Wednesday, 17 July 2013 00:00
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COST of living is the undisputed kingmaker in a democracy and with elections coming closer every day, the Government could pay dearly for letting inflation spin out of control.
Recently, the Census and Statistics Department revealed that the expenditure of households, particularly in urban areas, is seeing an increase that is growing faster than the growth in income. While most people on the streets would have told this to the pundits of the department for free and with increasing vehemence, they would have continued to fall on deaf years without numbers to verify the same.
Now it would seem that those results are in and they do not paint a very positive picture for the Government. According to preliminary data of the Household Income and Expenditure Survey 2012/13 released by the Department of Census and Statistics recently, household real income, adjusted for inflation, rose 0.48% from Rs. 26,286 in 2006/7 to Rs. 26,414 in 2009/10 and increased 5.89% to Rs. 27,836 in 2012.
It was also reported that real expenditure of households, adjusted for inflation, fell 1.06% from Rs. 22,952 in 2006/7 to Rs. 22,704 in 2009/10 and increased 7.31% to Rs. 24,631 in 2012. In nominal terms, household spending on food items have increased 15.8% from 2009/10 to 2012 and household expenditure on non-food items grew 41.3%.
The statistics office said that the consumption of rice from 2009/10 to 2012 has not changed but wheat and bread consumption has fallen. The Government has also put itself in the line of fire by increasing taxes on imported essentials such as onions.
Housing (up 31.54%), fuel and lighting (up 34.89%), healthcare (up 55.91%), education (up 40.47%), transportation (up 55.67%), communication (up 18%) and all other household expenditure items have increased from 2009/10 to 2012.
With such significant numbers to contend with, the Government is finding it hard to explain away tax concessions to the rich, which includes those handed out to foreign investors in Sri Lanka. Treasury Secretary P.B. Jayasundara attempted to calm these concerns recently when he spoke at an Economic Summit last week by pointing out that tax holidays offered to Board of Investment (BOI) companies will lapse within the next year, making some 350 odd companies start paying their dues.
Yet, the International Monetary Fund (IMF), economists and even senior ministers within the Government have called for an equitable tax framework that lessens the burdens on the common man. At the moment, indirect taxation in Sri Lanka is as high as 80% while direct taxes are a measly 20%. Ideally, it should be a 60:40 ratio with affluent sections of the community also made to chip in more.
Countering this point, the private sector has also pointed out that some industries are struggling under heavy costs. For example, Investment Promotion Minister Lakshman Yapa Abeywardena’s contention that rooms are priced too high in the country’s lucrative tourism industry was shut down by professionals who pointed out that overheads were high because of contributory costs like the recent power hike.
It is therefore clear that all stakeholders need to see a fair, equitable and transparent tax regulatory system before confidence can be restored.
