YAHAPALANA    AND THE ECONOMY Part 2
Posted on July 8th, 2017

KAMALIKA PIERIS

Yahapalana came to power because it promised the voters that they would reduce the cost of living. After Yahapalana came to power, the cost of living went up and up. The public complained about the skyrocketing cost of living.   Food prices have gone into the stratosphere with more and more people going to sleep on empty stomachs said Island in January 2017. Family of four needs Rs 61,000 monthly for food, said Sri Lanka Podujana Peramuna in February 2017.

The world price of milk food, wheat, sugar, crude oil, steel, cement had gone down but the local prices of these goods have been increasing, observed Mahinda Rajapakse in July 2016. The Rajapakse government sold rice at around Rs 60 a kilo, Yahapalana rice has gone up to Rs 100 in February 2017. Prices of other essential commodities had also increased. Bag of fertilizer has increased from 1200 to 3000 by December 2016.  Prince control had raised the price of chicken.

Yahapalana removed price control on sugar in March 2017. This triggered an increase in the price of sugar based products, with the biggest impact being felt by those in the sweetmeats industry catering to the upcoming Sinhala New Year. The retail price increased by Rs 17 a kilo in some shops.

Some of the well known manufacturers of traditional sweetmeats at Padiliyatuduwa, Doowa junction in Kiribathgoda, ‘kavum gama,’ said they would find it difficult   make a profit in the Sinhala New Year. one manufacturer, popular for her kavum, kokis and athiraha said this year they have received far less orders than before,  with customers complaining their prices were too high.Some of our traditional customers have cancelled their orders. This is all due to the Government removing the control on the price of sugar and allowing vendors to decide the price,” she said.

An owner of two large scale sweet shops at Pettah market said they try to make at least a five rupee profit from each product. But this time they won’t be able to do so. Also, orders were not coming their way this Avurudu season. They usually started getting orders from the beginning of March. Then Yahapalana increased the special levy on sugar. This was done despite the fact that world market prices was coming down for sugar. A Rajagiriya retail seller said he was now selling white sugar at Rs 110. It was Rs 105 a few days ago. A cup of tea with milk went up by Rs 5.

Vegetable prices are going through the roof, complained the public. Prices of all vegetables at Dambulla Economic Centre had increased in April 2017. Wholesale prices of all vegetables had doubled. The price of one kilo of imported potato had increased to Rs 98, big onions sold at Rs 85, Jaffna onion at Rs 170, beans at Rs 170, local potato at Rs 120, cabbage at Rs 55, tomato at Rs 140, green chilies at Rs 140, leaks at Rs 40, and carrot at Rs 110.

In a market in Delgoda, Kelaniya, a road side vendor offered 250 grams of beans at Rs 50, while 250g of beetroot was Rs 40. Okra was sold at Rs 50 for 250g and the same amount of tomato cost Rs 40. From the first week of this month to the second week, the price of green chillie has jumped from Rs 270 a kilo to Rs 310.43 a kilo in the main markets of Colombo. Local potato sells for between Rs 140 and Rs 180 a kilo. Small scale vegetable sellers have been badly hit due to high prices. One vegetable seller complained that consumers are buying ever smaller quantities of vegetables. We can’t increase the price of lunch packets as it would hurt sales,” said another. ‘But the quality of packed meals has worsened’.

Taxes are the main tool adopted by Yahapalana government to reduce the budget deficit. if the aim was to increase revenue, it would have been better to limit tax holidays enjoyed by firms earning super profits rather than imposing a high burden on the economically under privileged through indirect taxes, said critics.   Yahapalana taxes have been described as ‘highly iniquitous’. Cost of living will go up due to the direct and indirect taxes now imposed on goods and services, said critics.  All will be affected, irrespective of the income of the person, said critics. This will exert a considerable burden on the poor.

Yahapalana is hitting the public with taxes. A water tariff carrying a sharp increase  was imposed, outside the 2017 budget. Schools, religious place and even hospitals have to pay this tariff. It is a huge tariff hike for certain categories. There is also the Nation building tax. The 2017 budget had a fee on filing a court case. Sri Lanka is the only country to tax electric vehicle imports, said critics.

The tax exemption for deposits of senior citizens has been removed and their withholding tax has been increased. PAYE exemption granted to doctors, judges, university dons have been withdrawn. In future, PAYE will be deducted from the salary. The employer will no longer pay PAYE on behalf of the employees. Income from secondary employment will be taxed at 10 percent for the lowest bracket and then 20 %.

In 2016, Yahapalana increased the value added tax (VAT).  The first VAT bill was withdrawn in response to widespread opposition, but an amended one was produced after International Monetary Fund (IMF sent a review mission to Sri Lanka. The 4% increase in the VAT tax, from 11% to 15% will impact on numerous consumer items and services. It will severely affect the living standards of workers, the poor and sections of the lower middle class, said critics.

The Federation of Traders Association called a meeting   regarding VAT.  Representatives of all districts including the north and east were present. A trader who had been in business for nearly      20 years, said he had never before seen the business community united in their opposition to the government in this manner. The   Tamil representative addressed the gathering in Sinhala. He said that he represented at the district chambers of commerce from Jaffna, Kilinochchi, Mullaitivu, Vavuniya, Trincomalee, Batticaloa and Ampara.  Earlier VAT was a manageable one, but not this one.  The trader, of the North and east were prepared to close their      shops, on the same day as the Sinhala shops. .

 

The Federation said that the new VAT would apply    down to the smallest shop. VAT will make it impossible for the small and medium business men to survive and they would have to wind up their operations. The traders had suggested a simpler system but the government won’t listen. traders would have to supply copies of all invoices to the Inland Revenue Department.

The traders closed their shops for a day.  Yahapalana government retaliated. They needed to stifle the dissent ahead of reintroducing the new Vat Amendment bill.    shops of three traders in Pettah who had taken part in the hartal were sealed by the customs on 8.8.16. They were ‘Asian traders’, ‘Anglo shirt’ and ‘Romax ‘of Keyzer street. These were small establishments, ten feet by eight, fifteen and sixteen. ‘Asian trader’ was a   three storied shop. The owners, who were Tamil,   went to the President, who referred them to Customs. But Finance ministry had blocked any relief being given. Then they went to Mano Ganesan. a meeting was arranged in the parliament complex   where ‘they were given a telling off by a UNP politicians’.

‘Prasad textiles’ in Piliyandala, belonging to the President of the Federation of Traders Associations, ‘India Dress Point’ in Anuradhapura , belonging to the  secretary of the Federation, ‘Hemara Rich look’ in Galle and   ‘Colombo shirts ‘in Pettah  were sealed on   11.8.16 . The owner of the Anuradhapura shop had been the principal financier of Maithripala Sirisena in Anuradhapura. ‘Prasad’ and ‘Hemara’ owners had also played a leading role in financing the UNP campaign in their areas.  Traders said they intend to complain to Human Rights commission and present FR petitions in Supreme Court against the repression launched by the government and also inform the public and the international community about this harassment.

VAT was now charged on goods that did not have VAT before. Previously the VAT on the retail and wholesale trade was limited to large establishments with a turnover of more than Rs. one million a day. This did not affect the rest of the trade. But now the threshold was brought down to Rs. 33,000 a day. that brings even small establishments within the ambit of VAT, said Chandraprema.  The small and medium sector is the largest employer in the country, not the government or the formal private sector. Operations of small and medium business places in economic hubs like Dambulla, Embilipitiya, Pamunuwa, Pettah, will be endangered.

Small traders countrywide are the source for essential commodities to lower income groups, said Chandraprema.  They would sell even small quantities. they will sell milk powder by the spoon to those who cannot afford to buy a packet. The imposition of VAT on small business like eateries, barber shops, retail shops, repair shops, service stations, furniture shops as well as cottage industries will be a severe burden on that sector as they operate mostly on credit,

VAT was initially imposed on those with a daily turnover of more than Rs 33,000 a day had been increase to those with turnover of 138,000 a day. The first proposal would have brought virtually every small shop in the towns across Sri Lanka into the VAT. a storm of protest arose. But in the revised proposal too, most small hardware, clothing, shoe and furniture shops, bakeries and eateries and shops selling mobile phones and other such consumer durables will be affected. For these small and medium enterprises the increase is therefore from nought to 15%, said Chandraprema.

VAT is imposed on turnover not on profits. So VAT will result in an immediate rise of prices. And when the affected shops increase prices, the smaller shops will also do the same. The price increase will be around 15%. the large establishments will try to break their operations into sections which will then not have to pay VAT. even then price increase will be around 15% increase. ‘Vat payable on daily basis increases with each increase in turnover and they are not amounts that business can pay and survive. VAT will eat into the retail margin. When retail sales drop as a result of increased prices, it leads to a chain reaction and the manufacturers who supply the goods will not get enough orders to be able to break even, concluded Chandraprema.

Yahapalana had promised free Wi-Fi for all but taxes on the phone bill now amounted to more than the call charges. Cell phone charges have doubled.   Taxes on internet fees had increased so internet charges will go up. The VAT on telecommunication service will hold back growth in ICT, also related industries like business process outsourcing, said C.R. de Silva. There is VAT on Health services, lottery tickets, cooperative services and Lanka Sathosa services as well.

The motor industry has been reeling from the effects of motor taxation charges made in three consecutive budgets since 2015. car sales plunged to over 50 per cent compared to previous years, said critics.  There was a significant fall in new car registrations in February 2017 itself. ‘The number of customers visiting vehicle showrooms has come down to near zero. Most visitors to car sales outlets walk away without buying vehicles due to high prices.’ the vehicle import business is on the verge of collapsing triggering fears of job losses for hundreds of people currently employed directly and indirectly in the industry.  It will definitely collapse if the government attempts to extract more taxes from the sector.    Such taxes on vehicles will facilitate Indian made vehicles, critics observed.

Tea Exporter’s Association (TEA) has complained of the high taxes imposed on the sector. Exporters have to renew their licence with the Tea Board annually at a cost of Rs. 500,000 for large and medium tea companies and Rs. 50,000 for small companies. Yahapalana has also increased the tea cess and tea promotion levy.  The payment amounts to around 1.5% of the annual tea exports revenue. This may be the highest cess payment made by the tea exporters in a tea producing country, exporters said. Tea production is on a declining trend in the last few years but Yahapalana does not care.

Yahapalana says this increase in tax is a temporary one. We do not expect to leave the present tax burden on the people for a long time.  Tax will be reduced once the economy gains momentum, Finance Minister Ravi Karunanayake said. Yahapalana will systemically reduce taxes with the passage of time. Once the expected revenue was earned to match government expenditure, the need to raise taxes will not arise in future budgets, said Sarath Amunugama. The VAT is to permit an economic ‘lift off’   and also to repay loans obtained by the previous government. ( continued)

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