News
VAT price bomb after May Day
Low and middle income groups will be worst hit by the Government’s move to raise Value Added Tax (VAT) to 15 percent from May 2.
Set to rise are their telephone, water and electricity bills. This is on top of their having to pay more for consumer items, medical bills and even private education.
The budget 2016 had proposed a two-band VAT rate – 8 and 12.5 percent instead of a single rate of 11 percent. This was, however, not implemented. In March, the Cabinet of Ministers accepted a recommendation from Prime Minister Ranil Wickremesinghe to raise it to 15 percent. This came in the backdrop of a deteriorating financial situation. At present, business concerns with a turnover of Rs. 3.7 million a quarter are required to pay VAT, but from May 2, the ceiling has been lowered to Rs. 3 million.
Though it was to take effect from April 1, it was put off in view of the then ongoing talks between an International Monetary Fund (IMF) mission and the Government. President Maithripala Sirisena, too, had asked that the VAT increase be put on hold until the National New Year was over.
A study by the Sunday Times revealed that an average low income or middle class family may incur an expenditure of about Rs 10,000 or more, taking into consideration the rising costs of various items besides the increase in phone, water and electricity bills.
For example, a family paying a monthly landline telephone bill of Rs. 2,500 will have to pay an additional Rs. 375. This is besides charges for mobile telephones which almost every member of a household now possesses. Besides that, a water bill of Rs 1,500 would mean an additional Rs. 225 and electricity at Rs 5,000 would entail a further Rs. 750. Besides these costs, bills for private medical services and private school fees will add to the burden.
The escalating effect of the VAT increase will also be reflected in the rise in prices at food outlets, including hotels and restaurants.