Sri Lanka’s Government should consider reducing the current 18% Value Added Tax (VAT) in the upcoming Budget to provide short-term relief to households struggling with the high cost of living, University of Colombo Department of Economics Prof Priyanga Dunusinghe said on Ada Derana’s Big Focus programme on Wednesday (9).
Prof Dunusinghe said: “The most important measure the country should implement with regard to reducing the cost of living, as I see, is to lower taxes, specifically, the current 18% high-level VAT must be reduced. The Government needs to address this at the very least in the upcoming Budget, in order to alleviate the current burden of the cost of living in the short-term for the country’s households.”
He said: “However, tax relief alone would not provide a sustainable solution. While the Government is taking short-term measures, notably by introducing amendments to the PAYE tax system, it must simultaneously implement steps in the medium term to strengthen and promote the productive economy.”
“The medium-term strategy should center on economic growth, specifically, inclusive economic growth. In essence, this means achieving growth that encompasses rural, semi-urban, and urban areas alike. In this regard, the focus is specifically on encouraging private investment on one hand, and on the other, effectively utilising funds allocated for public investment, such as for infrastructure development,” Prof Dunusinghe said.
“To achieve this, state investments must be utilised systematically, infrastructure must be developed, private sector investment must be promoted, and foreign investment must be attracted,” he said.
Prof Dunusinghe also said: “Money will only reach the hands of the people if these measures are implemented effectively. Economic activities, specifically the public and private investments, must be activated and improved, to drive the productive economy of the country. If this sector collapses, individuals fail to generate new income or hardly see their earnings rising, consequently, lacking the capacity to cope with the current high cost of living.”
According to the Ministry of Home Affairs, so far Sri Lanka has implemented targeted welfare expansions, salary and wage adjustments, and utility price adjustments to ease the cost of living.
Additionally, Sri Lanka’s Government, employers and workers are collaborating with the International Labour Organisation (ILO) to strengthen the country’s wage-setting institutions, so they remain responsive to the needs of workers and enterprises as well as to changing economic and labour market conditions, according to the ILO.