The festive cheer of firecrackers that thunders every 31st night in December was quickly punctuated by chatter of an 18 percent Value Added Tax (VAT) that was to be imposed on nearly every essential item. However, the Government was quick to point out that most essential food items will still be totally exempted from VAT and the items that were already subject to VAT would only see a three percent rise, as these were already subject to 15 percent VAT. But around 97 previously VAT-exempt items were added to the VAT list, among them books.
By midday on January 1, a receipt of a purchase of just two books from a leading bookstore in Colombo was making the rounds on social media. The bill showed the store had imposed an 18 percent VAT, bringing the total price to Rs. 4,071, when it could have been Rs. 3,450 a day prior.
Books
This was just one of the most highlighted aspects of the new VAT hike, the removal of all books (locally published and imported, including educational books) from the exempted list. The Government has defended the imposition of VAT, citing the need to meet revenue targets under the International Monetary Fund (IMF) program.
The European and International Booksellers Federation (EIBF) and the International Publishers Association (IPA) have expressed concern on the imposition of an 18 percent VAT on books imported into Sri Lanka. Karine Pansa, IPA President said: “While we acknowledge that certain fiscal policies are necessary in times of financial difficulties, we do not believe that cultural products, including books, should be subject to such measures.
Tariffs should not be imposed on books, regardless of format, because of their key role in ensuring the success of education, literacy and cultural development policies in all countries. Books, whether for adults or children, provide the basis of reading skills, curiosity, comprehension and individual enterprise, all of which contribute to a country’s sustained socio-economic growth.”
Re-production
Sunethra Mendis, a mother of two whose children are in Grade 8 and 9, told the Sunday Observer that she has already decided to get local re-production of the same book in black and white at half the price, since the original textbooks are no longer affordable.
This is also the first time fuel has been placed under VAT in Sri Lanka. Diesel and petrol prices were hiked with effect from January 01, but the price of kerosene was reduced as it is VAT-exempt, Ceylon Petroleum Corporation said. Accordingly Petrol 95 Octane was raised by 38 rupees to 464 rupees, standard diesel was raised by 29 rupees to 358 rupees, euro 4 diesel was raised by 41 rupees to 475 rupees but Kerosene was cut 11 rupees to 236 rupees a litre. The hike in fuel price saw an immediate domino effect on prices of everything from fresh produce, to transportation and beyond.
Several three-wheeler drivers associations rallied together to announce a hike in prices from the second kilometer onwards. They announced that three-wheeler fares will be increased by Rs. 20 from the second kilometer (km) following the Government’s recent policy to increase the value-added tax (VAT) by 3%, from 15% to 18%. Accordingly, the second km will be Rs. 100.
Meanwhile, the Lanka Private Bus Owners’ Association told the media that there will be no bus fare increase despite the VAT increase. Speaking to the media, the Association’s Chairman Gemunu Wijeratne said that they had no intention to increase bus fares based on their fare-related policies. He attributed this to the fact that although fuel prices were slashed in December 2023 there had been no reduction in bus fares. This time, even with a VAT hike, he said they are unlikely to increase fares.
The All Ceylon School Children Transport Association however has decided to increase school transport charges from February this year. Already several school transport providers have informed parents of the new rate when the new school term comes around. Hameed Hussain, who runs a school van service in Dehiwala for two local schools, said that he has seen a drop in students coming by van. The new price hike which he has already informed parents may affect any remaining revenue he makes. “The prices of spare parts never came down, it’s still costly to put the vehicle to service or maintain, how am I going to continue providing this service with such a sudden increase. What can I tell the parents?,” he queried.
Vegetable prices
As of last week, vegetable prices were already at an all-time high. The retail price index issued by the Statistics Department showed that certain vegetables were unreasonably expensive. A kilo of tomato was priced at Rs.900 and green chilies at Rs.2000 and beetroot at Rs. 1000 and long beans at Rs. 800. Traders at the Peliyagoda Vegetable Market told Sunday Observer last week that visitors to the market have dwindled. Nishanthi Perera who owns a stall at Dambulla and at Peliyagoda said that people are afraid to even ask the price of the vegetables. “When we tell them the price, they pick a few beans, a chili, two tomatoes and an onion to go. They say they cannot afford bigger weights. We’ve also reduced the quantity of fresh produce that we now haul since most of it is going to waste.”
Sri Lanka’s primary gas dealer, Litro Gas Lanka increased prices of its domestic LP gas. Litro Gas Lanka Chairman Muditha Peiris said that the revised prices will come into effect from January 1st. Accordingly, a 12.5 kg of LP gas was increased by Rs.685 to be Rs.4,250, the 5 kg LP gas was increased by Rs.276 with the new price coming to Rs.1707. The 2.3kg LP gas was increased by Rs.127 which costs Rs.795 today.
The Finance Ministry announced in a statement that 43 items will be exempt from VAT, items that impact low-income households. These items included, education, medicines, health services (excluding hospital room charges), some essential foods and grains. Some essential foods and grains are however subject to a special commodity levy (SCL) which is low for some foods and high for others, mainly to make the products more expensive than the global prices and give high profits to farmers and some dairy producers.
Sri Lanka also controls the import of maize with both taxes and licenses, pushing up the price of poultry, eggs and milk products. Sri Lanka had 138 items which were exempt from VAT which was undermining state revenues, the statement said. The exempted items include wheat and wheat flour, infant milk powder, medicines, medicinal products (except perfumes), medicinal raw materials, prosthetics, wheelchairs, equipment for disabled, equipment used by blind persons, Braille equipment, Braille typewriters and items that can be exempted by the Minister on request by disabled, agricultural seeds, plants, prawn feed, shrimp feed, except for chicken feed other animal feed, thread for textile industry and dye for handlooms.
The exempt services includes education services, financial Services, health Services (except room charges), Goods under Special Commodity Levy, Locally produced handlooms, Local rice, rice flour and bread, Locally produced unprocessed, agricultural, fish items (green leaf, rubber, all vegetables, agricultural crops, fish) among others. However, some traders were seen using VAT as an excuse to jack up prices.
