Up, up and away…

The trio had gathered outside the gate just as Aldoris, the choon- paan karaya, drove down the lane in his tuk-tuk.

“Sappie, sappie (loosely translated means happy in a sarcastic sense),” said Kussi Amma Sera, directing her comment to Aldoris, who had voted for the now governing party during the 2020 poll.

“Aei (Why),” asked the hapless vendor. “Elvalu mila balannako. Wahaletath udin gihilla-ne (Look at the vegetable prices. It’s soaring through the roof),” she said.

“Okkama ahara mila ihala gihin, mae aluth badu hinda (All food prices are also up because of the new taxes),” said Serapina.

“Ahara mila vitharak nemei, siyalu deval wala mila ihala gihin (Not only food prices but everything has gone up in price),” suggested Mabel Rasthiyadu.

Vegetable prices have gone up due to a combination of factors including lost crops due to erratic weather patterns, costly fertiliser and other high input costs. Traders said while there are seasonal fluctuations in December, this time the prices have soared to their highest level, ever.

Take for example the price of carrots which is currently trading at an astronomically high Rs. 2,000 per kg compared to around Rs. 300 per kg during the same time last year. Beans were selling at Rs. 1,000 per kg compared to between Rs. 300 to 500 in January 2023.

The blame has largely fallen on the latest tax hikes that have resulted in a cascading effect on the cost of essential goods, primarily because fuel prices including domestic gas have gone up.

A nice cartoon by a newspaper cartoonist shows a consumer thinking of a car in 2018, a bicycle in 2020, gas prices in 2022 and now carrots in 2024! There was also an amusing social media comment: “Now we know why gold is measured in carats.”

While I reflected on these happenings in the first month of the year – which on a positive note showed a rush of tourists in the first half of January – the phone rang at home.

It was ‘Shifty’ Silva, the always-inquisitive IT expert, whom I hadn’t spoken with for a long time. “Hi Shifty, what’s up?” I asked.

“Well I want to talk to you about these tax increases that are killing all of us,” he said.

“So what about it,” I asked.

“Vegetable prices have soared in recent weeks making it unbearable to the consumer,” he said.

“That’s because the cost of production has gone up with rising fuel prices, inputs and taxes,” I said.

“How can people afford these prices? Doctors tell us that we need to consume lots of vegetables to lead a healthy lifestyle but who can afford these vegetables at today’s prices? Doctors also need to be realistic,” he said.

“You’re right. At today’s prices, trying to have one square meal a day is challenging even for middle class families,” I said.

In an article last week by Lakshila Wanigasinghe, Research Officer at the Institute of Policy Studies (IPS), it was stated that the VAT rate on applicable goods and services increased from 15 per cent to 18 per cent starting January 1, 2024. This amendment brought 97 previously VAT-exempt goods and services including fuel, gas, telecommunication services, as well as several food products manufactured using locally cultivated grains, locally manufactured coconut milk and certain dairy products (locally produced), under the tax umbrella. Items that continue to be VAT-exempt include medicines, educational services, public passenger transport services and food products such as infant milk powder, locally manufactured rice, bread, etc.

“Along with the change in tax rates, the VAT threshold for businesses was also reduced to an annual turnover of Rs. 60 million (from Rs. 80 million) and Rs. 15 million per taxable period (from Rs. 20 million). These changes to VAT are expected to generate revenues of around Rs. 1,400 billion in 2024,” she said.

The fuel price hikes, a direct consequence of the new VAT rates, were expected to trigger a domino effect on the prices of various consumer goods and services, potentially leading to inflation. She said although inflation has been low since mid2023 compared to the beginning of the year, the latter part of 2023 (October to December) witnessed a relative increase in inflation. As per the Colombo Consumer Price Index, inflation between September and December 2023 was recorded as 1.3 per cent, 1.5 per cent, 3.4 per cent and 4 per cent respectively. The VAT reforms are likely to add to inflationary pressures in 2024. This, in turn, will further reduce the purchasing power of already constrained households.

A survey conducted by the Department of Census and Statistics (DCS) in 2023 on the impacts of the economic crisis revealed that over 60 per cent of households in the country experienced a decrease in income since March 2022, according to the article. The survey also found that over 90 per cent of households experienced an increase in their monthly household expenditure due to the economic crisis. The findings further revealed that 99 per cent of households that experienced a rise in expenditure witnessed an increase in food expenditure. The combination of reduced income and rising expenses is poised to constrain consumer spending, particularly affecting goods and services subject to VAT.

Further, she said that although it was mentioned that essential items such as fruits and vegetables will not be taxed, these items too are likely to go up in price due to the indirect nature of the tax.

This has been proved by the exorbitant prices of vegetables, particularly carrots and beans in the month of January. Mothers struggling to feed their children have been buying one or two carrots from vendors in a desperate effort to ensure a balanced diet in the household.

The sharply rising prices are likely to continue in the month of February due to low production but may see a drop when production rises in the first half of the year owing to an expected drought. Heavy rains in the past few weeks had flooded fields and contributed to lost production.

The soaring prices would also mess with the government’s expectation of a drop in inflation this year, as inflation is likely to rise in the first quarter given the trend in rising prices of essential items.

Pondering over these issues just as Kussi Amma Sera brought in my second mug of tea, I was left wondering how the government is going to turn the tide of disenchantment and anger into a winning formula in a year where elections are expected.