a carefully researched scoop on news not usually available on any other media channel or in many cases noted before it appears in conventional media from an insiders perspective. The views are that of the author and are not guided by any other person or organization. A truly unique and independent opinion of SRI LANKA TODAY
Saturday, February 9, 2013
Do people realize that the Govt. miscalculated who will suffer with the VAT?
As usual the policy makers in Govt. made a very
bad assumption in their bid to tell their master the President that there was
another painless way of raising some taxes without people feeling it. They said
we will collect the 12% VAT on vatable sales from large retailers that have a
turnover of over Rs500M a quarter, which only accounts for 4 retailers with
point of sales systems where the vatable sales can be easily calculated and
assessed to a degree of accuracy that is acceptable. The Govt expects to rake
in an additional Rs5B per annum from these retailers.
As they explained to their boss, Sir they are
rich they can pay and their owners are also rich so they will not feel a small
reduction in their profits, which will be an indirect tax that we will raise.
So sir your Rs10B that you spend in a year in your personal capacity will be
somewhat subsidized from this tax.
So what does our easily praised President say?
Son what a superb idea, and for that I will give you a free car permit and
permission to collect the bribe of Rs400M for giving the Banking License to
Food City for their new bank! You earned it putha!
What is the reality of this VAT imposition? Food
City is Mad that the Govt. screwed them after giving a Rs400M bribe to get a
Banking License on top of the higher Fees paid officially for this license. The
Govt. snookered them royally. So they decided along with the other big boys to take
They said that there is no way they can increase the
MSRP that is on the packaging of their products, as their customers will desert
them and go to the smaller shops that do not charge VAT. They proclaimed virtuously
that they will absorb the VAT as a cost which will substantially eat into their
profits, as that sounds good PR.
What did they do in reality? They demanded that the
suppliers, who already offer the lowest prices to Food City to reduce their prices
further, submit VAT invoices so that Food City will be able to offset input VAT
against their VAT on final sales. At the time of writing the large suppliers such
as UNILEVER are balking at this request and they have the muscle to withhold sales
to Food City and reach an amicable settlement which will eventually see some sharing
of the cost between the two, and now the horse-trading is as to who should share
The small supplier of biscuits, yogurt or chocolates
is royally screwed. They have been forced to reduce their prices as they sell a
large percentage of their products through these large chains, and the President
is blissfully unaware of the damage!
The people of Sri Lanka will eventually foot the bill as there are NO special offers of value at Food City or other chains such as Keells like there were in December. So for example the Nestomalt that was reduced to Rs225 for three months to 31st December is now at Rs255 forcing the customer to pay more for that brand which is the MSRP anyway and is the same as the corner store now. That is an example of the Customer indirectly paying for the VAT imposition.
It must be remembered that the big retailers due to their clout of bulk purchases has been able to force suppliers to give bigger discounts to them. The international classic bully boy tactics by big retailers throughout the world. Worse they ask for 60 to 90 day credit and often sell products at zero profit, to keep their machines running at capacity and make profits on sales to other customers.
It is these very same struggling small companies who have been asked to reduce prices further, something that is GOING to increase losses, lead to JOB LOSSES, stop further investment and expansion of EMPLOYMENT and generally DEPRESS the economy. Thanks to the pundits in the Sri Lankan Government and Treasury trying to IMPRESS.
In life there is no free lunch except of course to people in power. The poorest people eventually pay the highest price for these schemes. So the VAT imposition is another TAX ON THE POOR.
When will the 1500 cronies created by the Govt. and who have made Billions begin to pay taxes? That is what the people of Sri Lanka must ask the President. The problem is they are the Government!