By Mandana Ismail Abeywickrema
The government without passing on the
benefit of the declining global prices is
now in the process of raking in a windfall
of taxes imposed through the budget for
Analysts point out that although global
prices were at a peak during the time the
2009 budget proposals were being formulated,
the situation has seen a drastic change
It has also been said that while the current
trend in most of the countries is to reduce
taxes with the aim of encouraging production
and consumption, the Sri Lankan government
was going in the opposite direction.
Economist Dr. Harsha de Silva said that
while the objective of the country should be
to reduce taxes, it was currently in the
process of imposing new ones.
He explained that while the government
planned the budget for 2009, the taxes were
imposed in line with the global economic
conditions at the time and the money from
the taxes were calculated to be essential
for the sustenance of the government.
Local prices not reduced
However, Dr. de Silva said that although
global prices have declined, the government
did not reduce local prices accordingly and
the government still continues to benefit
from the declining global prices as a
If one looks at the real situation, it would
definitely show that local prices do not at
all reflect the crashing global commodity
Interestingly even after the global prices
started to decline, reducing with it the
anticipated cash crunch, the government is
still continuing with a plethora of taxes it
proposed on various sectors burdening the
The government in its budget for 2009 has
proposed a large number of taxes as a
revenue collection measure.
Presenting the Nation Building Tax Bill in
parliament last week, Deputy Finance
Minister Ranjith Siyambalapitiya said that
the tax is imposed only on importers,
manufacturers and service providers.
According to him, importers, manufacturers
and service providers whose quarterly turn
over is less than Rs. 650,000 will be
exempted from the tax.
Welfare of security forces
"The revenue from the new tax is to be used
towards the welfare of security forces, and
to rebuild communities and infrastructure
facilities affected by terrorism,"
Several opposition legislators who joined in
the debate while criticising the new levy
said it would affect the small and medium
industries in the country.
A JVP legislator charged that all goods,
which are produced locally, would go up in
price by 1% because of this levy.
Meanwhile, UNP Parliamentarian Kabir Hashim
said some sectors including the construction
industry will be affected by the tax.
He said manufacturers will also be affected
as they will not be able to claim it as
their suppliers will not show it in their
Dr. de Silva said that the Nation Building
Tax would definitely result in an increase
in the prices of several commodities.
He explained that the imposition of the new
levy before the reduction of VAT from 15% to
12%, would definitely result in the increase
in price of certain commodities in the local
He said that since the Nation Building Tax
is applicable to importers, manufacturers
and service providers, the most affected
would be the services sector.
According to him, the various tax
concessions granted to the manufacturing
industries might minimise any adverse impact
on the manufacturing sector.
However, the service sector would be badly
affected by the new levy.
Dr. de Silva reiterated that the government
was siphoning out the benefit of the
declining global commodity prices and was
also collecting additional money through the
He said that given the decline in global
commodity prices, it seemed as if the
government was scooping out huge profits.
Citing an example, Dr. de Silva last week
said that the government's decision last
month to reduce milk powder prices by Rs. 15
was a move to mislead the people. He
explained that milk powder that was priced
at US$ 3,000 a metric tonne at the beginning
of 2007 saw a drastic increase in the global
market by mid 2007 as it reached US$ 4,500 a
During this period the price of a 400 gram
pack of milk powder in the local market
increased from Rs. 195 to Rs. 285, which was
a 150% increase given the 50% increase in
Price of milk powder
Although various ministers made statements
that the era of cheap food was over, the
global milk food prices once again declined
to US$ 3,000 per metric tonne. However,
local prices were not adjusted accordingly.
Dr. de Silva said that when the global milk
powder prices declined to US$ 2,000 per
metric tonne last month, the government
announced a reduction of a mere Rs. 15 in
It is indeed interesting that a pack of milk
powder that was priced at Rs. 195 when a
metric tonne of milk powder was US$ 3,000
was increased to Rs. 285 when the prices
increased and has now been subjected to a
reduction of only Rs. 15 when the global
prices have plummeted to US$ 2,000 per
Given this example, the government's
decision to impose new taxes in the present
global economic conditions is deemed unfair
Several opposition legislators have also
pointed out last week that billions of funds
generated from cutting wastage would be
enough to build the nation and a tax is not
needed for the purpose.
JVP Parliamentarian Premasiri Manage
speaking during the debate on the Nation
Building Tax in parliament has said that if
the Rs 6 billion allocated for Mihin Air, Rs
1.2 billion generated from the expenses cut
from Ministers,' Rs 37 billion collected
from VAT are sufficient to pull the nation
He had charged that the government was
hoodwinking the people by imposing new
Meanwhile, the so called economic stimulus
package presented by the government last
week as a new year gift for the people has
come under fire from many sectors claiming
it to be insufficient to revive the
country's flagging economy.
Following a closer look at the relief
package economic analysts are now calling it
eyewash presented to mislead the public,
especially given the downward trend in the
world fuel and food prices. Analysts say
that the reduction in local fuel and other
commodity prices do not in any way reflect
the huge decline in global prices.