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Hiked corporate tax and 18 percent VAT brew storm in Ceylon teacup

By: Staff Writer

May 16, Colombo (LNW): The Tea Exporters Association (TEA) expressed grave concern over the introduction of the 18 percent Value Added Tax (VAT) on the industry adding fuel to the fire ignited by the government by imposing 30 percent corporate income tax.

The Tea Export sector that annually brings revenue of about USD 1.3 billion is concerned about the corporate income tax of 30% by the government on the export sector as it could seriously hinder the industry efforts for revival.

The sector is currently going through a challenging period due to a number of internal and external issues and this increase of corporate income tax by more than 100% from this month could further aggravate the plight of tea exporters..

VAT on a commodity which over 90% is produced and sold purely for exports, could hamper its competitiveness in global market, they added. 

600 tea producers/factories in tea industry should get themselves registered for VAT and SVAT to be eligible for issue of VAT invoices to buyers.

Sri Lanka’s tea exporters are  now paying 18% value added tax (VAT) on exports after the government decided to widen the tax net.

Although the tax money is later reimbursed to exporters through a system called SVAT (Simplified Value Added Tax), the move has brought with it a host of other issues on top of administrative woes, according to industry experts.

Primarily, making the tea industry pay a hefty tax and then have it refunded is “quite meaningless,” Tea Exporters Association (TEA) of Sri Lanka Chairman Ganesh Devanayagam said.

He called the government decision a “first of its kind in the sector’s history” because Sri Lanka’s tea products, where 90 % is exported, have always enjoyed tax-exempt status.

Acting on International Monetary Fund (IMF) recommendations to help the ailing Sri Lankan economy, the government hiked the existing 15% VAT on businesses to 18% from January 1 this year.

The government insisted that every single industry in the country should come under a uniform tax regime.As a result, the industry is now having to deal with a “ton of paperwork,” said Devanayagam.

There may not be a massive financial loss—apart from added administrative cost—as taxes paid to the government are refunded. But it has taken its toll on the sector’s efficiency, he said.

Unlike other counterparts such as India and Kenya, Sri Lanka’s tea sector is in a unique position in terms of how it operates locally:

Over 95% of the country’s tea is sold in weekly auctions making the whole process transparent, he said.

Weekly tea auctions sell nearly 6 million kilos of tea separated into almost 10,000 different types. 

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