Exports hit by indirect taxes - Businessman

By Lalin Fernandopulle

Exporters said they are in a serious predicament due to the falling global commodity prices and the plethora of levies, a disincentive to boost exports which has been crumbling for the 16th straight month up to June this year.

They said the absence of a coercive strategy, policy stability and an array of taxes in the form of levies and duties have weighed heavily on exports which have dwindled sharply since 2015.

"We are unable to make long term decisions due to unstable tax policies. Taxes in the form of duties, cess and promotional levies have stifled growth in the export sector which is already hit by low commodity prices in the global market," exporters said.

However, State Minister of International Trade Sujeewa Senasinghe said the government is confident that the gloomy scenario in the international trade will fade quickly and a time of prosperity for trade will dawn soon which will augur well for exporters.

He said the exporters need not panic as they have the opportunity to gain with the devaluation of the rupee which bring in more income for exports. We have set the stage for a vibrant export industry with ports, airports and all infrastructure facilities to be given a complete face-lift soon with the assistance of China with whom Sri Lanka has maintained healthy relations.

Profitable ventures

"The Mattala airport and the Hambantota port will be revived and turned into a profitable venture in collaboration with China. A major export zone will be set up there to facilitate exports. Our aim is to move out from traditional exports and encourage more value-added exports through a solid entrepreneurship culture in the country. We will have more free trade agreements to boost trade, introduce a simple tax system, and set up a one-stop-shop to help SME entrepreneurs," Senasinghe said.

Sri Lanka-Pakistan Business Council President and an exporter of spices, coconut products and and non traditional products, Rohitha Thilakaratne said the absence of a coercive export strategy where key markets will be identified to promote more exports is a major hindrance to the export sector. Sri Lanka is not fully benefitting from FTAs with India and Pakistan as certain export items which are of advantage to Sri Lanka are not listed in the positive list.

"We are not countering tariff barriers imposed by other countries. Our export prices are non-competitive due to indirect taxes. The ever increasing labour cost and the drop in quality is adversely affecting the export sector," he said.

"There are no incentives to promote exports. India, Vietnam and Thailand which are Sri Lanka's competitors provide incentives to boost exports. There should be a one-stop-shop for exporters. We request the policy makers to streamline export policy with professionals to make and execute policies," Thilakaratne said.

"The high finance cost which is around 10 percent in Sri Lanka should be reduced. The finance cost in Japan is around one percent. We need to take a cue from Vietnam which has a much larger population but has a vibrant agricultural and fisheries sector," he said.

Thilakaratne said exports overall have dipped by around 20-30. The Export Development Board must be pro-active and not reactive to create a vibrant export sector.

Former adviser to the Ministry of Agriculture and currently a processed, fresh fruit and vegetable exporter Sarath de Silva said if good quality products are available in substantial quantities, the issue of not having a market for produce will not arise.

Sri Lanka has been trying to develop non-traditional exports for several decades. Agricultural produce has the maximum value addition in the country. "We have laboured hard to establish markets in the Middle East, Europe and Indian ocean islands. There is great demand for agricultural produce due to the FTAs with India and Pakistan," he said.

"We must commend the efforts made by the Ministry of Agriculture with the Presidential Task Force to expand plantation areas," de Silva said.

Tea Exporters Association Chairman Rohan Fernando said earnings from most of our exports including tea recorded a drop on a continuous basis. Whilst the global market has still not recovered from the financial crisis, the main markets for tea are experiencing a multitude of issues affecting cross border trade. The main markets, Russia, Ukraine, Iran and Syria are badly affected due to the fall in oil prices, civil war and trade embargoes.

Credit facilities

He said tea exporters are under pressure from importing countries for extended credit facilities. The fiscal policies of the government on taxes and levies being unstable, exporters are not in a position to take medium to long term investment decisions. Tea exporters are further burdened with a multitude of taxes in the form of duty and cess, promotional and marketing levy, exorbitant fees slapped on registration with the government, the Tea Board as well as External Trade Ministry at the point of export and import if any on other origin teas. This is in effect, double taxation which is unprecedented for any export commodity in the world.

"Further deterioration in exports of value-added tea may result if the situation on the supply of tea is not addressed through the proposed tea hub and the imposing of heavy taxes at the point of export and on the income on exports," Fernando said.

"There are several options for the tea export industry to avoid export taxes and over regulation of business by the State, by relocating the processing factories to several free zones in the UAE offering tax rebates, free infrastructure and liberal fiscal policies for ease of doing business," he said.

"Whilst we appreciate the effort of the government in collecting taxes which is vital for priming the economy, the paltry number of taxpayers is the main cause in burdening and scuttling the efforts of the government. It is understood that no more that 3% of the population pay direct taxes to the State.

"Hence the IRD should expand the tax net to professionals and unregistered businessmen who are not declaring their income correctly to dodge taxes. With a lot of pressure to increase tax revenue, the IRD is chasing after the same lot of registered taxpayers to tax them further which is counter productive," Fernando said.

National Chamber of Exporters Secretary General/CEO Shiham Marikar said the rise in the cost of production, salaries and wage increments has an adverse impact on exporters making products uncompetitive in the global market.

Taxation

He said unstable taxation and fiscal policies are hindrances to promote exports. The recession in certain European economies and the crisis in the Middle East have negatively affected the demand for commodities.

Lack of reliable information on emerging markets, buyers and the world trade patterns and limited portfolio in the export basket have impeded growth. The low level of sales in petroleum products, transport equipment and spices resulted in exports declining by five percent.

He said the utilization of export finance instruments is low. The percentage of export transactions covered by export credit guarantee and insurance is around two to four percent in Sri Lanka compared to the international average of 10-12 percent. The variety, availability and sophistication of export finance solutions are limited.

Former Chairman, Ceylon Chamber of Commerce, Chandra Jayaratne said the primary reason for the decline in exports is the reforms needed to boost exports have not being carried out resulting in export income plummeting for several months.

"We have to accept the global economic slowdown especially in Europe and the Middle East but it is no excuse for the declining trend to continue further. We have been relying heavily on traditional export commodities such as tea, rubber and garments for foreign exchange earnings. We need to think out of the box and come up with niche products that will be in demand in the global market.

"Exports are declining because there is no incentive for investment in the export industry. Businessmen make easy choices by importing goods and having a margin in sales in the country. They acquire businesses which are already established and do not venture into creative areas that will bring in revenue. There should be labour market, agriculture and land reforms," Jayaratne said.

He said productivity should be rewarded and product cycles should be identified to cater to the needs of the global market.

Former Chairman, Sri Lanka Export Development Board Dr. Rohantha Athukorala said there is a lot of focus on FTA's but we must also focus on the aspects that boost exports other than mere preferential pricing. There must be a focus on supply chain development, consistency of quality, improving physical distribution to making the product available to customers at the right time which are the real challenges for Sri Lankan companies."

Export earnings declined by 5.0 percent, year-on-year, to US $ 897 million in June this year from US$ 944 million in the corresponding month last year, led by lower export performance in petroleum products, transport equipment and spices. On a cumulative basis, earnings from exports during the first half of this year contracted by 5.8 per cent, year-on-year, to US dollars 5,108 million mainly due to reduction in export earnings from transport equipment, petroleum products, tea and spices.