The Government’s decision to impose a VAT hike on a selective basis from next week will have an impact on private healthcare and education. This would be contradictory to the country’s goals of creating a knowledge economy, analysts warned yesterday.
The Government last week decided proposed to exempt VAT increase from 11% to 15% on essential foods, medication and electricity but noted it would be imposed on private healthcare services and private education including tuition. This would burden a large cross section of the public who send their children to private schools or who seek private hospitals, even where it is the only option for them to receive those services.
“It is unclear at this point what the total impact to middle-income households would be as it depends on the extent to which firms will pass on the VAT to the end consumer. Any amount borne by the end consumer could have an impact on consumption trends. Given the significant reliance on tertiary education providers, this expenditure increase is not ideal in promoting a knowledge based economy, “Frontier Research Lead Economist and Senior Product Head, Shiran Fernando said.
Fernando suggested that the long-term mechanism should be to reduce the dependence on indirect taxes and shift it towards direct tax; not only through widening the tax base, but also improving revenue administration.
We have seen steps taken in this regard recently, but the full value of it will take time. As a result the reliance over the years towards these quick fix indirect taxes will continue to be a burden on households,” he noted.
