While welcoming price reductions in the 2017 Budget to ease the burden of low income earning consumers trade experts said policy makers should reconsider the Maximum Retail Price (MRP) on imported commodities as prices of these items are determined by market forces.
Trade experts are of the view that imposing a price ceiling or fixing a Maximum Retail Price (MRP) is not realistic when market conditions keep fluctuating, having a bearing on prices of commodities. Prices of goods are determined by supply and demand, which could be affected by adverse weather conditions in the producing countries.
“Sri Lanka imports a large quantity of food items at a staggering cost, each year. The prices of these commodities vary according to global market condition. Slapping MRPs on imported commodities is unrealistic and would force traders to jack up prices at some stage” trade experts said.
Slashing prices
Colombo Traders’ Association President, Y.M. Ibrahim said, there is no point in slashing prices of essential items if MRPs are imposed on imported commodities. If MRPs are imposed, policy makers should provide some concessions to importers so that prices will not change.
Milk food, sugar, dhal , Maldive fish and canned fish are some of the items imported, draining colossal amounts of valuable foreign exchange from the country, each year.
“There has to be a forum for a constructive dialogue between policy makers and importers, so that there could be a proper price mechanism that ensures a win win scenario for traders and consumers” he said.
Traders said, prices are slashed during elections and in budgets, to appease the public, without realizing the long term impact on the market. There has to be consultation and compromise on trade decisions.
Multiple issues
The Colombo Traders’ Association comprises around 190 members, while there are a large number of traders who do not belong to any organization, with multiple issues that go unheeded. If there is a proper forum to sort out issues, and decisions are taken in consultation, it will be beneficial for traders and consumers.
‘Ad hoc decisions will not help create a healthy market, nor ensure a price stability where consumers and traders could benefit. Consistency and transparency in policy are essential to create a vibrant market” traders in Pettah said.
They said, the Rs. 29 import tax on sugar was brought down to 25 cents and again raised to Rs. 15.80 . The price of a kg of sugar came down by Rs. 30 when the import tax was 25 cents. The sudden swing in the import tax on sugar did not benefit anyone.
Colombo Traders’ Association representatives said, the import and export spice sector is in a precarious state, as prices of items in the global market have dropped drastically on the one hand, and on the other, corrupt elements dominate the sector, with the backing of politicians of the past and present regime.
The price of a ton of arecanut has dropped from US$ 4,500 to US$ 2,100. Besides, traders said, it takes around 35-40 days to export the commodity to India. All these add to a very unhealthy market.
Finance Minister Ravi Karunanayake said, the 2017 Budget has reduced the cost of living and strengthened investments to boost economic growth. He also said, the views of stakeholders from all sectors had been sought in the preparation of the budget.
The direct to indirect tax ratio was revised from 20:80 to 40:60 in the 2017 Budget. The price of dhal was slashed by Rs10, potatoes Rs.5, sprats Rs.5, white sugar Rs.. 2, Kerosene Rs.5, and a 12.5kg gas cylinder by Rs.25. A wide spectrum of consumers said, while prices of certain food items have been reduced, the cost of essential utility items such as, telecommunication and water, though put on halt now, is staggering.
“This is similar to giving in from one hand and taking out from the other” a consumer in Pettah said.
Quality of life
The general perception is, some goodies offered through the budget will not help improve the quality of life. Offering tabs to A/L students is a good move, but, of what use is it, if parents have to pay through their nose to cover the syllabus for the children to pass the decisive examination.
The public view on the Rs. 2,500 fine for violating road rules is that it will only encourage violators to resort to offer bribes to the guardians of the law, in order to avoid the sizable penalty.Instead, they propose that a reasonable fine be introduced, according to the number of violations.
Traders also said, the depreciation of the rupee in the recent past has an adverse impact on the import sector. Importers said, they would be compelled to pass on the price increase caused by the devalued rupee to the consumers if the value of the rupee drops further.
A spokesman for the Importers’ Association said, the Association has maintained the prices by avareging the cost, in the hope that the value of the currency would gain in the near future. Importers hope that the 2017 Budget will provide some impetus to the falling currency.
The rupee has devalued to Rs. 49 to the US dollar, depreciating by around three percent from Rs146 to 149/50. The import cost of a kg of sugar rose by Rs. 3, dhal Rs.4.50, sprats Rs.12, canned fish Rs.3 per 425 gram tin and green gram by Rs.5.
Steady decline
The rupee has been on a steady decline since plunging from Rs. 127 in 2012 to Rs. 150 to-date.
Sri Lanka Chamber of Small and Medium Industries’ President M.Cader said, the decline in the value of the rupee will boost the value of imports and result in higher cost of goods.
It will cause inflation in the local market putting pressure on consumer spending, while government revenue will be improved by increased import levies, VAT, NBT. Corporates will be affected with a downward pressure on profitability and cash flow.
As indicated by tax experts, policy measures have to be in place to increase tax base to achieve a tax to the GDP ratio of 17 to 18 percent and beyond, by 2020, from the current 11.5 percent.
However, tax experts said, policy makers should focus on direct taxes and get more people into the tax net, instead of increasing the indirect taxes, which is regressive in the long run.
According to the Finance Minister, there is only around nine percent of tax files of the taxable population, 23.000 corporate tax files and 25,000 NBT files.
On the tax on telecommunication, Gajendran said, the government is taxing on items where people spend with ease and comfort.
Today, there are more mobile phones than the population, and people spend a significant amount on phone calls though it may not be as large when taken collectively.