Confectioners cry foul at govt. tax policy

By Dilina Kulathunga
Sri Lanka’s confectionary manufacturers charged the government that the existing tax policy is virtually killing the local industry and as a result, the manufacturers are losing the export competitiveness in the international market place.

Extremely high import taxes on ingredients, the cess that is being charged at the point of import and very high energy costs, act as banes for the industry and compel the manufacturers to pass those costs to the end consumer, making the Sri Lankan confectionaries less affordable in the local market and less competitive in the international markets.

Sri Lanka’s confectionary manufacturing industry is almost totally import dependant for its sourcing and according to Maliban Biscuit Manufactories (Pvt.) Limited CEO D.L Weerasuriya, close to 98 percent of the ingredients are imported, while only a meagre amount is locally sourced— such as desiccated coconut.  

“Duty charged for some ingredients is 100 percent. Specially for fat – Rs.110 a kilo – is charged as duty alone. Fat composed of 40 percent of the manufacturing cost of the confectioners,”   Weerasuriya said at the Lanka Confectionary Manufacturers’ Association’s (LCMA) 22nd Annual General Meeting
held recently. According to LCMA Chairman Sylvester Perera, fat and specialty fat are further charged with a cess of Rs.60 and Rs.70, respectively, taking the manufacturing costs even higher.

The cess is usually charged on finished product imports to safeguard the local manufacturers but it is acting against achieving this objective and making the lives even harder for the local confectioners, as there are no local alternatives.  

Some of the other imported ingredients that are charged with import duties are specialty salt, whey powder, sugar and vegetable oil.

According to Weerasuriya, after Paranthan Chemical Factory was closed due the terrorist attack, there is no one manufacturing table salt suitable for confectioneries in this country and the normal salt cannot be used in the confectionary industry as they are not properly purified. “We are importing salt paying Rs.40 duty a kilo and including which, the selling price is Rs.60,” he remarked.

Further, as Sri Lanka is not self-sufficient in coconut oil and vegetable oil, these ingredients are also imported paying a hefty duty. Meanwhile, whey powder, widely used in manufacturing chocolates, is fully imported, paying Rs.300 cess per kilogram.

According to Perera, who is also the CEO of Daintee Limited, sugar is charged with a Rs.35 commodity levy. “We want the government to reconsider fully removing the cess on fats and the commodity levy charged on sugar,” Perera said.

Meanwhile, Ceylon Biscuits Limited Deputy Chairman Ramya Wickramasingha cautioned that the government’s existing tax structure nicely paves the way for imported confectionaries to capture the market, as they are much cheaper than manufacturing locally.  “Importing biscuits from India is cheaper than manufacturing here. And the danger is, very soon, Indian manufacturers will come here and market their products at a cheaper prices,” he added.  Sri Lanka annually exports US $ 30 million worth of best quality confectionaries to almost every region in the world and the industry is confident of doubling the exports if the authorities could reduce the duties.  During the last five years, there has been an upward trend in the imported confectioneries and the country imported an estimated Rs.300 million worth of confectioneries (based on CIF values) in 2013, of which India accounted for 64 percent, followed by China.  Imports have a market share of 5-7 percent of the Rs.4.3 billion confectioneries market in Sri Lanka but it is likely that these imports were largely underestimated.  Meanwhile, according to Weerasuriya, low-cost competitors such as India and Indonesia, which are rich in most of the ingredients, price their products at least 40 percent less than the Sri Lankan confectioners.  As a result of constant deliberations with Director General Trade, Tariff and Investment Policy Dr. Neville Goonewardena and his successor R. Semasinghe, the LCMA was able to reduce the import duty from 30 percent to 25 percent charged on maize from the budget 2014. Meanwhile, the LCMA urged the government to take steps to encourage the local industries to invest in manufacturing ingredients based on the comparative advantage the country enjoys, such as specialty salt, as they do not want to import, burdening the country’s external account.