A commendable move

We commented last week on the widely-acclaimed reduction of taxes and duties on motor vehicles. There is a lot of enthusiasm and debate on this subject and according to reports, car importers are inundated with telephone calls on the new prices of vehicles.

The Government has effected an equally drastic cut on the taxes and duties applicable to the imports of electrical, electronic and certain personal items, which has gone largely unnoticed in the midst of this 'vehicle mania'. Under the new tax and duty structure, some items will attract only around 10 per cent of their value in taxes. A leading electronics retailer published an advertisement last Thursday that they had slashed their prices with immediate effect and other retailers are expected to follow suit this week.

The Government should be commended for this measure, as it will bring a large number of goods within reach of the ordinary man. In today's world, items such as automatic washing machines, no-frost refrigerators, LCD and Plasma televisions, cameras, mobiles and watches cannot be considered as luxuries. They make life easier and enrich it at the same time.

Apart from making them affordable to greater numbers of people, there are many other benefits of this move. Many countries in our region including the United Arab Emirates and Singapore impose very low taxes on electronic items not only to give their countrymen a chance to buy goods at affordable rates, but also to attract tourist dollars. Even many Sri Lankans who visit these countries rarely fail to buy at least one electronic item, because they are so inexpensive.

Sri Lanka could also gain such a reputation in the region as a shopping centre for electronic items. However, this should be widely publicised abroad, especially in our major tourism markets. For example, tourists should get the message that it is not necessary to buy a camcorder in their country before coming here - they should be able to buy it cheaper here and capture their memorable moments in Sri Lanka. Another plus point is that tourists coming for electronics will shop for other items and spend money on transport and accommodation, which will go into our forex coffers.

When these laws eventually take full effect, the authorities should consider having a 'shopping week' or a 'great sale' as seen in Dubai and Singapore, which have taken retailing to new heights. These two countries attract thousands of visitors especially for these events and spend a large amount of money. The tourism authorities and the retail industry should come together and arrive at a mechanism for such a 'sale'.

There is a huge black market for electrical and electronic goods in this country, primarily because of the high prices charged by the legitimate importers or sole agents due to high duties and taxes. Unfortunately, the State loses a lot of revenue because shady importers somehow avoid these and sell goods at cheaper rates.

For example, a 32 inch name-brand LCD TV that costs Rs. 100,000 at the local agent is often sold for around Rs. 75,000 by these vendors. Now, who does not want to save Rs. 25,000? Given that a very good 32" LCD TV costs only around US$ 450-500 duty-free, the agents have been compelled to charge a very high price due to taxes and duties. The tax reduction will help to wean the consumers away from the 'grey' importers.

It is also well known that these importers get their goods from dubious sources. Sometimes these 'branded' goods happen to be counterfeit but consumers fall for them due to the lower prices. There is often no warranty as well. However, customers will now be able to buy the genuine articles with a warranty from the agents at more affordable prices thanks to the duty reduction.

The high duties had also led to the misuse of the Duty Free facility granted to Sri Lankans returning from abroad. Depending on their stay abroad, Sri Lankans are granted a facility to buy goods Duty Free up to the value US$ 1,750 (Rs.200,000 approx). This is a considerable sum by any means and one can buy a say, LCD TV, automatic washing machine, two-door refrigerator, an air conditioner, microwave oven and a DVD Home Theatre with cash to spare at the Arrivals Duty Free.

There is an 'arrangement' where such goods are bought in a returning expatriate's name and later disposed of in the open market at much lower prices than goods which had been subjected to normal duty. The duty reduction may not altogether stop this practice, but it will certainly have a considerable impact. In fact, as these two examples show, there would be much less demand for grey market good goods hereafter.

There are those who argue that the duty and tax reduction on electrical/electronic goods will drastically affect the few local manufacturers of these goods. True, there will be an impact, but it is too early to predict the extent to which they will be affected. They call for a measure of protectionism for the local electrical goods.

This is a flawed argument. Ours is an open economy, which is all about choice. A consumer is free to choose an imported refrigerator/washing machine/TV or a locally made/assembled one. With locally manufactured goods priced almost on par with the imported ones, most consumers opt for the latter, assuming that imported goods are better quality-wise. Thus the buying decision often comes down to a perception of quality.

Some locally assembled electrical items have gained a reputation for quality and reliability over several generations. There are housewives who swear by their local refrigerators, some of which have been going on without a hitch for more than 40 years. That is a record that no modern imported refrigerator can match. That kind of durability and reliability is indeed rare now.

Thus local manufacturers have to compete essentially on the basis of quality. If they can prove that their goods are superior to, or on par with, imported goods vis-à-vis quality, there should be no difficulty in moving their stocks. Of course, the State should provide them with every possible incentive and concession to meet this goal. The Government should encourage more local firms to enter the field of electrical/electronics manufacture. More players always lead to healthy competition and better prices for the consumer.

The State should also encourage the manufacture and import of energy efficient appliances, perhaps through a grading system. Most countries have a 'A+, A, B+, B' system for classifying the energy efficiency of (especially) refrigerators, washing machines and dishwashers. Those tagged A+ consume less electricity and work 'smarter'. In any case, Sri Lanka's import inspection system should be thoroughly revised taking these concerns into account. A similar rating system is already in operation here for florescent bulbs and it could be extended to bigger appliances. Moreover, importers could be urged to phase out the import of CRT TVs in favour of LCD TVs, which consume less electricity per screen size. Consumers too have a say in this - they should demand more energy efficient appliances.

The other factor is environmental. Sri Lanka lacks a coherent policy on electronic waste. Such a policy should be formulated without delay. There is no proper way to recycle used electrical or electronic goods, though at least one mobile service operator encourages customers to drop off their used mobiles for recycling at certain collection points. Here again, the authorities should encourage the manufacture and import of items 'Built for Disassembly' which can easily be recycled once they reach the end of their working life. Even in the case of simpler things such as batteries, why not encourage the use of rechargeable instead of disposables? Now that more goods are likely to enter the country with the duty reduction, these factors too must be considered for the benefit of consumers and the country itself.