News

Nation building to cost the consumer

Increased tax would be passed on to people
By Malik Gunatilleke

Another blow would be dealt to consumers as prices of most goods are expected to rise with the impending increase in the Nation Building Levy as retailers and importers alike are forced to pass the burden of heavy taxes on to the consumer.

The Nation Building Levy (NBL) first introduced in the 2009 budget is due to be increased from 1% to 3% as of May 1 and many of the local industries’ and importers’ associations are concerned about the effect this tax would have on consumer goods and the cost of living.

Prices of consumer goods such as imported vegetables are expected to be hiked as soon as the tax increase is implemented at the beginning of next month as retail and wholesale traders claim that they cannot bear the cost themselves.

Old Moor Street Traders’S Association president K.P. Sundaram told The Sunday Times that prices of all imported vegetables along with most other food items will undoubtedly be increased at the beginning of next month.

“All these food items will be hiked by as much as Rs. 6 a kilo once the levy is increased. With other factors like the exchange rate and the low demand we have received these few weeks, this tax will be passed directly onto the consumers,” he said.S.P. Samy, the President of the Pettah Traders Association said that prices of food items such as potatoes, onions, dhal, green gram and gram which are only some of the imported goods will be hiked.

The hardware industry is also one of the many industries which have been pushed into increasing their retail prices once the levy is implemented. A spokesman for the Lanka Steel Centre claimed that there hadn’t been any changes in pricing as yet but the next shipment of steel would come with a new price tag.

“Once the new shipments of our imported items come into the store we will certainly have to amend our pricing to ensure our profit margins,” he said. The Manager of Modern Hardware Centre which provides steel and other materials for heavy construction said that the prices of all products would be amended. He said that because all products are imported, pricing would have to be increase to match the increase in the levy.Meanwhile the automobile spare parts industry will also be affected by the increase in the levy and spare part importers shared their concern over the effect the levy would have on consumers.

Chamila Asanka, Manager of Pala Auto Electricals said that all new spare parts will be increased by 2% as a result of the increased levy while motor garage services would also cost more now because of the levy. “We can directly pass on the increase on spare parts to the consumer but where our service station is concerned we will have to indirectly increase the charges so that our business will not be badly affected,” he said.

Mr. Asanka also said that the recent decrease in VAT is of no consequence now that the Government has increased the NBL to compensate for it. He said that the importers could in no way absorb this increase by themselves. A spokesman for Samarasinghe Motor Stores in Panchikawatte also claimed that its prices will soon be revised as import prices will increase greatly.

Pharmaceuticals will also increase in prices as Adrian Basnayake, President of the Sri Lanka Chamber of Pharmaceutical Industries told The Sunday Times that with the thin profit margins maintained by the local pharmaceutical companies a small 2% increase in taxes could mean a big difference.

“The local companies do not maintain large stocks of medicine and they only keep about a month’s worth of stock at a given time. The margins are also governed by old pricing formulas so even a small increase in taxes will affect the industry,” he said. Mr. Basnayake said that there would be at the very least a 2% increase on pharmaceutical items as the local companies can never absorb this sort of a tax on their own. He said that these increases will certainly be passed onto the consumers in their entirety.
Milk food items also threaten to increase in the coming month as the local milk food companies deal with international markets, fluctuating exchange rates and increasing domestic taxes.

Viren Wijesinghe, Finance Director of Fonterra Brands Lanka said that there will certainly be a cost incurred by the company through the increase in the NBL but it is yet to be felt by the consumers.
“We have not imported anything in the past two weeks so we will only know the effect of this when we receive our next shipment at the beginning of next month. After that we will have to rethink our pricing,” he said.

 
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