Low tax regime made meaningless as people confront soaring prices

• Food inflation has been hovering near 10% and likely to go further up with fuel price increase 
• Economists point out inflation is type of a tax on people
• They point out tax cuts by govt. have become pointless with surge in consumer prices
• Supply-side delays due to COVID-19-related restrictions identified as main reason for price surges

The continuous COVID-19-related restrictions are making the government’s low tax regime completely useless, as the consumer and producer prices have surged significantly, adding a much higher tax on people than a true legislated tax imposed on them.

Sri Lanka has been experiencing inflation near 10 percent on its overall food prices, even before the fresh restrictions were imposed from May and the prices slated to go further up, following the surprise fuel price hike last week. 

The bakery and confectionary producers yesterday said that they are compelled to increase their retail prices by up to 10 percent, just to stay afloat, while the private bus owners last week called for a 25 percent hike in bus fares, if they are to carry passengers at no more than seat capacity under the health guidelines. 

“I don’t think there is any use remaining in the lower Value Added Tax or the low personal income tax, which these people (government) gave when they came into power because if you look at the exponential rate at which the consumer prices are going up, that adds up to much more than what the people could have saved from all these lower taxes,” said an economic analyst on grounds 
of anonymity. 

“Everybody knows that inflation is a tax on the people,” he added. 
What made the matters worse is that large swathes of people haven’t been able to earn an income, due to the restrictions on their livelihoods, dealing them a double whammy on their lives. 

Earlier this week, Nishan De Mel, an economist and Executive Director at Verite Research, a Colombo-based think tank, said increasing tax on cigarettes would make better economic sense than raising the fuel price to fill up the government coffers, which are increasingly running dry. 

Sri Lanka’s myopic authorities have kept the economy closed for nearly two months now, instead of finding ways to maintain a working economy while adhering to the health guidelines.