President Anura Kumara Dissanayake has said that the government plans to take measures to reduce the value added tax (VAT) within the next two to three years in order to reduce the cost of living burden faced by the public in Sri Lanka.
In addition to protecting the government’s income, the President has mentioned that it is important to provide relief to the people and pointed out that government expenditure should also be taken into consideration while making changes in tax policies.
He made these remarks while addressing an appointment letter distribution event for village officers held at Alari House in Colombo. At the event where appointment letters were issued to 1,540 new village officials, the President also discussed issues related to salary hike of civil servants, taxes on educational materials and future budget.
Government’s focus on reducing the tax burden of the people
As people spend more on essential goods and services in the country, there is an expectation among the public to reduce the tax burden. In this context, the President has announced that the government’s goal is to reduce the value added tax rate in the next two to three years.
Value Added Tax is an indirect tax associated with the sale of goods and services. This tax is levied on business activities and its impact can be reflected in the final prices of goods and services. Thus, changes in the tax rate are likely to affect the day-to-day expenditure of the public.
However, merely announcing a reduction in tax rates does not guarantee an immediate reduction in commodity prices. Factors such as the way tax changes come into effect, merchant pricing and market conditions can also affect prices.
So, the important question is how much this announcement of the government will reduce the cost of living of the people when it comes into effect. In particular, given the difficulties faced by low- and middle-income families in meeting essential food, transport, education and household expenses, it is imperative that the benefits of tax relief reach the masses.
At the same time, the President has also expressed his opinion on the imposition of tax on books used for education. He urged that the situation where a child buys a book for reading needs to be taxed and focus on removing the tax burden on essential educational materials.
Since the cost of educational materials is a part of families’ expenses, tax relief related to books can help both students and parents. In particular, reducing the cost of books and learning equipment can be an additional relief in families where many children are in education.
However, the proposal regarding the abolition of tax on books has been made and this cannot be taken to mean that all the practical steps for the same have been completed. Clear announcements about what tax changes the government will implement and when are important.
Government Expenditure and Salary Hike: Key Challenge in Budgeting
The President has said that the government should also carefully manage its expenditure while pushing ahead with schemes to provide tax relief to the people. In particular, he mentioned that the decision to increase the basic salary of government employees in three stages will have a significant impact on the government finances.
By 2027, an additional 330 billion rupees will be spent on these salary hike measures, the President said. As a result, the government has had to coordinate measures to increase the income of government employees and schemes to provide tax breaks to the public.
A hike in the salaries of government employees may help them meet their family expenses. However, the funds required for these expenses should come from the revenue of the government itself. If government spending increases in an environment of declining tax revenues, managing the fiscal deficit may become a challenge.
In view of this, the President indicated that all these financial responsibilities should be taken into consideration while preparing the upcoming national budget. The budget, which is scheduled to be presented on November 12, is likely to be a key document that reveals the government’s approach to balancing tax relief and public spending.
A key point commonly emphasized in these announcements is the need to maintain a balance between the expectation of reducing the cost of living of the people and the fiscal needs of the government. Although tax cuts, relief for education materials and salary hikes for government employees are important to different parties, financial arrangements are necessary to implement them.
As the government’s announcements turn into practical measures, the changes in tax rates, the timetable for their implementation and the actual relief available to the public will be worth noting.
With the government setting a target of reducing the value added tax over the next two to three years, the key now is how it will achieve that target. The upcoming budget will make it more clear what steps the government is taking to reduce the cost burden of the people while protecting the tax revenue.