Government mulls removing Cess on all items except tourism
In a major step towards tax reforms in Sri Lanka, the government is mulling the possibility of removing Cess (a special tax) on all items other than on tourism with the aim of promoting exports and helping local industrialists and farmers.
The Cabinet Committee on Economic Management (CEM) has suggested that it is necessary to remove Cess on all items other than tourism.
It has been brought to the notice of the CEM that the construction development Cess has led to the increase in construction costs and it should also be removed for the benefit of the industry. The Treasury has been directed to take necessary action after holding discussions with senior officials in the Departments of Trade and Tariff and Fiscal policy.
In Sri Lanka, ‘Cess’ is the name given to a special tax imposed on sales, imports and exports where the revenue is earmarked for a specific fund with a particular economic purpose. But it has deterred export promotion and local value addition by ‘using the Cess fund money for various other activities other than export promotion purposes during the previous regime under the directions of the then Treasury Secretary, Dr. P.B. Jayasundera, a senior official revealed.
This tax has taken away a considerable amount of industry excess profits that could have been used for value addition for export products, he added. The Cess revenue is being credited to the “consolidated fund” of the government and not in the Export Development Fund, he said adding that the money has not been used to promote value addition.
Several consumer goods including agricultural products, processed food, other consumer items as well as construction material are subject to both high import duty and high import Cess. The prices of those items have been increased due to high taxes coupled with Cess in the recent past and at present and the demand for these products has also been lowered.
Removal of Cess on the export of local products including export crops such as tea and rubber will in no way affect the government exchequer and it would help Sri Lanka maintain competitive edge in the global market. It will lead to lowering of prices of consumer goods, he pointed out adding that it would also increase demand.
The Cess is, in fact, a major irritant and a handicap for exports adding to high transaction costs and procedural delays hitting exports and global competitiveness.