Sri Lankan government raises VAT and other taxes in new round of social attacks
On Tuesday, the Sri Lankan government sharply increased a series of taxes, driving up the cost of hundreds of items. These hikes will worsen existing inflation rates and push many more people into starvation. The already unbearable cost of essential foodstuffs has forced many working and poor people to reduce the quality and quantity of staple foods, skipping at least one meal a day.
Cabinet-approved proposals presented by Prime Minister Ranil Wickremesinghe, who is also finance minister, increase value added tax (VAT), income taxes and impose surcharges on certain goods.
The Prime Minister’s Office estimates the increases will add 300 billion rupees ($836 million) a year to the state’s dried up coffers. Half of the amount should come from the VAT increase.
The new measures include:
* An immediate increase in VAT to 12%, compared to 8% previously, and applicable to almost all products and services. The current VAT annual turnover threshold will be reduced from 300 billion rupees to 120 million rupees in October 2022, hitting small businesses significantly.
* The current tax on telecommunications services was immediately increased from 11.25% to 15%, driving up the cost of all telecommunications.
* The imposition of a 5% withholding tax on interest payments from savings, including pensioners’ deposits. Pensioners over 60 are exempt, but only up to 1.5 million rupees of their savings.
* The current Rs 3 million annual income threshold for personal income tax relief will be reduced to just Rs 1.8 million, meaning tens of thousands more workers will have to pay taxes.
* An increase in the corporate tax rate from 24% to 30%, in line with other South Asian countries, as well as a 1% increase in reduced corporate tax applicable to certain sectors, from 14 to 15%.
*Massive tax increases or surcharges have also been imposed via a separate gazette on several imported items, including food, labeling them non-essential. These include a tax of 850% on butter, 250% on cheese and 100% on other dairy products, 200% on chocolates and 100% on fruit juices, alcohol and tobacco. The cost of imported fruits, such as apples, oranges and dates, will be two or three times higher than current prices.
A 75% surcharge has also been imposed on cosmetics and 25-50% on shoes and other imported goods, while basic electrical appliances, such as cell phones, rice cookers and refrigerators, are now subject to 100% tax.
Justifying the tough new measures, Wickremesinghe blamed the previous government of President Rajapakse, led by former Prime Minister Mahinda Rajapakse, for cutting VAT, income and corporate taxes and increasing tax exemptions. These cuts, he said, resulted in annual revenue losses of between $600 billion and $800 billion in state coffers.
After being elected in November 2019, President Rajapakse’s government announced limited populist measures while granting huge tax breaks to big business. Rajapakse claimed that these measures would “revive” the economy by attracting foreign investment.
Sri Lanka’s economy, however, has been hit by the COVID-19 pandemic, suffering a slump in tourism revenue and a sharp decline in remittances and export earnings. The economic crisis deepened earlier this year with the US-led NATO war against Russia in Ukraine leading to soaring oil prices, food shortages and supply chain disruptions. supply. On May 18, Sri Lanka defaulted on a $78 million interest payment for sovereign bonds, becoming the first country to do so in two decades.
Wickremesinge’s blunt attempts to reduce Sri Lanka’s budget deficit through higher taxes and other measures are in line with the dictates of the International Monetary Fund (IMF). The Daily FT, the voice of Sri Lanka’s business elite, praised Wickremesinghe’s higher taxes, saying, “It’s time to recover even if you are poorer.
The new measures were announced the same day Sri Lanka’s latest official inflation rates were released. The annualized inflation rate for May climbed to 39% from 28% the previous month, and food inflation jumped to 57% from 45% in April.
As Bloomberg and other international business media have noted, Wickremesinghe’s austerity measures were imposed in preparation for the next round of talks with the IMF earlier this month for a $3 billion bailout loan.
Next Tuesday, Wickremesinghe is expected to announce a 695 billion rupees “revenue collection” package with further austerity measures to follow. Power and Power Minister Kanchana Wijesekera said electricity tariffs will triple in the coming period. The cabinet is also expected to raise water tariffs.
The IMF demands a drastic downsizing and privatization of the public sector, as well as the reduction of social programs, including more cuts in public education and health. The cabinet is currently discussing how to cut Sri Lanka’s 1.7 million public employees by half or more.
On Thursday, Wickremesinghe met with leaders of the Joint Chambers, which represent Sri Lanka’s main business lobbies. According to a statement released by his office, Wickremesinghe said the government planned to recover $5 billion to repay foreign debts and another $1 billion to bolster the country’s reserves.
Even more vicious social attacks are being prepared against the Sri Lankan masses. Some indications of these measures were revealed by a World Bank spokesperson in comments posted on the Voice of America website last Wednesday.
“The human development impact of the ongoing economic crisis [in Sri Lanka] is severe. The crisis has disrupted economic activities and the ability of households to procure basic necessities, including adequate nutrition… In the worst case, a contraction in economic activity in 2022 and 2023 would result in an increase in more than 11 percentage points… with a poverty rate close to 22% in 2023,” he said.
Earlier this year, Central Bank Governor Nandalal Weerasinghe said the Sri Lankan economy in 2022 “will contract at a faster rate than any other year in history.”
The pro-imperialist Rajapakse and Wickremesinghe regime drags the working class and the poor deeper into poverty and starvation. Opposition parties, such as the Samagi Jana Balawegaya, the Janatha Vimukthi Peramuna and the Tamil National Alliance, which support the IMF’s “reform” agenda, continue their empty criticisms of the government in order to fool the angry masses.
The protests that erupted in early April, involving workers, youth and the poor calling for the resignation of President Rajapakse and his government, made it clear that the masses would not tolerate the worsening social catastrophe. The one-day general strikes of April 28 and May 6 powerfully demonstrated the depth of worker hostility and its social force.
This movement was, however, politically blocked by the trade unions, backed by pseudo-left groups, who directed it towards the official opposition parties and their calls for an interim parliamentary regime.
In order to fight against the growing attacks of the Rajapakse-Wickremesinghe government, the working class needs an alternative socialist perspective. The Socialist Equality Party is the only organization to have developed such a program. It calls for the repudiation of foreign loans, the nationalization of all major industries, estates and banks under workers’ control, and the seizure of the wealth of billionaires in order to reorganize the economy and meet the social needs of the masses. .
The PES calls for the construction of action committees in every workplace, city and working-class suburbs, independent of unions and capitalist parties, to fight for this, and for a workers’ and peasants’ government on a socialist and internationalist program.