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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Sri Lanka lowers food taxes, gas price allowed to fall

Sri Lanka lowers food taxes, gas price allowed to fall

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Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
July 14, 2012 (LBO) - Sri Lanka has cut excessively high taxes on several imported foods improving the food freedoms of the poorest sections of the population and has also allowed cooking gas prices to fall.

A notice published by the finance ministry said high taxes on 'key essential consumer goods' had been cut on the instructions of the president to provide "relief to the consumers'.

Sri Lanka has imposed high taxes on basic foods to maintain high state spending and provide rents to special interest production groups.

The finance ministry said a tax on canned fish had been cut to 50 rupees a kilogram from 85, on dry fish to 75 from 100, on fish from 30 percent or 35 rupees to 10 percent or 10 rupees a kilo, on sprats from 30 rupees to 10 rupees.

Import taxes on were potatoes from 30 rupees a kilogram to 10 rupees and large onions from 35 rupees to 25 rupees.

Cooking gas prices had been cut by 150 rupees for a 13.5 kilogram cylinder.

Sri Lanka has a Supreme Court mandated cost-based price formula for cooking gas to prevent arbitrary price manipulation by rulers and it is not clear whether the cut was in line with the formula or arbitrary.

Sri Lanka was pushed into a balance of payments crisis in 2011 by credit taken to manipulate oil prices and money printed to manipulate interest rates. Prices of all goods went up when the rupee fell from 110 to 134 levels. Monetary policy has since been tightened.

Economists and analysts have called for a price formula for petroleum to prevent arbitrary pricing by rulers from undermining macro-economic stability. Global petroleum prices have plummeted during the past several months, so far only gas prices have been cut.

Sri Lanka has peculiar economic policies where basic foods prices are kept at much higher than the rest of the world by blocking access to cheaper food, but rulers print money to give energy subsidies.

Taxes are suddenly raised by a midnight gazette notice while citizens are literally asleep.

Earlier this year consumers saw a head on clash between nationalist protectionism and interventionism when taxes on milk powder was suddenly raised by rulers through a mid nigh gazette to 'protect dairy farmers'.

Ironically the protectionism came days after the consume ministry which has powers impose price controls refused a request by importers raise prices, after costs went up with a after the rupee fell.
http://lbo.lk/fullstory.php?nid=1945290688

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