New Year over, prices to soar

Essential food items, fuel and drug taxes under consideration
By Bandula Sirimanna

Sri Lankans are to face another round of increases in the prices of food and basic services after the National New Year, with the government planning to increase taxes on consumer goods as state coffers run dry.

A top government official said the Treasury was considering a 10 to 15% hike in the price of essentials including food items, drugs, energy and transport as a result of a rupee depreciation and high trade deficit this year.

Taxes are expected to increase on chillies, chickpeas, dhal, cowpea, sugar, and milk powder. Prices of gas, petrol and diesel are likely to rise while train fares and telephone rates would also be increased, the official said.

Besides this, austerity measures being planned would include slashing subsidies, pruning welfare schemes such as Samurdhi and freezing public sector workers' wages, he said. While inflation is seen rising this year and economic growth is expected to slow down to 7.2% this year from an earlier projected 8% by the Central Bank, the latest proposed taxes on consumer goods are expected to boost depleted government revenue.

The recent increase in the taxes on motor vehicles was intended to ease demand and also to reduce fuel consumption. However on the negative side, the impact would also result in lower tax revenues.
A Central Bank official, referring to concerns in the rising cost of living owing to higher taxes on imports, said no country could continue the burgeoning trade deficit without any reduction or control. If the deficit continued to increase, it would be at a great cost to the economy, he said.

However Petroleum Industries Minister Susil Premajayantha said no decision had been taken to increase the price of fuel again. The Minister made a similar comment to the Sunday Times a few days before the huge fuel price increases on February 11.

Meanwhile, the Lanka Indian Oil Company (LIOC) has requested the Ministry of Petroleum Industries to allow it to further increase the prices of fuel. LIOC Managing Director Suresh Kumar said his company had asked for Ministry approval to increase the prices of petrol and diesel by Rs.15 a litre.

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