President Maithripala Sirisena, in his address to the Nation this week whilst explaining the events that led to the appointment of Mahinda Rajapaksa as the Prime Minister, pointed out one glaring fact about the previous administration - its UNP-inspired economic policies and decisions had completely alienated the common man and trampled on their aspirations.
Former Prime Minister Ranil Wickremesinghe had a reputation for floating economic theories and visions which had no bearing whatsoever on the fortunes on the common man. He would talk at length about the economic climate in 2040, totally neglecting the socio-economic imperatives of the present. It was obvious that the President watched in frustration as the finance czars of the previous administration, who all belonged to the UNP, heaped tax upon tax on the common man – even on some essential goods.
It was inevitable that at some point the President would have had to intervene and he did, to save the economy and the people from an abysmal fate. In this light, the appointment of former President Mahinda Rajapaksa as the new Prime Minister and Finance Minister was the only available alternative. Prime Minister Rajapaksa, who has a proven track record in taking the people’s side in the economic debate, pointed out the need to provide relief to the people at a discussion with university dons.
Barley hours later, in consultation with and under the guidance of President Sirisena, he announced a series of measures aimed at affording relief to the masses and rejuvenating the moribund economy. These contain both short term and long term measures that will enable the people to heave a sigh of relief and the economy to pick up pace. Given that no other economic factors have changed in the meantime, the announcement also exposed the UNP’s duplicity and deception – these are simple steps that they could have been taken for the sake of the people, but they did not.
The most welcoming part of the announcement concerns the reduction of fuel prices. The Rs.10 (per litre) reduction of Octane 92 petrol will benefit three wheeler owners and motorcyclists, who were sent reeling by the so-called “fuel price formula” of former Finance Minister Mangala Samaraweera, on the 10th of every month. Likewise, the reduction of diesel by Rs.7 per litre will be a boon for goods and passenger transport operators. The cost of fruits and vegetables should come down as a result. We also expect the private bus owners to display the same keenness they had for upping the fares when the prices went up, to reduce the fares in the wake of the price reduction.
The reduction of Commodity Levies and taxes on several essential goods will also be welcomed wholeheartedly by the people who are burdened with the high Cost of Living (COL). This will have a favourable impact on family budgets, as many Middle Class and poor families struggled to make ends meet in the face of the high COL. However, the Government will maintain the existing levies on some products to safeguard the local farmers whose harvest is just coming to the market. This is in sharp contrast to the UNP’s policy of allowing limitless imports of crops that can be grown locally, much to the detriment of local farmers. Farmers received another concession on Thursday night in the form of a pledge to write off agricultural loans obtained during the last three years, apart from a reduction in fertiliser prices.
Another laudable initiative is the reduction of the Telecom levy from 25 percent to 15 percent. A lot of revenue is denied to the local telecom operators as consumers squeezed by the high telecom taxes seek alternatives such as Viber and What’s App to communicate with their loved ones and business contacts abroad, circumventing the traditional IDD system. This step should drive some of that traffic back to the traditional telcos.
Most of the other measures announced have a more long-term outlook and impact but all are centred on giving the local entrepreneur, trader and farmer a more prominent place in the economy. For example, to encourage local entrepreneurs, professionals and migrant workers to remit their earnings in foreign currency on services provided outside Sri Lanka, Income Tax will be exempted on such remittances. The adverse impact created by high indirect taxes will be mitigated by simplification of VAT and NBT. The threshold for the VAT liability of wholesale and retail sector also will be increased from Rs.50 million to Rs.100 million per twelve months providing benefits to small traders and businesses.
The concessionary Income Tax rate of 14% is presently applicable under the SME categories only for Companies. This rate will be extended to include individuals including those providing professional services. VAT on import of fabric will be exempt providing benefits to the small and medium garment manufacturers.
These are timely measures that will no doubt help revive a badly mismanaged, battered and faltering economy. President Sirisena and Prime Minister Rajapaksa are likely to study whether further concessions could be granted to stimulate the economy, now that political stability has been achieved.
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