Increase in export income tax, a disincentive

Apparel exporters express mixed reactions:

The revision of port and air port levy (PAL) from 5.0 percent to 7.5 percent and Nation Building Tax (NBT) from two to four percent will have a serious impact on the capital investment program.

The industry continues to invest in high value automation and technology and upfront tax on capital formation is a disincentive for future growth of the industry, Chairman, Sri Lanka Apparel Exporters Association (SLAEA), Saif Jafferjee told the AGM of the SLAEA last week.

He said the revision on duty on sale of garments to Rs. 200 per piece, an increase of 800 percent from the existing rate structure will have an adverse impact on the industry which manufactures a wide product portfolio from socks to jackets which have a range of economic values.

Therefore, under this revised rate structure a major part of our product portfolio in industry will no longer be economically viable in the domestic market and will be a loss to the consumers in this country.“We wish to impress upon the authorities about these realities in the hope that it would be resolved in a sensible manner,” he said.

The income tax rate has been revised from 12 percent to 15 percent for value added exports. Under the reform measures, the domestic market and export income has been unified into one standard rate of 15%.We understand the reasons for the revision of the tax rate in the interest of revenue collection and fiscal consolidation. However, the increase in export income tax was a negative sentiment to exporters, Jafferjee said. BOI and Customs regulations should be revisited to make them more business-friendly and help align the value chain across industrial players with minimum bureaucracy. The sale of used machinery more than ten years in the domestic market is another issue.

“We call for government intervention in the wage process to be limited only to tri-partite arrangements of the Wages Board mechanism for the setting up of minimum wages for the industry. Ad hoc State intervention in the wage mechanism disrupts the basis on which wages are negotiated and takes away the element of performance-based pay that we all adopt in our businesses,” he said.

The apparel industry is the largest industrial exporter in the country, exporting clothes worth USD 4.9 billion last year with a 60 percent value addition. The industry experienced several months of negative growth especially in the European Union region due to currency weakness in those markets. “However, we remain optimistic that exports this year will be on a par with last year. With the advent of the GSP+ we expect to increase our growth rate substantially in the future,” Jafferjee said. “The steps taken towards creating good governance and rule of law would have surely answered some of the serious issues that were raised in relation to the withdrawal of GSP+. The apparel industry promotes ethical and compliant manufacturing and is recognized globally for this commitment,” he said. “The apparel industry is the the most visible industry in rural areas providing employment for over 400,000 people directly and a further 800,000 indirectly. Our lagging regional expansion plan will expand our footprint bringing development to these regions,” Jafferjee said.

“The industry’s credentials as a green, ethical, quality, reliable manufacturing destination is globally recognized. We will continue to strengthen the competitive position with investments in technology, automation, lean management systems and upskilling our associates,” he said. The Association also believes that the Asian region will continue to play the pivotal role of manufacturing apparel for the world, due not only to the large production base but the growing consumer market as well.

It is our expectation that the new Exchange Management Bill will give an impetus for such globalizing efforts,” Jafferjee said. “Our concern for several years has been the growing number of multi-lateral, regional and bilateral trading arrangements. The preliminary conclusion of the Transpacific Partnership agreement (TPP) among 12 nations, covering 45% of the world’s GDP, will be a serious challenge for the industry,” he said.