Curb on non-essential imports knocks down importers, SMEs
The Government ban on non-essential imports for three months to ward off a forex crisis in view of the COVID-19 pandemic has brought thousands of importers and small and medium scale enterprises to their knees.
Further the hurried decision taken to restrict non-essential imports announced on April 2 and guidelines issued without clarity on the prohibition of more imports until July 2020 has also created a shortage of essential food items initially.
The impact of this prohibition order issued under the country’s export and import control law of 1969, which was used in the control economy period of 1970s, is being felt in waves, with importers and SMEs badly feeling the impact.
The Government’s measures to suspend all non-essential imports in a desperate bid to halt foreign exchange outflows and stabilise the rupee will result in a forex saving of US$ 1.4 billion per month and $17 billion on an average per year, official provisional data revealed.
However the country is losing around Rs.86.4 billion per month and over Rs.1000 billion per year in tax revenue owing to the restriction on non-essential imports, data showed.
According to Deshal De Mel, Economist and Research Director at Verite Research, almost half the government’s income (revenue) is from import taxes, and one third is from taxes on consumption, including taxation of cigarettes and alcohol.
Only a fifth is from income tax. Revenue will further ease by recent policy measures reducing imports –in addition to the direct changes to taxes which were announced in December 2019, he opined.
The local import sector is incurring heavy losses and it is on the verge of collapsing as a result of the sudden action of government authorities being taken without any consultation of the relevant stakeholders, importers aid.
Around 25,000 freight containers are piled up at the Colombo Port and importers have to pay a 300 per cent bank guarantee and high taxes as well as demurrages after experiencing difficulties in clearing their goods.
The import ban has also hit exporters and SMEs who need imports (raw material) to produce goods for the export market.
While Sri Lanka will allow inputs for export industries despite an import ban, no clear guidelines have been issued towards this end as yet, a top official said.
Further the Department of Imports and Exports Control has to play a vital and efficient role in facilitating the COVID-19-hit importers by considering their issues on a case-by-case basis, he pointed out.
This should be done by opening an electronic gateway and speed up processing requests on a case-by-case basis, an issue the authorities are still not geared to.
The department has to accord priority to shipments already arrived at Colombo Port and grant approvals without delay as cargo incurs demurrage continuously.
Sri Lanka imports large stocks of essential commodities, including rice, wheat, sugar, dhal and milk powder.
Although there was no ban on these food imports, it has been restricted as a result of an export prohibition on such items imposed by India, Pakistan, China or other countries due to COVID-19.
Making matters worse and problematic for importers, the Finance Ministry, in a gazette notified the Customs and commercial banks to “oblige” to suspend facilitating imports of 156 categories of products under certain payment methods.
According to this directive, rice, flour, sugar, bakery products, apparel products, ceramics, and furniture, cannot be imported under Letters of Credits, Documents against Acceptance, Documents against Payment, and Advance payments.
Commercial banks have also been instructed to permit imports of 111 categories of items such as milk powder, dried vegetables, palm oil, electrical appliances and construction materials, only on a credit basis.
These regulations effective from April 16 to July 15 have restricted essential food imports while allowing some items to be imported on three months credit.
K. Palaniyandi, President of the Pettah Traders Association told the Business Times, that the government authorities have given an assurance to ease some of those restrictions while removing the maximum retail price on essential commodities.
Under the present circumstance of COVID-19, all Pettah traders have agreed to sell those imported food items including dhal and sugar keeping a small margin of 5 per cent; he said adding that there will not be any shortage in the coming months.
The Consumer Affairs Authority (CAA) had issued a Gazette notification on March 17 fixing a maximum retail price (MRP) of Rs. 65 for 1 kg of dhal and Rs. 100 for a 400 g canned fish.
Heeding requests of traders, the CAA has removed the existing MRP on dhal and canned fish issuing a new gazette notification with effect from April 30.
This has removed the controlled price for dhal and salmon prompting the traders to sell a kilo of dhal at the earlier price of Rs. 180 and a 425g can of salmon at Rs. 250.
Welcoming the government’s latest decision, Mr. Palaniyandi said that importers of dhal, big onions and canned fish had to pay high prices earlier for their imports of essential commodities as they have to place orders in advance to continue their supply amidst world market price fluctuations.
This has created a shortage in the market and it will be settled soon with the arrival of new shipments, he said adding that the public bureaucracy should also assist importers without complicating the system during this decisive period.