Tea and turnover tax

Local taxes should not impinge on export competitiveness; it is imperative that tea and tea exports are exempted from this proposed SSC  – Pic by Shehan Gunasekara 

• Tax by any other name, pains as bad; so turnover tax would, though social security contribution called

In last week’s Budget speech there was a proposal to reintroduce a turnover tax of 2.5% effective from the next financial year. It is proposed to impose the tax on liable turnover over a threshold of Rs. 120 million. The Treasury Secretary in subsequent webinars and interviews held over the last few days has indicated that this would apply to all sectors.

Being closely associated with the tea industry, trade and export of tea for several decades, I have been a keen follower of the effects of BTT on the tea sector since it was first introduced in the sixties (1963).  Many today may be unaware of the cascading effect and the injurious impact of turnover tax on sensitive areas like the tea sector. It is particularly critical to safeguard this sector as the other main streams of foreign revenues have been badly impacted by the global pandemic. 

Indeed tea exports remains a major source of foreign exchange for the national economy and the entire supply chain in the sector has strived hard to keep their respective wheels moving in the last two years. This has been achieved at some risk to all those who work for the sector.

The transformation of the tea sector to a thriving value added exporter and global marketer is taking place far too slowly and annual export revenues have remained more or less stagnant at around $ 1,500 billion (give or take 10%) over the last 10 years. A rapid transformation will require different strategies but till we have such a plan to action those strategies, it is critical to safeguard what we have. 

We produce 300 million kgs (give or take 10%) of tea annually.  Approximately 10% or less is consumed locally and the price of tea in the local market is a sensitive matter and has its place in consumer price indices. A price of a cup of tea locally is affected already by the price of sugar and powdered milk. We have experienced recently not only price escalations but also shortages of these items in the marketplace for months now. 

The ultimate burden bearer of a local tax on a commodity is the consumer. Should the producer at cultivation level/ factory level and the seller at auction level and next the wholesaler and retailer all  have to pay 2.5% each on turnover on tea the multiple effect of the cascading nature of TT will compound and impose an unbearable price on the ultimate local consumer.     

It is for this reason that successive finance ministers in the past exempted tea from BTT.

It is a widely-accepted principle that local taxes should not be included in the costing of products for export. Such inclusion which exporters would be compelled to add to price would render exports of the country uncompetitive. In tea exports where our country still sells a considerable percentage of our output in bulk form with little value addition, we would lose the competitive edge altogether for bulk teas if we are compelled to add 2.5% in our quotations. Not doing so would render many tea export businesses unviable and unsustainable.

There is already a trend of our traditional buyers looking to other countries of origin for their tea raw material where substitution is possible for generic marketing. We cannot afford to have a decline in the demand for our teas at the Colombo Auctions which trickles down the supply chain to all links adversely affecting price levels.

The writer is not in a position to comment on the other export sectors but reiterates the principle that local taxes should not impinge on export competitiveness. It is imperative therefore that tea and tea exports are exempted from this proposed SSC.