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Sri Lanka businesses urged to lower prices after tax cut by President

ECONOMYNEXT – Sri Lanka’s businesses should cut retail prices, after taxes were slashed, President Gotabaya Rajapaksa has said, as prices of some products went up.

“The prices of everything from food, construction material to soap and toothpaste should have come down But we found that prices of some commodities have actually risen,”

“We removed a complex tax structure and brought in a simple one,” President Gotabaya Rajapaksa told reporters, RepublicNext a new service report.

“The prices of everything from food, construction material to soap and toothpaste should have come down. But we found that prices of some commodities have actually risen.”

He had met rice millers after prices were hiked sharply after elections.

The government cut taxes on wheat flour to break a milling monopoly and also reduce the grip of rice millers.

The tax cuts were done to spur investments and future jobs.

“With more investments, there will be more economic activity and employment opportunities,” he said.

Consistent taxes would also bring more foreign investments.

The new administration was also working to turn around loss-making State-Owned Enterprises.

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“We will bring in businessmen, entrepreneurs to run these organizations so that we can make them profitable, he said.

“It will be hard to turn around some of them, but we will do it.”

Economic analysts who have closely studied Sri Lanka’s economic cycles have said that the 2019 downturn came from the currency collapse in 2018, much in the same lines as the East Asian currency crisis.

Sri Lanka’s previous episodes of monetary instability have also shown similar trends.

Prices also tend to rise as the economy and the credit system recovers from the effects of liquidity shortages.

When a currency collapses, the entire price structure rises, but weak demand may prevent firms from raising prices, leading to lower profits.

However as demand recovers prices are raised. A stimulus which is accommodated by the central bank with rate cuts may lead to higher levels of inflation. (Colombo/Dec17/2019)

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