COLOMBO (EconomyNext) – Sri Lanka’s state will lose 65 billion rupees in potential revenues a year from tax cuts made to slash fuel prices, this week energy minister Champika Ranawaka said, but future revisions would be on a transparent formula.
The state can only give ‘benefits’ to people from taxes taken from the people themselves, funds borrowed from citizens or from abroad or money printed at the Central Bank which causes inflation and currency depreciation.
Ranawaka said the Finance Minister had allowed the tax cuts which amounted to 65 billion rupees, though in the manifesto only a 40 billion rupee tax cut was promised.
He said the finance ministry will not increase total spending in a budget to be presented on January 29. Finance minister Ravi Karunanayake has said there will be savings from the capital budget.
The budget is expected to pay higher salaries to state workers and pensioners and also cut taxes in a number of essential foods, which may lead to an expansion of the current account deficit.
Taking a swipe at former President Mahinda Rajapaksa, Ranawaka said, a key feature of the so-called ‘sensitive’ father had taxed basic foods.
Energy prices have also not been brought down, he said while international prices fell.
Critics have said that taxes in several foods including dairy, rice, maize and tinned fish were raised in a bid to create a Nazi-style autarky in in food or Ernährungsautarkie generally known as self-sufficiency amid rising nationalism at the expense of all citizens, particularly the children of the poor who are deprived of protein in their formative years as a resutl of protectionist taxes.
Energy however is mostly consumed by the richer sections of society, unlike food, with consumption going up with income.
In 2011 the energy ministry and Treasury did not raise electricity prices amid a severe drought and funded the losses with bank borrowings which were ultimately accommodated by central bank credit (printed money), generating a balance of payments crisis.
The Ceylon Petroleum Corporation borrowed to fund its own losses as well as the cost of subsidized energy to Ceylon Electricity Board and unpaid dues from fuel supplied to loss-making SriLankan Airlines and Mihin Lanka.
Ranawaka said the CPC was now paying 18 billion rupees a year in interest to state banks.
The energy subsidy triggered BOP crisis saw the rupee falling to 110 to 130 to the US dollar and the ensuring downturn imposed hardships on the poor and rich alike, eventually helping defeat the Rajapaksa administration, analysts say.
Ranawaka said in the future, fuel and electricity prices would be decided by formula. Power prices will be revised in June.