Like any other activity, terrorism requires resources to function. Terrorists require money for recruitment, training and upkeep of its members, purchase of arms, propaganda, social welfare programmes, and so on. Indeed terrorist acts can be committed on small budgets, but sustained terrorist movements required large amounts of financial resources and support.

A close examination of financial sources of the LTTE is revealing. The LTTE operates like a multi-national corporation. The sources of funds can be broadly classified into internal (collected within the Island) and external (international sources).

The internal sources constitute less than 20 percent of its total revenues. These include taxation on goods passing through LTTE controlled territory, sales tax on goods sold by merchants, tax on individual households in LTTE areas, extortion and protection money paid by businessmen and voluntary donations from sympathizers. The present ceasefire has helped the Tigers to "collect with penalties" from those Tamils who have "escaped" paying their contributions all these years. Taxes vary from place to place and the income of the payer.

Custom duties on goods passing through LTTE controlled areas (A-9 Highway, for instance) is one of the main sources of revenue. They range from eight to thirty percent of the cost of the items carried. For instance, a colour television set draws 25 percent duty. But the rate is assessed and fixed at the discretion of the "customs officials" of the militant group. Over 21 "essential" items are exempted from customs duties. Exemption is also available for items brought by those coming from abroad and Sri Lanka to "Eelam" with the intention of settling permanently. Then there is a 'transit tax' levied on all persons using the A-9 highway through "uncleared" areas. Though the exact amount of collection at check points is not available, it is estimatedly to be about Rs 4-5 million per month. But this revenue may fall drastically if war breaks out.

Farmers are required to pay taxes depending on their produce and land holdings, which varies from Rs 300 to Rs 3000 per term of produce. A tractor owner must pay Rs 30,000 every six months and also commit to offer his vehicle in case of need by the LTTE. A tax rate of eight percent of their income applies to government employees. Sales tax of upto 24 percent is levied on goods sold by merchants. Rs 5 per kilo is collected from fishermen for fish transported from Mannar to Colombo. When there were restrictions on fishing in the deep seas before 15 May 2002, it was Rs 8 a kilo. This sounds strange: the lesser the catch, the more the tax rate! On coconut, the rate is Re 1 per piece; the cess on one litre of petrol/ diesel is 0.5 Re. The tax can be paid either in cash or in kind. Thus, both direct and indirect tax regimes are in place. Ironically, double or triple taxation is a common phenomenon for goods coming from government controlled areas. For instance, a commodity entering the LTTE entry point draws custom duty; after coming to the market there is a sales tax; this apart, businessmen are required to pay a portion of their periodic income to the Tigers. There is a special unit to collect taxes from Tamil businessmen from even Colombo.

Apart from taxation and extortion, there are commercial ventures that Tigers have entered to augment their revenues, like farms and groves and transport services. But they generate little revenue.

Since the financial flows from abroad have slowed down due to international controls, to look for more internal sources of funding is the only alternative. The LTTE also justifies its collections for providing administration, maintaining security and law and order, and welfare activities in areas under its control. But these services are mostly undertaken by government servants posted in the "uncleared" areas. They are paid by the government and provided the required resources to show that the government is in control of the entire Island. In reality, the government servants function as per the directions of the LTTE. Thus, the LTTE claim of spending the taxes collected on welfare activities is far from the truth. Obviously these collections support military activities.

Funds collection by the LTTE has caused much resentment among the people due to their poverty, harassments and kidnapping. Though the government expresses its displeasure, it can do nothing to contain taxation by the Tigers. As a result, the Muslims have armed themselves and there are recurrent clashes between them and LTTE cadres that have led to frequent ethnic clashes in the East. But Tamils living in LTTE areas have no other choice but to pay.