Made in Sri Lanka, clarion call of Budget 2012

Import tax increase on food, perfume and cosmetics on the cards to encourage local production
By Bandula Sirimanna

Government is to curtail the country’s import of food, perfume and cosmetics, by increasing their import tax, and encourage their local production, Finance Ministry sources said.

This tax revision will most probably be announced in the 2012 Budget to promote import substitution in the fields of agriculture, livestock, fisheries, drugs, perfume and cosmetics, a top official of the ministry revealed.

Import substitution will be given priority with the aim of expanding exports. A Cess will be imposed on the export of raw materials. Value addition is the key, with substantial relief for industries exporting finished goods and value added products.

In the recently announced Budget estimates for 2012, it is projected that the Budget deficit would be 6.2% of GDP, in order to ensure that economic development is maintained at 8% in 2012 and inflation at 6 to 7% per annum.

The total estimated expenditure for 2012 is to be Rs 2,220 billion, necessitating an increase in recurrent expenditure from Rs 1,029 billion in 2011 to Rs 1,109 billion in 2012, and the capital expenditure from Rs 938 billion to Rs 1,111 billion. Total revenue will be Rs 1,115 billion. Public investment has increased from Rs 453 billion in 2011 to Rs 541 billion in 2012, in order to maintain the momentum in the growth rate of 8%, officials said.

Sri Lanka is importing close to US$ 800-900 million worth of food items annually. If most of these products are produced here, this massive import bill could be reduced to a great extent, the official said. The required technology, quality planting materials, fertile land and irrigation schemes should be made available for productive use, with proper extension and marketing arrangements in support, he added.
The local economy could replace food imports altogether and a huge value added food industry developed. There are good prospects for increased production in agriculture, livestock and fisheries with the liberation of the North and East.

Sri Lanka will be able to improve agricultural production with the addition of Mannar, Killinochchi and the East, from which the country can reduce most of its food imports.

The local market is overflowing with imported, low quality perfumes shipped or airlifted to Colombo in large volumes, despite their poor quality, and sold at a cheap price. Around 60% of these varieties are not registered with government authorities. The country is losing Rs 800 million annually, on such imports, the official said.

Government is to introduce new regulations, making it compulsory for importers and distributors of cosmetics and perfumes to obtain prior approval from the Cosmetic Devices & Drugs Authority of Sri Lanka (CDDA) to advertise their products.

Failure to register as required with the CDDA will be liable to a fine. The official disclosed that around 8,000 varieties of drugs are imported into Sri Lanka at present, with various brands of one medicine imported (e.g., over 50 brands of Paracetamol are imported). Limited lab facilities and human resources cause acute problems in checking the quality of all the drugs imported into the country.

He said the ministry has also focused attention on controlling the import of low quality drugs and similar brands of drugs. But no decision has been taken to revise the duty on drug imports due to technical problems.

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