Grossly Stupid Tax

The General Sales Tax (GST) announced in last yearÕs budget and implemented on April 1 this year has turned out to be a far more serious issue than an April Fools Joke. It has resulted in severe inflation of practically every commodity although the Central Bank pundits keep telling us that inflation has been curbed. It could truly be said that citizen Punchi Singho is reeling from the clobbering he is receiving under the GST.

It was all very simple, said the panjandrums of the Finance Ministry, Central Bank and the Inland Revenue Department. Under the Business Turnover Tax there were three bands of taxation at 8pc, 12 pc and 18 pc. Under the GST there would be a common band of taxation of 12.5 per cent. Thus goods that were taxed at 8pc would increase by 4.5 pc while those which were taxed at 18 pc would come down by 5.95 pc. Essential commodities such as rice, sugar bread, dhall and cement would be exempted from GST. The consumer had little to worry about, we were told.

What happened was exactly the opposite of what the panjandrums of the Finance Ministry, Central Bank and the Inland Revenue Department said. Those who had been taxed at 18 percent such as confectioners jacked up their prices by 12 percent although they had to reduce prices by 5.95 per cent and others who sold commodities at 8 percent went to 12.5 percent and over. There was absolute confusion. Chicken breeders said that although livestock was exempted from GST, animal feed was not and thus raised prices. There were innumerable such examples. There was a grey area which caused much uncertainty so much so that the crematorium of the General Cemetery at Kanatte run by the Colombo Municipal Council too imposed GST for cremations ! Strong protests not by the dead but those who were being financially killed by the undertakers- resulted in GST for cremations being withdrawn.

Those businesses which had a turnover of less than Rs.500,000 per quarter were exempted from the GST.The small boutiques that comprise the great majority of retail outlets were thus exempted from GST. But when they saw prices escalating in big shops it catalysed a massive wave of inflation which is still spiralling skywards.

Apparently the bureaucracy does not understand how market forces operate in this country. Once certain categories of goods take off in prices it does result in a spiralling price wave of all commodities. And that is what happened. Today, this is a country without price controls or consumer societies even though there is a Consumer Protection Act. The Consumer Protection Act envisages that price marking will lead to play of market forces and these forces monitored by consumer societies would check escalation of prices. How many shops and boutiques have their goods price marked particularly small boutiques where the poor make their purchases? The common man has always been at the mercy of the trader and when the mudalali used the GST as a bludgeon on the poor, they have no way of responding.

The Inland Revenue Department now threatens those business establishments who have been evading paying of the GST with dire consequences, after having raked in Rs. 15 billion for the six month period ending in September. Their target is now to collect another Rs. 20 billion to fill in the coffers of this government which claims that the economy is booming or about to boom. The tax men and tax women have one objective: collect taxes because that is what they are being paid for. But what of the social consequences?

Pressuring those who are alleged to be evading GST quite obviously not big business establishments could well result in a further spiral of inflation being created. Businessmen, particularly small time businessmen cannot afford to lose in business and do not lose. When taxed they will make amends by making the consumers pay.

The government, should make a comparative study of prices of commodities, particularly of those exempted from GST, such as medicines before April 1 and what they are today to realise the extent to which prices have risen. On the Opposite page a famed eye surgeon Deshabandu Dr. C. R. Seimon compares prices of some drugs here with the prices in India.

There is much confusion about this tax and even after six months there is still a grey area on the kind of goods and services to which it is applicable. It is also a very unpopular tax where the consumer is being taxed daily for most of the goods he needs. At the time when the government is celebrating its fourth anniversary and slapping itself vigorously on its back (We have accomplished in four years much more what the UNP can achieve in 50 years) it will be in their interest to study the impact of the GST on the rising cost of living.