Leaving The Bud

VAT, which comes into effect from July 1, is slapped on tea exports. But the tea trade is against the move as it pushes the weekly tea auction prices up.

Under the existing tax system, exporters are not required to pay 12.5 percent GST on the weekly tea auctions. Instead, GST is refunded whenever the trade purchases capital equipment.

Since volumes purchased at the weekly tea auctions are so large, the amount of money spent on VAT is tremendous, notes, former Chairman of the Exporters Association, Lyn Feando.

Addressing a Forum organized by the Ceylon Chamber of Commerce on Friday, Feando says VAT will cost the tea trade an additional Rs. 375 mn per month.

Although exporters can claim the amount from the Inland Revenue Dept, as all exports are zero-rated in terms of duty and taxes within the country, Feando estimates from past experience that refunding would take at least three to four months.

“Can you imagine the impact this would have on cash flow and borrowings of the buyers? ” says Feando. ” The trade is dependent on commercial banks for these exports or pre-shipment loans and have to pay interest on borrowings at commercial rates,” he said.

VAT however, benefits the tea producers. They are eligible to claim input taxes on utility bills, fertilizer costs from the buyer endash something, which they did not enjoy under the current GST regime.

The Treasury  quote s Tax expert P Guruge, says the matter is under consideration.

The Rubber and Spices sectors, which were earlier to come under VAT, has since been exempted this year, due to its highly fragmented distribution network.

” These sectors are likely to be taxed in the next budget, when we extend VAT to cover the retail sector,” says Guruge.

Parliament is expected to debate and ratify the VAT Bill on June 26.