VAT exemptions will not bring down prices

Neither a reduction of food prices nor fuel prices could be expected despite the Value Added Tax (Amendment) Bill which provides certain tax exemptions being passed by Parliament this week, Trade and Consumer Affairs Minister Bandula Gunewardena said.He said although the prevailing 15 percent tax rate in terms of petrol has been reduced to 5 percent by the new amendment a reduction of fuel price is highly unlikely on account of the dynamic fluctuations taking place in relation to world fuel prices.

He said in spite of a similar reduction of tax rates for dhal, green peas and other grains, the prices of these grains cannot be controlled since intense fluctuations take place in the world market owing to the demands of the bio-fuel industry. Mr. Gunawardena said that taxation is an inferior tool when massive fluctuations of prices take place in the world market.

A Finance Ministry official told The Sunday Times that local products such as milk, sugar, prawns, rice and other rice related products have been exempted from value added tax with the aim of encouraging local production and some concessions on VAT have been given to cooperative societies.

The new Bill exempts from tax imports like aircraft engines, aircraft spare parts and the fibre used in the apparel industry. In addition, identified plant and machinery imported for the use of new establishments in the Eastern Province under the ‘Nagenahira Udanaya’ will also be exempted from VAT.