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New government mulls scrapping export taxes

24 August 2015 02:51 am - 0     - {{hitsCtrl.values.hits}}

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Cess and other forms of taxes imposed on exports are most likely to be done away with, as the new government wants to rev up the country’s faltering exports as a key economic policy priority.

According to former Policy Planning and Economic Development Deputy Minister Dr Harsha de Silva, the government will push for critical reforms at a faster pace, however much they are challenging during the first six months of its appointment.

“I don’t believe the exports must be taxed. I think we should get rid of export taxes,” said Dr. de Silva at the Spices and Allied Products Producers and Traders Association Annual General Meeting last week. The government will also devise policies to incentivize investments into manufacturing tradable goods and services for export which can compete in the global market as opposed to investments tilted towards creating non-tradables such as developing roads, real estate and construction.

Sri Lanka’s exports in many measures have been falling over the last 10 years and most sensible comparison—its share of GDP— has fallen to 15 percent from 35 percent, while the year-on-year data too demonstrating contraction.  

Addressing his first official event after being elected to the eighth Parliament, he said in the past, cess collected under the guise of promoting the product or service in the export markets, had been used for some politicians’ ego-boosting projects.

“If you look at the successful countries, the cess has acted as (trade) barriers. Cess is certainly not something that would help exporters, unless it is set up for a specific period of time or a specific task,” de Silva further said.

The Rs.3.50 per kilogram tea promotional cess which imposed four years ago has grown into over a US $ 50 million (Rs.6.6 billion) fund and is now at the disposal of the Sri Lanka Tea Board for the intended purpose.

Ceylon Tea is still largely concentrated on its traditional markets and thus feeling the brunt during the last year amid falling export values as conflicts in its key markets Russia and Middle East are still far from over.

Tea is Sri Lanka’s second largest commodity export income earner after apparel.

Apart from the promotional cess, Rs.4 a kilogram cess is levied for packeted tea while the highest of 2.5 percent of the average auction value or Rs.10 per kilogram is levied for bulk tea exports.

Meanwhile, cess on spice exports has continued to be levied.

A kilogram of cinnamon, the largest agricultural export, is slapped with a Rs.6 cess while pepper light berries and pepper heavy are slapped with Rs.10 and Rs.3 cess per kilogram, respectively.

Cinnamon exports in 2014 have been largely unchanged from the previous year, earning an income of Rs.17.3 billion on 13,684 tonnes.
“Are we using the cess for marketing Pure Ceylon Cinnamon logo or are we using it for some politicians’ ego boosting projects? The latter is the truth,” Dr. de silva remarked. 

However the total exports of agricultural products have suffered a 27 percent decline in export earnings as it earned only Rs.34.9 billion by sending 31,130 tonnes, a drop of 40 percent from a year ago. 
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