Cess increase worsens tea industry worries

2013-02-01 03:07:42

The recent increase in export taxes and the lack of communication between tea exporters and the government authorities are contributing to the progressive demise of the country’s tea industry, Colombo Tea Traders Association (CTTA) said in a statement.

Tea exporters expressed surprise at the lack of consultation authorities had with the line ministry and the tea industry regulator before increase of the cess placed on tea bulks over 10kgs by approximately 100 percent with effect from January 23, 2013.

CTTA also charged the authorities that as the apex industry body, they should also be consulted prior to the implementation of such tax increases, affecting the industry.

“The total absence of advance notice of this fiscal levy will have serious repercussions on the export trade, the Industry at large and the country. Exporters will be affected to various degrees, depending on the stage at which export commitments are currently placed,” the statement said.

As CTTA pointed out, tea exporters are deemed to loose big by this cess increase as there are no provisions to increase contractual prices either for consignments ready for shipment and teas that were bought for foreign buyers but not yet processed.

“In the above two scenarios, to recover the losses sustained, Buyers will be compelled to adjust their future price limits to an extent far in excess of Rs.10 per kg., in respect of contracts concluded on January 23, 2013, and thereafter. In turn, this will affect auction prices and impact Producers’ sales proceeds more than anticipated.

The resultant lower net sale averages will impact on green leaf prices payable to small holders,” CTTA noted.

The Association also added that contracts concluded prior to January 23, 2013, against which teas have still to be purchased, would have made no provision for this increase, and price limits to service these contracts would have to be reduced correspondingly, resulting immediately in lower auction prices, with relevant ramifications.

As CTTA pointed out, any attempts at re-negotiation of contractual commitments, with a view to passing on the increased levy to overseas buyers, would be futile and will only serve to antagonize them and jeopardize future relationships.

They also noted that some tea producers who have committed much of their production to forward contracts to minimize impacts originating from sporadic weather patterns and trade embargos on tea buying countries will have to disregard the safety net they anticipated following the increase of the cess.

It was a little over two years ago that, coinciding with the Budget Proposals for 2011, at midnight on November 22/23, 2010, an enhancement of the Tea Cess levy on exports of tea in bulk, in packaging in excess of 10 kgs, was imposed on the Tea Industry of the country, from Rs.4.00 per kg to Rs.10 per kg, amounting to an increase of 150 per cent.

This was compounded by the imposition, earlier that month, by the Sri Lanka Tea Board of what was described as a Promotion and Marketing Levy of Rs.3.50 per kg.

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