The Upcoming VAT Price Shock - EDITORIAL

In October 2023, the Sri Lankan Cabinet granted approval to increase the Value Added Tax (VAT) to 18% with effect from the 1st of January 2024. The new enhanced tax would be applicable to certain other goods and services which at the time were exempted. 

The amendment was passed with a majority of 45 votes, with 100 MPs voting in favour and 55 voting against the bill. With the SJB - the leading political party in the Opposition - alone having 54 MPs in Parliament, it meant a number of members of Parliament sitting in the Opposition also have voted for the extension of the Value Added Tax to cover goods and services which were not covered by the tax earlier.

This column has for a considerable time been highlighting the burdens and difficulties ordinary citizens have been undergoing since the economic meltdown arising from the country declaring itself bankrupt in 2022. In this column we have also repeatedly called for immediate steps to be taken to lighten the burden on the poor and the deprived.
Unfortunately, rather than seeking to ameliorate the pain of the more deprived sections, the government has for reasons best known to itself seen it fit to add to these burdens rather than provide any form of safety net to this unfortunate section of our population.

Latest statistics published by the government’s own Department of Census and Statistics reveal that the monthly income of 60.5% of households has decreased. At the same time 91% of households report an increase in monthly expenditure! 

Today, the average income in the country ranges between Rs. 40,000 to Rs. 60,000 per month. Yet the cost of providing three basic meals per day for a family of four is over Rs. 120,000. In other words, if both parents worked and received the upper limit of Rs. 60,000 per month they would have only sufficient funds for meals. 
This does not include funds needed for children’s education, clothes, medical expenses, travel or recreation. 
The survey also shows 22% of all households are indebted due to the economic crisis. What it does not say is that these families have under the present circumstances little or no chance to get out of their situation of indebtedness.

And, it is in this situation that the government is about to impose a further 18% tax on the already over burdened populace.
On the surface the country seems calm but when the VAT shock hits in the post 1 January 2024 era, people can hardly be expected to remain calm and quiet in the face of impending starvation.

This is not the first time this country has faced this situation. Back in 1866 our ancestors faced a similar situation. Then, as now the country depended on imported rice to meet the shortfall in local rice production.
In 1866, grain riots broke out over the price of rice and the weak British colonial response to the crisis. 
In 1796, in the aftermath of Britain colonising the country, it imposed import duties and taxes as a means of raising revenue. 

In 1866, a great famine struck India, ruining its paddy crop and killing millions of Indian people. 
A fallout of that famine created a shortage of paddy in the market. This in turn led to the price of rice tripling, which left most poor Ceylonese families who depended on rice impoverished.

The British colonial government did nothing to alleviate the situation and people starved. 
The ‘Ceylon Times’ asked of the Governor “does he expect to see starvation at Galle Face or at Cinnamon Gardens where he takes his evening drive?”
Riots broke out on 21 October as people looted shops and shop owners armed themselves to protect their property. 

We will be facing a similar situation today, if the government authorities do not pay heed to the people who have reached starvation point. If this situation continues, it may not be long before citizens will be forced to take to the streets as in 1866.
God forbid that we see the day when some military commander orders his troops to fire on hungry masses of this country, as Napoleon did in France during the French Revolution!