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High cost of living: Prices rise

June 18, 2013

POOR to low-income households already struggling with higher prices should brace themselves for a fresh wave of inflation resulting from the additional taxation measures proposed in the recent budget. The prices of most necessities, particularly food, have already been raised because of the government’s insistence on recovering the additional taxes even before the start of the new budget year in order to hold down its deficit. The estimates of price inflation for June have already been nudged up by just under 1pc in view of the spike in food costs. The cumulative impact of the indirect taxation on prices of essentials comes to 3.5pc — a 1pc hike in sales tax, 2pc additional sales tax on supplies to unregistered entities, and 0.5pc tax on wholesalers, commission agents, etc. The impact on the kitchen budgets of consumers is feared to be much more. Prices will soar more sharply next month when the government passes on at least one-third of the financial impact of electricity theft and losses to consumers. With the advent of Ramazan — traditionally associated with higher seasonal food prices — many households may find it impossible to make both ends meet.

Price inflation is recognised as taxation without legislation. It diminishes the buying power of fixed-income groups besides heavily taxing the poor. The next spate of price inflation will not result from food shortages in the country. Nor will it be pushed up by a spike in global prices of oil and food commodities as in 2008. Prices are going to rise because of the government’s failure to tax the wealthy as promised by the ruling PML-N in its election manifesto. While it is important to raise tax revenues to finance development, taxing poor and low-income groups directly or indirectly for that is bad policy.