June 26, 2007 (LBO) – Sri Lanka Tuesday scrapped value added tax on ten key food items in a bid to bring down food prices driven to high levels by money printing to finance the budget deficit last year. Last year the Central Bank printed 38.5 billion rupees to finance a fiscal deficit 8.4 percent of the economy, driven by public sector wage hikes, subsidies and rising defence expenditure.
Though the central bank has since tightened monetary policy and put the brakes on consumer prices from January, bringing inflation down from 20.5 percent 13.7 percent, the rupee remains under pressure.
To bring long-term price stability the government needs to raise taxes and cut expenses. Critics say Sri Lanka has earlier cut taxes for temporary relief and worsened public finances, resulting in higher food prices later.
Tariffs on potatoes, big onions, dhal, red onions, sugar, dried chillies, tin fish, gram, green gram and dried sprats have been removed with immediate effect to enable traders to maintain prices, the president’s office said.
During a meeting with importers, traders and key government