Since the beginning of 2014, the tea industry is going through a difficult period due to low demand and depressed prices at the auction, as a result of the falling oil prices, political and economic issues in Russia and the Middle East. Most segments in the industry, namely tea smallholders, tea manufacturing factories and regional plantation companies, were requesting for subsidies or other kind of financial assistance from the government for survival and the only segment that did not ask for any government handouts was the tea exporters who somehow managed with their own resources. However, they are now appealing to the government not for any handouts but to correct the recent budget decisions that would negatively impact on the progress of the tea export sector.
The revised budget proposals presented in parliament on March 8, 2016 has proposed to revise the corporate income tax and accordingly, the applicable tax rate on the income of value-added tea exports (tea in packets and bags, etc.) will be increased from the current levels of 10 percent and 12 percent, applied on the extent of value addition, to a single rate of 17.5 percent, while keeping the tax on bulk tea exports (28 percent) unchanged. This is an increase of 75 percent and 45.8 percent on the two categories, respectively.
The income tax rates of 10 percent and 12 percent were applied for export of tea bags and tea packets to encourage the export of tea in value-added form. The current proposal is a deviation from the government policy of promoting tea exports with more value addition. Further, the increase in the tax rate will make Ceylon tea uncompetitive in the world market. Among the tea producing countries, Sri Lanka exports more tea in value-added form due to the incentives in the form of low-export tax granted and supportive fiscal policies adopted by the respective governments. The new proposal to increase the income tax on export of value-added tea at this crucial moment will discourage the exporters and may reduce our share of pre-packed tea exports.
The tea exporters are also concerned of the annual licence fee introduced for all companies in the 2016 government budget from this year. As per the budget proposal, the licence fees applicable to all companies registered with the Company Registrar Department are:
*Private companies - Rs.60,000/ + taxes
*Public quoted companies whether big, medium or small - Rs.500,000/ + taxes
*Other companies - Rs.100,000/ + taxes
The implementation of this proposal has created an additional financial burden on the tea exporters as they are already under an annual licence scheme operated by the regulatory body, the Sri Lanka Tea Board (SLTB) under the purview of the Plantation Industries Ministry. The fees payable by the tea exporters for annual renewal of licence with the SLTB are as follows:
*Large companies with two subsidiaries (exporting over 1mkg) - Rs.500,000/ + taxes
*Companies with more than two subsidiaries - 50 percent of fees for applicable category
*Large companies (single) (exporting over 1mkg) - Rs.250,000/ + taxes
*Medium companies (exporting between ½ -1mkg) - Rs.125,000/ + taxes
*Small companies (exporting between ¼ -1/2mkg) - Rs.50,000/ + taxes
*Extra small companies (exporting less than ½mkg) - Rs.25,000/ + taxes
In addition, all tea exporters to renew the licence for packing of tea at a cost of Rs.10,000/ + taxes a year.
Tea exporters are now subject to payment of annual licence fees to two government organisations whereas most other companies have to renew the registration with the company registrar only. Some quoted tea companies are badly affected by this proposal as they fall under the maximum fee payable category from both organisations. The tea exporters are strongly objecting to these detrimental budget proposals as they would put additional pressure on them at a time more relief is expected from the government. The association has appealed to the Finance Ministry for the revival of two taxes and waits for the response.
(Tea Exporters’ Association
(TEA) of Sri Lanka)