The Advocata Institute applauds the recent policy action by the government to provide a cash transfer of LKR 6,000 to school children from vulnerable groups to assist them in purchasing school stationery for the upcoming 2025 academic year.
While VAT exemptions on education materials might seem appealing, they are not targeted and hence can disproportionately benefit high income households. High-income households, with greater purchasing power are more likely to purchase larger quantities or more expensive educational materials, amplifying their benefit from such exemptions.
In contrast, vulnerable groups, including low-income households, often prioritize essentials such as food, housing, and healthcare, leaving little capacity to purchase additional educational materials even with reduced tax rates.
VAT exemptions or reductions, which lower the cost of selected items can also create distortionary effects on market prices by altering consumer behavior.
It can reduce demand for close substitutes that are not exempt, making it harder for businesses offering these alternatives to compete, creating inefficiencies in the market. Additionally, businesses may not always pass on the benefit of VAT removal to customers, choosing to keep the added margin to themselves.
Targeted cash transfers, however, ensure that resources are allocated efficiently and directly to those who need them most, empowering vulnerable families to meet their specific educational needs without unintended market disruptions. Sri Lanka’s economic crisis increased the cost of education material.
A survey on the household impact of the economic crisis in 2023 conducted by the Department of Census and Statistics revealed that a large number of school children in rural and estate regions have faced significant setbacks in their education owing to the economic crisis, where 53.2% of affected children have reduced or stopped purchasing school stationary, while 26.1% have resorted to reusing old stationary.
In light of this, the cash transfer to purchase education material will provide immediate relief to those struggling to meet their children’s immediate education needs.
Given that access to education is a fundamental right, the cash transfer will help ensure that no child is left behind due to financial difficulties.
With the exception of essential items like food, the Advocata Institute urges the government to consider similar targeted interventions over VAT exemptions on various goods and services.
Direct cash transfers effectively mitigate the regressive impact of VAT by directing assistance to those most in need, allowing them the flexibility to allocate funds according to their specific circumstances and priorities.
The post Advocata commends Govt’s support for ‘Purchasing School Stationery’ among vulnerable families appeared first on DailyNews.