Financial Times

More on rational tariff policy
Last week we spoke about the need to support local industry and how an intelligent and long-term tariff policy is needed to ensure a level playing field for those entrepreneurs bold enough to risk their money in manufacturing enterprises, especially in the emerging 'globalised' world of free market competition. Such a policy has to balance the interests of domestic manufacturers with those of consumers.

We make no apology for returning to a somewhat similar theme this week given the disclosure of a startling fact in an appeal by the Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL) to the Finance Ministry. The FCCISL, which has close links with small industries, has called for lower import duty on the ordinary squatting pan, which it said is required in large numbers for the use of those displaced by the tsunami who are now living in refugee camps. It seems mind boggling that in a country where the traditional toilet, or the squatting pan, is in such widespread use, especially in rural areas, that these items of sanitaryware should be classed alongside luxury bathroom fittings. Yet that's exactly what has happened.

The chamber has pointed out that squatting pans and luxury bathroom fittings have the same duty structure of 28 percent, plus 20 percent cess, plus 18 percent VAT and five percent other charges. Squatting pans are not in commercial production in Sri Lanka, according to the FCCISL. A few cottage industries make the pans out of cement and fibre glass while regular dealers do not import these items of sanitaryware because of the high duty imposed by the government. The FCCISL has asked the government to lower import duty and VAT to enable the private sector to import these items that are urgently required to meet the needs of about a million people displaced by the tsunami. These people are now living in makeshift camps in unsatisfactory hygienic conditions with no proper toilets. This, FCCISL has warned, could result in pollution and unhygienic conditions with the resultant risk of disease.

We report elsewhere in these pages of how a stockbroker has noted that a tax structure that favours imports is eroding the profitability of the sugar producer, Pelwatte Sugar Industries. While Sri Lanka imports 90 percent of its sugar requirements, Pelwatte Sugar is forced to operate almost at only half its capacity simply because it is not financially viable to use its full capacity given an import duty structure that favours imports. Sugar is imported under very low duties and sold here tax free while local producers like Pelwatte Industries, are charged a 15 percent VAT.

This skewed tax regime is preventing the economy reaping the benefits of local manufacture which also means loss of potential employment generation, Lanka Orix Securities has said. "Under the current market conditions, benefits that the national economy could receive as a result of local manufacturing have been wiped out," they said.

These two examples from widely different spheres of the economy provide a useful example of how the lack of proper thought in tariff policy could cause problems for local industrialists and consumers alike. There are numerous other examples such as the low import taxes on edible oils that put much of our coconut oil mills out of business or lowering duty on rice imports just as paddy farmers are reaping their harvest.

No doubt the government has to ensure that it looks after the interests of all the diverse sections of its citizenry and certain decisions are bound to hurt somebody. But to continue with policies that are so obviously harmful is inexcusable.

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