Special Assignment


Whacked from all sides, VAT next?
By Chamintha Thilakarathna, Nilika de Silva and Faraza Farook
With prices of essential commodities escalating, the people's expectation of a consumer friendly economy after the December 5 election, appears to be backfiring with the potential danger of a public backlash.

Within the past six months, prices of fuel, electricity, water, telecommunications, postage, medicines, foods and van and threewheeler fares have shot up at a rate that millions of people find unbearable.

Most people feel the government has practically done little or nothing to manage and monitor the cost of living.

Most traders say the main reason for the rising prices is the steady decline in the value of the rupees but consumers say the greed for more profit and other hidden reasons are also playing a major role. Most consumers are particularly disturbed about the validity of the huge increase in electricity rates, while even the earlier 25% surcharge has not been withdrawn. They ask whether the authorities are plundering more money from the people to make up for losses caused by large scale rackets in the Ceylon Electricity Board.

Officials at the CEB gave vague reasons including heavy losses and political connections - in explaining why the surcharge was not withdrawn.

As a result of the continuing surcharge , bureaucratically described as a fuel adjustment charge a family of six members whose electricity bill was an average of Rs.800 now has to pay about Rs.1800 a month.

"We were in the dark for most of April due to the power cuts, but the blackout blow was that we had to pay a higher bill," an angry consumer complained.

Meanwhile, the charges for tap water and telephone calls have also increased leaving most consumers in a dizzy spin with little hope of any pay increase or effective price monitoring by the government.

The gas price crisis especially would be a laughing matter if it was not such an expensive one, consumers say. The widely criticised Shell gas first reduced prices under some government pressure but again increased prices this month claiming world prices had gone up, though state radio quoted a top Petroleum Corporation official as saying the Shell gas hike was unjustified. As a competitive measure aimed at providing relief to consumers the government has given the go ahead for at least two more domestic gas companies. But most consumers complain they cannot switch over to the less expensive one because it would mean buying a new cylinder also at prices ranging from Rs. 1000-3000.

They say unless the government makes provisions for any brand of gas cylinder to be used to buy any gas, setting up new companies would be of little benefit to consumers.

Even for the daily meals most families are now paying twice as much. Vegetable prices have gone up by around 50% from January to June and with fuel prices going up every month the rates are likely to soar to three figure levels.

Postal charges were raised in April by more than 25 percent. This hike means that an ordinary letter to West Asia suddenly went up from Rs. 17 to Rs. 23, and the cost of a registered letter or a parcel double. But the service as such is not improving but getting worse.

The prices of all fuels including petrol, diesel and kerosene have been raised four times since February, the latest hike coming last Friday.

Health care is another agonising area where the price of the pills appear to be worse than the ills. Drug companies say they have no option because the rupee value is falling. But patient right groups have been pointing out that if good quality drugs are imported under generic names or from cheaper sources in India or Pakistan the prices could be brought down. Adding to the pain medicinal drugs which were hitherto imported duty free are now to come under a 10% Value Added tax unless the government reviews the VAT scheme in response to several appeals.

As vital as food and health care is education with costs in the sector also keeping pace with others. Many schools and tutories have increased their fees.

With most families having little money left for outings or special meals, restaurants are also feeling the pangs of the COL crisis.

Some managers said the number of customers had dropped by about 20 percent over the past six months.

Flower Drum General Manager Suki Wu said, "we are unable to increase prices instead, we have been absorbing the price hikes. However, we don't know what VAT would do," he said.

Indeed all will have VAT from July 1 and what will happen is as open as the skies. Former PA minister and Labour leader Alavi Moulana put it aptly saying that after VAT we might be flat. According to VAT all goods and services will be taxed- 10% for items classified as essential and 20% for others.(see box).

As other governments did the UNF also has appointed high level committees with high level ideas on monitoring and controlling the cost of living. But as usual so much is promised and so little produced.

One of Sri Lanka's most senior civil servants K.H.J. Wijedasa is now the chairman of the inter ministerial committee on food security. What he says offers little consolation to struggling people. "People who believe that prices can be controlled are living in a fool's paradise," Mr. Wijedasa says.

"The oil prices are determined by OPEC . The Rupee depreciation against the dollar reflects on the imports. If you embrace the open economy or free market economy, it reflects on all the items that we import. These are totally beyond human control," Mr. Wijedasa said.

"Today a kilo of carrots is Rs. 100. How can you control the price of carrots?" he asked.

But other economists do not agree with K.H.J. Wijedasa's carrot and stick outlook. They say price trends in vegetables are determined by the season and price controls are not impossible. As a market tactic food items are often stocked as a means of price control. Similar methods could be used to bring down cost of locally produced goods.

Though costs in all sectors are keeping pace, one exception is the pay packet. Public Services Trade Union Federation Chief W.H. Piyadasa complains that salaries of public servants have remained stagnant since 1997, with the exception of a proposed temporary allowance of Rs.2200, out of which the second half will be paid from October this year.

According to him the average salary of a public servant is Rs.3,400.Even to survive public servants would need at least Rs. 2500 more.

Govern or go
The main Opposition PA- attacked by the UNP earlier mainly on grounds of mismanagement of the economy-now asks with some justification as to who is mis-managing what.

"The present situation is a result of the poor policies of this government. It cannot keep blaming the PA for the present economic woes. It's six months since the UNF took office. Even Cabinet Ministers have said at last weeks meeting they cannot cope with the rising cost of living. The economy is on the verge of collapse," former minister Sarath Amunugama warned.

"The government is "asleep at the wheel." The price of a litre of diesel was Rs. 27 when we left office. Today it is Rs 33. The government must be able to control prices otherwise why should there be a government running the country?

"Today we have one of the highest electricity rates in the world. The overall COL has never been so high . Mismanagement by this government has led to this situation. The rupee is also fast depreciating. The government which came to power after harping about the high cost of living under the PA has failed miserably to keep to its promises," he said.

Choksy optimistic
Finance Minister K.N.Choksy strongly defends government policy claiming VAT has more positives than negatives.

He said GST and NSL together had imposed a tax of 19% while GST would levy only 10% on lots of essential items and that would provide some relief to consumers.

Addressing Parliament Industries Minister Rohitha Bogollagama also defended VAT saying the benefits would be seen in the long term.

What VAT means
The Ceylon Chamber of Commerce is warning that when VAT comes into effect from next week what might happen is not likely to bring more relief but more burdens for the people.

CCC chief and economic analyst Chandra Jayaratne said he feared prices of all commodities including essentials would go up with VAT.

"While a tax of 20% will be charged on non-essential goods and services, 10% will be charged on essential goods and services. This implies that school fees, milk products , food, tea, sugar, pharmaceuticals, fertilizers, basically every item henceforth will be taxed," he warned.

He said that under VAT only exports would not be taxed but there too some discrepancy would arise with taxes for raw materials at the production level. Mr. Jayaratne said he hoped the proposed VAT amendments to be introduced in Parliament next month would make some exemptions but that too would create other complications.

VAT or no VAT
The VAT works in four segmented lists. The high rated (non-essential), low rated (essential) , exempted list, and the zero rated list.

Zero rated refers to items where no input or output taxes are charged. In short, these will be tax free and any tax charged will be reimbursed. This category includes certain international transactions and exports.

Exempted list refers to items and services that will not fall into either the essential or the non-essential categories. However, these items are taxed although the tax will not be as high as 10% or 20%. They will pay input tax which means when purchasing items on this list a small tax will charged. This will be in addition to price hikes due to raw material tax inclusions.

The essential and non-essential operate on a list basis. However, these lists have yet to be finalised and they will directly charged the mentioned rates. The exempted list includes a variety of items amounting to hundreds that are impossible to be listed below, therefore, a selected number have been listed.

Essential (10%)
Cinema, films, coconut, poonac, tea, coconut oil, potatoes, oinions, infant milk products chillies, copra, planting material, live birds, chicken breasts and parts, unprocessed meats, magazines, journals, powdered milk, infant milk, condensed milk, lentile, sugar, jaggery, sakkara, pharmaceutical products and raw material, ayurveda unani and homoeopethic products and raw material, dried fish, maldevian fish, bulk water, fertilisers, petrol, diesel, solar batteries, fertilizers, motor coaches and chassies or body parts with over 25 seating capacities for public passenger transports, agricultural tractors, machinery, solar systems, CFL bulbs, solar home systems, industrila machinery other than personal or household items, electric motor generators, electricity more than 30kW per month, electricity bulbs, construction and sub construction contractors, hotels, guest houses, restaurants, internal tours, private schools, services provided by FEB, professions and vocations,etc.

Non essentials (20%)
Every item excluded in the essential and exempted lists such as newspapers, bottled water, timber, processed meats, etc.

Exempted items(lower tax rates)
Unprocessed agriculture, fish items, forestry products, rice, flour, wheat, liquid milk, public passenger transport, medical services (govt and private), government education,etc.

SC allows rights case of mentally ill youth
By Laila Nasry
A young man in his late 20s, said to be mentally ill as a result of being arrested and detained unlawfully, was given the go ahead by the Supreme Court last Thursday in a fundamental rights application filed on his behalf.

The application was filed by his lawyer M. Remadious on the instructions of Rajeshwary, the mother of the young man.

A Bench comprising Justices Shirani Bandaranayake, Ameer Ismail and Hector S. Yapa fixed the hearing for August 23 and also directed the Registrar to obtain medical reports from the Magistrate's Court at Polonnaruwa.

In the petition Mr. Remadious states that having visited his client Anthonypillai Napoleon alias Anna in the Remand Prison in Kalutara he was aware of the condition of his client who was of unsound mind and unable to communicate or comprehend anything.

Further he alleges that his client who was of sound mind until the day of his arrest suffers from such a state due to the trauma undergone while being in custody.

Citing the Officer in Charge (OIC) of the Aralaganwila Police Station, IGP, Superintendent of Prisons and the Attorney General as respondents, the petition states that Anthonypillai Napoleon, the eldest and entrusted with the duty of supporting his family was engaged in the business of buying and selling betel at the time he went missing on August 5, 1996.

Although his mother Rajeshwary had made inquiries from the ICRC, Human Rights Commission and the Committee on missing persons, the replies received had been negative.

In the habit of making inquiries from persons returning from prison by showing them a photograph of her son, Rajeshwary was informed on one such occasion on January 5, 2002 that there was a person who is mentally unsound but who looks like her son.

On January 7, she visited the Remand Prison in Kalutara and upon making inquiries was shown her son whom she recognised immediately although he showed no signs of recognising her as a result of his mental state.

The prison records indicated that Anthonypillai had been brought to Kalutara on November 27, 2001 on an order made by the Polonnaruwa Magistrate.

Alleging that Anthonypilai's fundamental right was violated as a result of Aralaganwala police failing in their duty to inform the Human Rights Commission of the arrest, the petitioner requests court to declare his rights guaranteed by Article 13(1) and 13(2) had been violated and order compensation amounting to Rs. 200,000.

No faith against two ministers
By Dilrukshi Handunnetti
Two no confidence motions against Interior Minister John Amaratunga and Commerce and Consumer Affairs Minister Ravi Karunanayake are to be tabled in Parliament next week.

Opposition leader Mahinda Rajapakse told The Sunday Times that it was tragic that a new government of six months already merited no faith motions against its ministers.

According to him, the Interior Minister would be charge sheeted for initiating alleged false action against several PA legislators including Ajantha de Soysa, Sarana Gunawardhane and Dilan Perera.

He said that the action taken by the police to arrest these MPs on trumped up charges added to the harassment caused by various police personnel against identified PA supporters merited the no faith.

He added that the UNF assumed office pledging to control the cost of living which allegedly escalated during the PA administration due to bad financial mismanagement. Mr. Rajapakse said the UNF had proved completely ineffective in this area and a then vociferous opposition legislator who was made the relevant minister has totally failed to contain the rising CoL which has further burdened the public.

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