Adverse impact from cess removal on imported products –NCE
View(s):The National Chamber of Exporters of Sri Lanka (NCE) has raised concerns over the proposed withdrawal of ‘Cess’ on certain imports and the export ‘Cess’ imposed on certain primary materials, urging prior consultation with the private sector in future.
The NCE, in a media statement, said that the cess should be stipulated to a time frame allowing specific sectors which need protection to develop to be able to complete.
Some of the Sri Lankan products that have been safeguarded with import ‘cess’ are tea, gems, rubber products including footwear, rice, and other agri products, should continue to be protected for their development. In this context it is also most important to understand that ‘every dollar saved by import substitution is equally good as every dollar earned through exports’, the chamber states.
The NCE said that it has been particularly concerned regarding the adverse impact, the move will have on certain local enterprises related to their future sustainability.
Cess’ is a tool that most countries use for the protection of their domestic industries, since it has not been governed by the rules of the World Trade Organisation (WTO) until recently. Further, when restrictions regarding the imposition of cess began to manifest in respect of various trade agreements that were negotiated by certain countries they began adopting other para tariff measures such as anti-dumping laws quality controls, labeling requirements, sanitary and phyto-sanitary measures etc.
In the current depressed trading environment of the world many countries, including developed countries, have begun to adopt various protectionist measures to safeguard their local enterprises from external competition. One example being that rice cannot be exported to Japan even at present as there are many restrictions including duty; and many countries use cess to control the import of food items which are seasonal to protect their farmers.
“The chamber further notes that many developed as well as developing countries including India adopted a closed door policy until recently, with strict restrictions on imports, to give breathing space to their domestic industry to develop and also encourage them to export by giving them various tax incentives and rebates including rebates for investment. On the other hand Sri Lanka opened the economy in 1977 without proper safeguards which resulted in the collapse of certain industries, while India opened the economy in stages giving sufficient time for domestic industries to develop during a smooth transition period,” the release said.
The importance of protecting local enterprises through measures such as cess cannot be more emphasised, to enable local industries to graduate themselves as exporters. The examples of well-known local companies such as Munchee, Maliban Biscuit Manufactories, Kelani Cables, Siddhalepa, Damro, as well as many enterprises in the agricultural sector and the garment industry highlights this point.
“The objective of the imposition of cess on imports has been for the Government to collect the much needed revenue, and to plough back some of the revenue for the development of particular sectors. However, this objective was not realised during the period of the civil war as the revenue collected was utilized by the Treasury for other purposes. The opportunity now exists to utilise the collected revenue to develop local enterprises in relevant sectors. In this regard the chamber does not understand the rationale of the Government depriving itself of much needed revenue, under the guide of economic reforms, since it is the world bodies such as the IMF that stresses the need for the Government to increase direct taxes to enhance revenue,” the release said.
The chamber also emphasised the need to discourage the export of basic raw-materials or raw products that have the potential for value addition. The rationale being that if someone else could add value to exported basic materials in another country, Sri Lanka should be able to carry out the value addition locally to earn more foreign exchange, as well as provide employment to Sri Lankans with other benefits for the development of the country.
The chamber cited the example of the cess that was imposed on the export of bulk tea which encouraged value addition in Sri Lanka, and resulted in the creation of brands such as ‘Dilma’ and ‘Melsna’ resulting in very successful export enterprises.
The chamber also cites another example related to waste paper where waste paper was recycled by the Valachchenai paper factory prior to its closure. However, after entering into the Free Trade Agreement with India waste paper was exported by Sri Lanka in raw form until an export cess was imposed due to protests by citizens.