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Thrice hit SL Tea industry faces another deadly blow from corporate tax hike

The Government’s corporate tax hike is to knock out thrice battered Sri Lanka tea industry by Covid-19, fertilizer ban and economic crisis is set to recover this year with a production target of 300 million kilograms and earn US$ 1.3 million from tea exports this year, industry sources said.

Sri Lanka expects tea production to recover in 2023 to 300 million kilograms after output fell to 260 million kilograms in 2022 with former President Gotabaya Rajapaksa’s utterly foolish overnight decision of banning fertilizer and agro-chemicals.

But this ambitious target towards the recovery of the industry will definitely suffer another set back for the fourth time in two years owing to the government’s action of doubling the corporate income tax rate impacting net foreign exchange earning of tea industry mainly in three ways

According to tea industry experts the increase in corporate income tax could affect the overall efficiency in the tea industry and the burden may sooner or later be felt through the entire supply chain including the tea smallholder growers.

Some tea export companies may even move to other countries like the Jebel Ali Free Zone in Dubai due to high taxes, purely to protect their market shares which have been gained through several years of hard work.

Hence the Tea Exporters Association ( TEA ) earnestly request the government to maintain the concessionary corporate income tax rate of 14 % for the tea export sector for its long term sustainability, which will ultimately bring in much higher growth dividends for the economy

Sri Lanka’s tea exports have dropped to a 25-years low in 2022 hit by a fertilizer shortage due to an ill-advised agrochemical ban, an industry report said.

Sri Lanka exported 250.19 million kgs of tea in 2022, 13 percent down compared to 2021 and it is the lowest since 1997. All categories of tea have recorded a drop except the instant tea.

“In a very challenging year of poor supply, turbulent domestic working environment, compounded by multiple international challenges, Sri Lanka exported 250.19 million kg 148 countries,” tea broker firm Asia Siyaka said in a report.

“Despite reasonable weather conditions throughout 2022, Sri Lanka tea production declined sharply and is likely to end the year at around 252 million kgs compared with 299 million kgs in 2021.”

The exports generated $1.27 billion in earnings, a decrease of 4.5 percent compared to 2021, the data showed.

In rupee terms, Sri Lanka has earned Rs 411.09 billion, an increase of 56 percent in comparison to Rs 263.35 billion in 2021, mainly due to sharp depreciation of the rupee currency.

Iraq, Russia and UAE have remained the top markets for Ceylon tea. The Tea Export sector annually bringing revenue of about $1.3 billion is concerned about the proposed corporate income tax of 30% by the government on the export sector as it could seriously hinder the industry’s efforts for revival.

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