Large scale wheat flour importers reap undue profits from tax revisions
Sri Lanka’s consumers have been forced to pay high prices for wheat flour owing to frequent tax changes and inconsistent policy decisions relating to restriction of imports via a licensing scheme and reversing it after some time, several consumer protection associations complained.
The recent import tax hike on wheat flour imports to Rs. 27 from Rs.16 per kg and the suspension of the import licensing scheme allowed the few importers and traders to increase the prices, several heads of these associations told the Business Times.
The two milling companies will also raise prices following the increase in special commodity levy on wheat grain to Rs.6 from Rs.3.
Sri Lankan household’s specially the low and middle income earners, who now rely more on flour-based products will have to further cut down their consumption as the price of wheat flour has already gone up following the tax hike.
On June 14, 2023, the Ministry of Finance imposed a licensing requirement on the imports of wheat shutting the market for small and medium scale importers allowing a few licensed importers to continue their business including two milling companies.
Wheat grain were imported by these two milling companies paying a commodity levy of Rs. 3 per kg and other importers brought down wheat flour especially from Turkey paying an import tax of Rs. 16 per kg before June 14 and stored their stocks in warehouses.
By August 14 there was a wheat flour buffer stock of 200,000 tonnes imported by these companies sufficient for four months consumption of consumers at warehouses of these importers.
Meanwhile the Committee on Public Finance (COPF) has directed the Finance Ministry to issue a gazette notification restricting wheat flour imports as there was no urgency for further importations, COPF minutes revealed.
However without heeding to the COPF directive, the ministry has increased the import taxes allowing the traders a free hand to raise the wheat flour price in the market.
The importers including the two milling companies have been given an opportunity to sell their stocks of flour in warehouses at a high price although they have paid a lower import tax of Rs. 16 per kg.
The COPF has raised questions about large profits which are to be made by importers and traders through tax arbitrage.
Based on calculations by the Consumer Affairs Authority (CAA) and Customs data imported flour could be sold at Rs 197.62 with a 5 per cent profit margin, CAA officials said.
However the selling price of wheat in the local market has been raised to Rs. 231-Rs. 235 after the tax hike from Rs.200-Rs. 225 per kg earlier, traders said.
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