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Prices of bakery products, food parcels up, phone charges, doctors’ fees set to rise
A man with a phone in his hand walks past a display. Pic by Amila Gamage
The Value Added Tax (VAT) introduced this week (May 2) is causing confusion to both businesses and consumers with many complaining that there are many gray areas that have to be resolved.
Wholesalers, retailers and service centres alike are charging that the reduction in the threshold of the turnover of businesses has created panic among small time business as they will be liable for taxation.
According to the Inland Revenue Department business that has a turnover of Rs. 3 million per quarter is liable for taxation. That works out to approximately Rs. 33,000 a day. Traders argue that even small businesses such grocery shops will exceed the threshold mentioned and will be liable for VAT.
Silara Velanda Peramuna (a trade union of small grocery traders in Kandy), President Jagath Hewage said that since a product exchanges several hands before it reaches the actual consumer, the ultimate price of an item will be very high. “The product goes through a chain, from manufacturer to wholesaler, to distributor to retailer and eventually to consumer,” he said.
“Thus the cost of the item gets taxed four times or more before it reaches the consumer”, he said.
He further said that list of items exempted from VAT issued by the Finance Ministry is vague and some items mentioned therein are ambiguous. “Books have been exempted but exercise books and stationery items are taxed,” he said.
Stationery bookshop owners confirmed this and said that they are charging 15% on exercise books, CR books and other stationery items.
Although it was argued that the poor man will not be hit by the VAT increase all bakery products went up in price. The consumer found that the eateries have raised their prices as they wished..
The Bakery Owners Association President N.K. Jayawardena said that he was unable to control the price of bakery items adding that many bakeries have marked up their own prices.
He said that although wheat flour has been exempted from VAT the cost of other ingredients have increased. “We are paying 15% VAT and 2% Nation Building Tax (NBT) on all items purchased for production. The prices of buns and other items have gone up between Rs. 5 and Rs.10,” Mr. Jayawardena said.
He said the price of bread also might go up in the future. Only last month the price of bread went up by Rs. 5.
Meanwhile the prices of takeaway lunch parcels at wayside eateries frequented by office workers increased by Rs.20 or Rs. 30. An aerated water bottle selling at Rs.38 shot up to Rs.43 with a chilled bottle costing Rs.50 a bottle.
The Government has imposed an hitherto VAT free telecom service a 15% VAT. This includes telecom services, equipment, licenses and cables.
The fee on a telephone call has gone up considerably. Telecommunication service providers said that a customer has to pay Rs.49.74 VAT on Rs.100 worth of calls.
Further the telephone companies are expected to pass on the VAT they would pay on licensing, import of telecommunication equipment and cables for phone, internet and cable television connections.
Telecommunication Regulatory Commission Deputy Director Indrajith Handapangoda said the licensing will come into effect only when the existing licences expire and come up for renewal. “Usually licences are valid for five to ten years,” he said.
Licences for ISD (connection), and cable television operators is for five years and for telephones 10 years while for Cable TV operators it is 5 years. Also the prices of telecommunication equipment and handsets is expected to increase in price.
Meanwhile the private hospitals have already started billing the patients with a 15% VAT. Wijeya Ransi, Private Hospitals Association Secretary and owner of Western Infirmary said that although it is a burden on the people they have to pass it on to the patient. He said that the doctors’ fees will also be liable for VAT.
However he said the position on pharmaceutical drugs is not clear. “It is in the exempted list but we do not have any intimation from the finance authorities,” he said.
“We are merely going by the paper advertisement. Some hospitals have not started billing the VAT but we have,” he said.
Finance Ministry Fiscal Policy Deputy Director A.K. Seneviratne said that there should be no confusion as VAT is an indirect tax and has been charged even before. “It was 11% before and now it is 15%,” he said.
The only difference is that the turnover threshold on businesses has been brought down to Rs. 3 million quarterly, he said.
Explaining further Mr. Seneviratne said that every business that has a turnover of Rs. 3 million will have to register with the Inland Revenue Department for VAT taxation and pay the 15% tax. However he said that the businesses need not pay VAT for items exempted in the list.
In case of existing stocks the businesses should have the consent of the Consumer Affairs Authority (CAA) to have a revised price with the 15% VAT imposed.
He said that businesses have been informed through the print media and the web. The amended Act has to be drafted by the Legal Draftsman, sent to the Attorney General and passed in Parliament. “The Act will take around two months to pass and will be backdated to May 2, 2016,” he said.
Meanwhile car and electronic equipment importers and sales centres took this opportunity to boost their sales. Many businesses ran several commercials in the print media urging customers to purchase the products before the VAT came into effect.
Ceylon Motor Association President Gihan Pilapitiya said that VAT is not applicable to motor vehicles. He said that car importers are misleading the people by encouraging them to buy early. Businesses selling electronic equipment also adopted this ruse.
| Mark new and old prices on ex-stock products: CAA Consumers Affairs Authority Director General A.K.D.D.D. Aranagoda advised businesses that have ex-stock with the maximum retail price (MRP) marked on the product to consult their Agents and agree on a new MRP. He said that the MRPs are decided by companies manufacturing and distributing the products and that any changes to the price should be made by them. The new price sticker may be placed besides the old price marked on the product. He cautioned that the stickers should not be pasted over the existing marked prices. |