-page publication takes the first step on introduction of econometric model building in the simplest form. The book falls into three parts and 14 chapters. It is hoped that it will serve as a reference text in model building for research workers in economics, agriculture, statistics and management.

In presenting the book, the aim has been to provide the research work that the author has done in the United Kingdom in published form to enable the researchers and academics extract this contribution towards Sri Lanka economic development.

Kodituwakku is an outstanding researcher, a lecturer in economics and statistics and experienced statistician in the Ministry of Agriculture.

In this book, he has produced his theoretical and empirical research work in relation to perennial crops with special reference to Sri Lanka tea economy.

The models introduced for tea production identified the interaction between the main variables namely, planting, removals, and the government role, as most important in the production analysis of developing countries.

The structure of the book is similar to an exhaustive account of research work, in fact as one can gather, these are collections of research papers submitted by the author, in conneciton to his postgraduate research work in the United Kingdom.

The first 11 chapters of the book give real original research work on econometric model building for perennial crops, especially for tea production. The author has correctly identified the tea production process which is decision-making for planting of tea and until the finished tea production comes out from the tea factory where familiar black tea is ready for brewing.

The theoretical literature relevant to a farmer's price expectation models critically analysed, tested and used in the build-up of the specific identifiable nature of long-term output flowing of tea. The speciality of these models developed for the production of tea is that they are in the field of distributed lag models where special estimation techniques are required and sophisticated estimation techniques are used. Disbributed lag models are the most relevant and suitable technique for analysis in changing economic situations.

In chapter five, analysis of economy-wide models and reference to theoretical literature and applications on econometric models in relation to primary producing export economies also provided. But we did not find any economy-wide applications in relation to the Sri Lankan economy. Relation of Kenyes and Harrod-Domar theory, multi-sector and programming models are also reviewed in this chapter. Structure of the Sri Lanka economy and the trends of the economy are analysed in the 11th chapter.

Chapter 12 is based on a dissertation submitted to the Department of Statistics and Operational Research at the Brunel University in England. This chapter is entitled 'An Econometric Model of the Sri Lanka Tea Supply.'

The author has used the so-called partial adjustment and adaptive expectation models to build up the supply response models and used the stepwise regression computer programme in the estimation of the models.

The book is available at Vijitha Yapa, Sarasavi, Gunasena and Godage bookshops.

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Exoneration of Past Tax Misdemeanours 

by S. Balaratnam

This book is about the practical application of the Inland Revenue (Special Provisions) Act No. 10 of 2002, which provides immunity to taxpayers from payment of tax, investigation and penalties in respect of past tax misdemeanours. This immunity is afforded to taxpayers free of any tax liability in exchange for a declaration of their sources of income or assets as at 01.04.2002 to the Commissioner General of Inland Revenue on or before 30.06.2003.

The book examines the background that led to the legislation, the tax reforms that are taking place and the incentives available to taxpayers that will mitigate the tax incidence.

The book explains the application of the law, which is a piece of legislation, which departs from normal schemes of taxation and applies as a statutory direction for the tax authorities and to the taxpayers. The law directs that in exchange for a true and correct declaration of the taxpayer's sources of income or assets, he be freed from the payment of tax, from investigation and imposition of penalties relating to undeclared or under-declared tax, by the tax authorities.

The law provides no discretionary powers to the authorities and in the absence of guiding principles in its application, the author has illustrated the intention of the legislation by quoting extensively what the legislators have said in Parliament from the Hansard.

The main factor that prompted the law was that the regulatory framework is weak in terms of its administrative capability.

The exoneration of past tax misdemeanours is a very serious and genuine attempt made by the government to bring in voluntary compliance and create an environment so that the degree of compliance will become realistic, not to dictate, but to permit, so that everyone is covered with a degree of responsibility in Sri Lanka. Since the government has sacrificed revenue in this exercise, the tax laws will be imposed strictly from this year.

The book is a timely exposition of the law of a risky experiment in fiscal management. The legislators are looking at an overall view of the economy, the governance, the application of the rule of law and are seeking a remedy to the existence of a parallel informal economy outside the formal channels of government administration before effective economic and fiscal management by the enactment of this law.

This law would be a potential turning point to promote a voluntary compliance to enable economic development through effective fiscal governance and management and to effectively enforce future compliance.

The author points out that the law is not merely an act by the Government to free all tax evaders from liability to pay their evaded taxes as invariably only those who evaded are likely to benefit by it. Yet it would be a call for them to bring such evaded income within the formal economy without suffering any taxation and assist in the overall economic development of the country.

The exercise is to prevent the proliferation of the informal economy, which has become a threat to the welfare and security of the country and is becoming a fashionable way of life with the unbridled corruption that it entails.

The immunity offered is to obtain future voluntary compliance and any non-compliance will be strictly enforced in accordance with the law.

The quantum of tax sacrificed in this exercise is an uncertain theoretical figure and is not capable of quantification, as it has escaped from collection within the administrative capability of the authorities. A correct quantifications is possible, if and only if, there is capability and success of assessing and collection of such evaded tax. The amount of the tax that is not capable of collection cannot fulfil the budgetary requirements of the government in its economic programmes. The objective of the law is to clear the past up to March 31, 2002 to enable the defaulters and the Revenue to start with a clean slate thereafter so that compliance can be enforced strictly.

The book explains the law which provides an opportunity for every taxpayer, whether he evaded tax or not, to bring his tax affairs to a finality up to the year ending March 31, 2002.

The book covers 15 topics of discussion on the law and explains the application of some important topics such as the declaration, the sources of income or assets, foreign assets, cash in hand, immunity from payment of tax, the scope of investigation and the secrecy provisions.

The importance of the Inland Revenue Special Provisions Law must be viewed as a watershed of the beginning of the end of an era of rampant tax evasion and weak administrative capability of the authorities within the regulatory framework to combat such evasion and the recovery of the correct amount of the tax and levies.

This book is a welcome addition to the rarity of tax literature in Sri Lanka to which taxpayers can have access to understand the complicated tax laws about which only a few people have attempted to write. Balaratnam is the author of Income Tax in Sri Lanka, Goods and Services Tax in Sri Lanka and the Value Added Tax in Sri Lanka and his exposition of the Inland Revenue (Special Provisions) Act No. 10 of 2003 providing for the Exoneration of Past Tax Misdemeanours will be useful.

The book will be of interest to the critics of the law, the academics in fiscal management, those who wish to obtain immunity from past tax misdemeanours and to all those who wish to study the operation and the impact of the legislation in fiscal management.

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