EFFECT OF VALUE ADDED TAX ON THE PRICING BEHAVIOUR OF NON- VAT REGISTERED GOODS, EVIDENCE FROM VEGETABLE MARKET IN SRI LANKA

Abstract

1. Introduction The government has increased the VAT rate from 15% to 18% from the 1st of January 2024. Hence, VAT-registered companies have increased their prices under the VAT increase. Some non-VAT-registered goods have also seen price hikes, sometimes exceeding the VAT percentage. This is a serious issue in Sri Lanka as many non-VAT-registered goods are sold at higher prices. This study aims to investigate the effect of value-added tax on the pricing behavior of non-VAT-registered goods, as evidenced by the vegetable market in Sri Lanka. 2. Research Methodology The mixed-methods approach and convergent parallel design were utilized in this research. The quantitative phase focused on the Dambulla district retail vegetable market as a sample, and the sample period was three months before and after VAT. Further, secondary data collection was used. The qualitative phase focused on the Dambulla district retail vegetable farmers as the respondents and the purposive sampling technique was used in this study. Descriptive analysis and thematic analysis were utilized as the analysis techniques. 3. Findings and Discussion The present study found that there is an effect of VAT on the pricing behavior of the vegetable market. Results showed that carrot, cabbage, tomato, and pumpkin prices significantly increased. Thematic analysis of interviews with vegetable farmers discussed how the increase in VAT affected their day-to-day operations and pricing policies. Farmers said that the cost of living and operational costs were part of the reasons for inflation in vegetable prices. 4. Conclusion and Implications The present study examines the effect of VAT on the pricing behavior of non-VAT registered goods, focusing on the vegetable market. The quantitative data points to clear statistical changes in vegetable prices, and the qualitative insights provide context to the lived experiences of farmers. This study provides rich insight for policymakers in the agricultural sector.