Encyclopedias define the cost of living as the monetary cost of maintaining a particular living standard, measured by calculating the average cost of a number of specific goods and services. In a modern society, everybody is a consumer, and no one is self-sufficient. So, the cost of living determines how good a life we can lead, the degree of comfort, and number/types of products and services that we can buy. The prices we pay for our food and clothing, necessities and luxuries, and everything else in between, determine our cost of living. Naturally, for anyone other than a committed ascetic, this is an important aspect of life. For any politician sensitive to the public, it should be at the top of the list of priorities.

A lot of our daily necessities, from food to household products, are imported. This should allow us to take advantage of global efficiencies to source the cheapest or best products, depending on what people want. Unfortunately, high taxes and poor trade policies drive up end-costs for consumers in Sri Lanka.

Sri Lanka imposes a variety of taxes on imports: customs duty, VAT, port and airport levy, nation building tax, and cess. Although the maximum customs duty is only 30%, once these other taxes are added, the total tax can increase anywhere from 50% to 100%.

[pullquote]Perversely, luxuries like perfume, cameras, wristwatches and sunglasses are taxed the most lightly[/pullquote]

High taxes are imposed on food (meat, dairy, vegetables, fruit, coffee, cocoa, pasta, breakfast cereal, biscuits, jams), personal care items (soap, shampoo, toothpaste, diapers, sanitary napkins, shaving cream, razors), household products (washing powder, wet wipes, polishes, brooms, brushes), and children’s needs (diapers, school bags, exercise books, pens, pencils, pencil sharpeners, toys).

Generations that experienced pre-1977 Sri Lanka may recall people cleaning their teeth with fingers (using charcoal or something called ‘tooth powder’), scrubbing dishes with a pol-mudda (coconut husk) or washing clothes by dashing them on a rock.

Toothpaste, washing powder, soap and shampoo are no longer luxuries. If they were, a high tax may be understandable, but they are necessities, even for the less well-off. Perversely, luxuries like perfume, cameras, wristwatches and sunglasses are taxed the most lightly. This has a significant impact on overall household budgets and the standard of living. The following domestic scenes highlight how commonly consumed imported foods, home care and personal care products are taxed. Leaders need to understand just how far their tax and trade policies are putting necessities out of reach for ordinary people; the main reason why so many seek opportunities overseas. Local salaries cannot keep up with the cost of living.

Some of the tariffs generate revenue for the government, but many are imposed to protect local industry. Tariff protection for local industry comes at a cost: high prices for consumers. Supporting local industry is laudable, but instead of protection, the support should be targeted to help improve competitiveness and productivity. Firm-level productivity depends on the following:
(1) the sophistication with which domestic companies or foreign subsidiaries operating in the country compete.
(2) the quality of the microeconomic business environment in which they operate.

Government support to upgrade technology and worker skills, and improve access to capital, R&D and infrastructure is positive. These, together with an efficient government, better infrastructure and advanced research institutions – in short a healthier business environment – will yield long-term productivity gains for the economy and companies.

Competition incentivizes productivity; the government needs to work with firms to help this happen.

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How taxes drive up the cost of imported foods

SRI LANKA IMPOSES A VARIETY OF TAXES ON IMPORTS: CUSTOMS DUTY, VAT, PORT AND AIRPORT LEVY, NATION BUILDING TAX, AND CESS.

Bananas, pineapples, guavas, mangoes and mangosteens Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 30% or Rs120 per kg | Coffee, whether or not roasted or decaffeinated Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 15% | Pasta, noodles, macaroni, Prepared foods obtained by the swelling or roasting of cereals or cereal products (for example, cornflakes) Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 30% or Rs80 per kg | Biscuits and cookies Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 35% or 35% of 65% of MRP | Fruit juices, nectars, squashes, cordial Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 35% or Rs115 per kg | Sauces and mustard Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 30% or Rs125 per kg | Carrots, leeks, cabbage, cauliflower, lettuce, beans, peas Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 30% or Rs110 per kg | Tomatoes, fresh or chilled Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 30% or Rs110 per kg | Honey Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 0% | Cheese Duty 30% or Rs240 per kg, VAT 15%, PAL 7.5%, NBT 2%, CESS 15% or Rs150 per kg | Yoghurt, butter, dairy spreads Duty 30% or Rs550 per kg, VAT 15%, PAL 7.5%, NBT 2%, CESS 0% OR Special Commodity Levy (SCL) | Full cream milk powder, low fat milk powder, non-fat (skimmed) milk powder Duty 15%, VAT 15%, PAL 7.5%, NBT 2%, CESS 0% | Milk & cream: unsweetened Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 0% | Meat: fresh, chilled, frozen Duty 30, VAT 15%, PAL 7.5%, NBT 2%, CESS 0% | Apricot, cherries, peaches, strawberries Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 30% or Rs120 per kg | Oranges Duty 30% VAT 15%, PAL 7.5%, NBT 2%, CESS 0% OR Special Commodity Levy (SCL) | Grapes, apples Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 0% OR Special Commodity Levy (SCL) | Cocoa powder, not containing added sugar or other sweetening matter Duty 15% VAT 15%, PAL 7.5%, NBT 2%, CESS 5%

How taxes drive up the cost of imported household goods

SRI LANKA IMPOSES A VARIETY OF TAXES ON IMPORTS: CUSTOMS DUTY, VAT, PORT AND AIRPORT LEVY, NATION BUILDING TAX, AND CESS

Adhesive plasters, wadding, gauze, bandages and similar articles (for example, dressings) Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, or Rs100 per kg | Colognes, perfumes, toilet waters Duty Free, VAT 15%, PAL 7.5%, NBT 2%, CESS 0% | Beauty or make-up preparations and preparations for the care of the skin Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS Rs.550/= per kg | Shampoo-For selected imports from India (lower due to Indian FTA) Duty 0%, VAT 15%, PAL 7.5%, NBT 2%, or Rs550 per kg | Dentifrices (toothpaste) Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 35% or Rs275 per kg | Pre-shave & aftershave-For selected imports from India (lower due to Indian FTA) Duty 0%, VAT 15%, PAL 7.5%, NBT 2%, or Rs550 per kg | Soap-toilet, laundry, baby soap, bathing bars Duty 30% or Rs60 per kg, VAT 15%, PAL 7.5%, NBT 2%, CESS 25% or 25% of 65% of MRP or Rs150 per kg | Wet wipes Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 30% or Rs350 per kg | Toilet paper in rolls of a width not exceeding 15m Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 10% | Facial tissues and towels or handkerchiefs, cleansing Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 10% | Razors – other, safety razor blades, including razors Duty 30%, VAT 15%, PAL 7.5%, NBT 2% | Blade blanks in strips: other parts Duty 30%, VAT 15%, PAL 7.5%, NBT 2% | Manicure or pedicure sets and instruments (including nail files) Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, or Rs50 per kg | Toothbrushes Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 20% or Rs75 per unit | Napkins, sanitary towels (pads) and tampons Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 30% or Rs300 per kg

How taxes drive up the cost of imported education and kids items

SRI LANKA IMPOSES A VARIETY OF TAXES ON IMPORTS: CUSTOMS DUTY, VAT, PORT AND AIRPORT LEVY, NATION BUILDING TAX, AND CESS.

Washing preparations Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 20% or Rs25 per kg | Polish and creams for footwear, furniture, floors, coachwork, glass or metal Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 15% or Rs30 per kg | Candles, tapers and the like Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 30% or Rs75 per kg | Mosquito coils, mosquito mats Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 25% | Trunks, suitcases, rucksacks, handbags etc Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, or Rs150 per kg (some at Rs200) | Exercise books Duty 15%, VAT 15%, PAL 7.5%, NBT 2% | Waterproof footwear | Other footwear Duty Free, VAT 15%, PAL Free, NBT 2%, CESS 15% or Rs500 per pair | Umbrellas Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 30% or Rs300 per kg | Paper knives, letter openers, erasing knives, pencil sharpeners and blades Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, or Rs50 per kg | Spectacle frames – plastic Duty 30%, VAT 0%, PAL 7.5%, NBT 2%, CESS 0% | Cameras Duty Free, VAT 0%, PAL 0%, NBT 2%, CESS 0% | Wristwatches and other watches Duty Free, VAT 0%, PAL 0%, NBT 2%, CESS 0% | Toy tricycles, scooters, pedal cars, dolls Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 0% | Remote-controlled toys, stuffed toys Duty 15%, VAT 15%, PAL 7.5%, NBT 2%, CESS 0% | Ballpoint pens; felt tipped and other porous-tipped pens and markers Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 10% or Rs15 per unit | Pencils (other than pencils of heading 96.08), crayons, pencil leads, pastels Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 0% | Diapers – babies and adults Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 0% | Brooms, brushes Duty 30%, VAT 15%, PAL 7.5%, NBT 2%, CESS 20% or Rs75 per unit

 

(Illustrations by: Yomal Vajrajith Payagala)