Tea exporters express concerns over excessive taxation

The Tea Exporters Association yesterday expressed serious concern over new and excessive taxation proposed by the Government.

“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 Ministry of Finance for revival of two taxes and is awaiting a response,” TEA said in a statement. 



It said that since the beginning of 2014 the tea industry has been going through a difficult period due to low demand and depressed prices at the auctions, as a result of falling oil prices, political and economic issues in Russia and Middle East.

Most segments in the industry, namely, tea small holders, tea manufacturing factories and regional plantation companies, have been requesting subsidies or other financial assistance from the Government for survival and the only segment that did not ask for any Government hand-outs was the tea exporters who somehow managed with their own resources. However, they are now appealing to the Government not for any hand-outs but to correct recent Budget decisions that would negatively impact on the progress of the tea export sector.

The revised Budget proposals presented in Parliament on 8 March seek to revise Corporate Income Tax, and accordingly the applicable tax rate on income of value added tea exports (tea in packets and bags, etc.) will be increased from current levels of 10% and 12%, applied on the extent of value addition, to a single rate of 17.5% while keeping the tax on bulk tea exports (28%) unchanged. This is an increase of 75% and 45.8% on the two categories respectively.

The income tax rates of 10% and 12% 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 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 incentives in the form of low export tax granted and supportive fiscal policies adopted by 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 about the annual license fee introduced for all companies   in the 2016 Government Budget from this year. As per the Budget proposal the license fees applicable to all companies registered with Department of Company Registrar are as follows: 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 license scheme operated by the regulatory body, Sri Lanka Tea Board under the purview of Ministry of Plantation Industries. 

The fees payable by the tea exporters for annual renewal of license with SLTB are as follows: large companies with two subsidiaries (exporting over 1mkg) – Rs. 500,000 + taxes; companies with more than two subsidiaries – 50% of fees for applicable category; large companies (single) (exporting over 1mkg) – Rs. 250,000 + taxes; medium companies (exporting between ½ to 1mkg) – Rs. 125,000 + taxes; small companies (exporting between ¼-½ mkg) – Rs. 50,000 + taxes; and extra small companies (exporting less than ½ mkg) – Rs. 25,000 + taxes. In addition, all tea exporters to renew the license for packing of tea at a cost of Rs. 10,000 + taxes a year.

Tea exporters are now subject to payment of annual license 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.