By Mandana Ismail Abeywickrema 

Reluctant to pass on the benefit of the declining global fuel prices to the Sri Lankan consumers, the present administration has sought refuge in various claims, allegations and even threats to avoid facing the issue head on.

The government has so far made several claims for the non-reduction of local fuel prices and they range from allegations of a conspiracy to undermine the war efforts of the security forces to hindering the country’s development activities.

However, the latest claim is in fact a threat. It is a threat to cut down relief measures offered to the poor if the government was forced to reduce taxes.

The government has said that if the taxes were reduced further by the courts some programmes initiated with the aim of providing relief to the poorest in the country would have to be cancelled.

Agriculture and Agrarian Development Minister Maithripala Sirisena addressing a meeting recently has said that taxes were essential to run a government in any country in the world.

“If there are no taxes there would no relief,” the Minister has said.

However, through the 2009 budget the government has already increased the tax burden on the people.

A plethora of new taxes

Although the 15% VAT component has been reduced to 12%, economists have pointed out that the reduction has not affected the government’s tax collection due to the imposition of a plethora of new taxes as well as the increase of several other existing taxes and cess.

Initial calculations have revealed that an additional Rs. 30 billion would be placed on the people in the form of tax payments for 2009. (Rs. 1,500 in additional taxes to be paid by each person.)

In the 2009 budget, there have been increases in cess on imported items, notably consumer goods, food items and even animal feed.

The masses who have been burdened with high commodity prices and an intensifying battle for survival amidst a soaring cost of living for the most part of this year, were hoping for some relief in 2009 with the declining global fuel prices.

Unfortunately, the consumers got the rudest of shocks with the slapping of heavy taxes and cess on imports of even essential commodities such as flour, sugar, milk powder etc.

The only hope for the suffering consumers in Sri Lanka was the declining global oil prices.

As the price of a barrel of oil slid down to a record low this year, consumers believed that the government would definitely pass on the benefit to them, given the immense hardship endured by the people in the last few months.

 Seeking legal redress

The government however, did not reduce the local fuel prices and after much protest, the main opposition sought legal redress to force a fuel price reduction.

With the Supreme Court issuing a directive calling for the reduction of fuel prices, the government responded with various claims, allegations of conspiracies and threats on the people to justify the non-reduction of fuel prices.

A key argument presented by the government today is that there was a need for money to fight the war and engage in development activities. They say that the money is earned though various methods and taxes were a key revenue generating measure.

Analysts have however pointed out that the government would not incur a huge revenue loss due to a reduction in local fuel prices.

Reducing the price of a litre of petrol to Rs. 100 would result in the government losing  only Rs. 22, as the current market price is Rs. 122, analysts say.

Profit from petrol sales

However, they also note that the government in its revenue column in the 2009 budget has calculated only Rs. 12 as the profit from petrol sales next year — a Rs. 10 reduction from the present profit of Rs. 22.

The CPC usually sell approximately 50 million litres per month and if the government reduces the price of a litre to Rs. 100 and incur a loss of Rs. 12 per litre, it would only lose a sum of Rs. 600 million. According to budget estimates, the government loses Rs. 7,200 million from its revenue annually due to fuel sales.

Considering the fact that the government intends to spend Rs. 177,000 million for the war and Rs. 225,000 million on public sector salaries, analysts say that the amount the government would lose due to a price reduction would be far less.

On the other hand, it is also pertinent to note that the government has allocated a sum of Rs. 6,000 million for Mihin Air, a venture that has so far incurred a loss of Rs. 3,200 million.

According to the government, the revival of Mihin Air was important to ensure that the Sri Lankan people had a budget airline for their foreign travel.

Funds for a bankrupt airline

An argument could then be built as to the feasibility in allocating funds for a bankrupt airline while commuters have to pay exorbitant amounts to use a common mode of land transport like motor bikes, three wheelers, etc.

On the other hand, analysts say that the government imposed a tax of Rs. 5 on an imported litre of diesel after the budget presentation (not included in the 2009 budget estimates). According to statistics, the government sells up to 140 million litres of diesel per month and the imposition of the new tax ensures the government an additional income of Rs. 8,400 million per year.

Analysts point out that therefore, the government could easily use the Rs. 8,400 million earned through diesel sales to cover the losses incurred by the reduction of petrol prices.

The opposition political parties have also shot down the government’s claim that a fuel price reduction would lead to a decline in war allocations.

The main opposition, UNP, claims that the government has made a false statement by saying a fuel price reduction would cause a decline in the funds allocated for the war.

Allocation for Army

According to the UNP, under Vote 221 of the appropriation bill, only Rs. 5,610 million has been allocated for the army while the government has set aside Rs. 6,000 million for Mihin Air.

Meanwhile, the JVP too has expressed its displeasure at the government’s failure to reduce local fuel prices, even following the Supreme Court directive.

“It is wrong to state that the loss incurred by a fuel price reduction would hinder war and development. Considering the massive amounts of money allocated for the war and to pay the public sector salary bill, it isn’t that difficult for the government to earn the amount lost through the price reduction on petrol,” JVP parliamentary group leader Anura Dissanayake told the media last week.

He said that the government has already earned this amount.

“After the budget, a levy of Rs. 5 was imposed on a litre of diesel. As 140 million litres of diesel are sold each month, the government has earned an extra Rs. 8,400 million. In addition, Rs. 6,000 million has been reserved for Mihin Air. This entire amount is enough. Therefore, the government’s claim of a lack of funds for war and development is false,” he said.

He added that the CPC produces around 55 to 60 metric tones of gas and 1,400 domestic gas cylinders on a daily basis.

Sales made to a friend

He also alleged that the CPC sells gas to a certain friend of the government at the rate of Rs. 37 per kilogramme and a domestic gas cylinder is sold to that company for a price of Rs. 467. However, the company sells a gas cylinder at 1,700, acquiring a profit of more than Rs. 1,200. “This man also accompanied the President in his Turkish tour. Due to this state of events, the government incurs an annual loss of Rs. 17.5 million. The petrol price loss can be covered by these,” he said.

He also said that while the government’s claim that it was unfair to sell a litre of petrol at Rs. 100, an oil tanker had arrived from the Indian company Reliance with 15, 000 metric tonnes and the cost of the oil would be Rs. 99 per litre, even if the import levy is calculated at Rs. 70.

The JVP has also raised the question, if the government can purchase the Continental Hotel for Rs. 50 million at a financially difficult time, was it really unable to cover the loss incurred from reduced petrol prices.

Several analysts have said with much displeasure that a government that made the country lose US$ 700 million through a hedging deal is now showing immense concern on losing out Rs. 7,200 million per annum due to a fuel price reduction claiming it would hinder the war effort of the security forces.

Many have ridiculed the government’s accusation that calling for a reduction in fuel prices by the opposition parties was  a conspiracy to hinder the war efforts. They say that the call for a reduction in local fuel prices has intensified due to the decline in the global oil prices. Therefore, the real conspirators they say, are those who have worked to reduce the global oil prices.