- Petrol soars to Rs. 372/l, diesel peaks at Rs. 359/l
- Ripple effect anticipated across services and goods
Sri Lanka is gearing up for a dramatic spike in fuel prices, expected to reach around 10% next month with the introduction of a new Value-Added Tax (VAT) on commonly-used petroleum products, namely petrol and diesel, sources told The Sunday Morning.
Accordingly, the cost per litre of petrol is projected to rise to approximately Rs. 372, with diesel following suit at around Rs. 359.
As announced by the Government last week, the Ports and Airports Development Levy (PAL), currently embedded in fuel and gas prices, will be removed with the implementation of VAT.
It is reported that the 7.5% PAL on fuel and the 2.5% PAL on Liquefied Petroleum Gas (LPG) will be rescinded concurrently with the introduction of 18% VAT, set to take effect on 1 January 2024.
Confirming the forthcoming surge in fuel prices, Deputy Treasury Secretary R.M.P. Rathnayake assured The Sunday Morning that the VAT impact would be modest and the removal of PAL would negate the impact.
The Value Added Tax (Amendment) Act No.32 of 2023, officially certified on 13 December and subsequently published in the gazette on 15 December, has been released by the Inland Revenue Department (IRD).
This legislative update encompasses significant changes, including the introduction of a fresh VAT exemptions list outlined in Part III of the First Schedule of the VAT Act. Effective from 1 January 2024, this new list replaces the existing VAT exemptions under Part II, marking a pivotal shift in the taxation framework.
The VAT (Amendment) Bill secured parliamentary approval on 11 December, with a decisive majority of 45 votes. A notable 100 MPs voted in favour of the bill while 55 voted against it.
Subsequently, the bill transitioned into law, officially becoming the VAT (Amendment) Act No.32 of 2023. This legislative development signals the approval for an increase in VAT from the existing 15% to the newly-sanctioned rate of 18%.
When approached for comment, Ceylon Petroleum Corporation (CPC) Chairman Saliya Wickramasuriya highlighted that the CPC routinely furnished pricing information to the ministry, encompassing all conceivable taxes.
He noted that the ministry would factor in this comprehensive input to establish new prices for January 2024.
Wickramasuriya highlighted the CPC’s concerted efforts, noting that the corporation had advocated for measures to alleviate the impact of the VAT through policy considerations.
He stated: “We have exerted our best efforts in the short term, both operationally and commercially.”
Starting 30 November, the CPC implemented price adjustments, reducing the cost of octane 92 petrol by Rs. 10 to Rs. 346 per litre and auto diesel by Rs. 27 to Rs. 329 per litre. In contrast, the price of kerosene saw a modest increase of Rs. 2, reaching Rs. 247.
Conversely, the price of octane 95 petrol experienced a rise of Rs. 3, reaching Rs. 426, while super diesel saw a similar increase of Rs. 3, and is now priced at Rs. 434.
Lanka IOC, the exclusive subsidiary of the State-owned Indian Oil Corporation, and Sinopec also adjusted their prices in alignment with those of the CPC.
Meanwhile, Energy Trade Union (ETU) Convenor Ananda Palitha expressed concerns that an increase in fuel prices would lead to a ripple effect, causing a rise in the prices of various goods and services.
He noted the adverse impact on the middle class, highlighting a significant drop in fuel sales. Palitha said that despite having ample stocks for the next two months, sales were expected to further decline from January onwards.
Elaborating on the intricacies of the situation, Palitha explained the distinction between the removal of the PAL and the imposition of VAT.
He clarified that while PAL was applied only to the Cost, Insurance, and Freight (CIS) price and determined based on the landing price, VAT, in contrast, was levied on the entire cost.
Efforts to contact Power and Energy Minister Kanchana Wijesekera and Ministry Secretary M.P.D.U.K. Mapa Pathirana proved unsuccessful.