By Mandana Ismail Abeywickrema
The business community has expressed concern
over the newly proposed Nation Building Tax,
one among the plethora of taxes proposed in
the 2009 budget, as it may deal a severe
blow to the survival of certain industries
already cash strapped.
According to analysts, the recession in the
developed countries have led to a slowdown
exports and a further tax burden would have
an adverse impact on the major sectors that
contribute immensely to the country's
They say that the Nation Building Tax of 1%,
on all importing, manufacturing and service
industries could have a wide-ranging impact
on all sectors of the economy. The nature
and quantum therefore needs to be clarified
and assessed on a case-by-case basis,
business sector sources point out.
Commissioner, Inland Revenue Department, S.
Angammana addressing a post-budget seminar
had reportedly said that the Nation Building
Tax, which is 1% of turnover and/or on
imports will even impact a barber salon.
The tax is payable for any quarter if the
turnover for that quarter exceeds Rs.
100,000. Analysts have pointed out that many
small time businesses would be affected by
the tax, as the threshold was just Rs.
Revenue proposals for 2009 as laid out in
the budget state that the Nation Building
Tax is expected to bring in Rs. 15,000
million to the state coffers.
Business chambers while agreeing to the
government's need to raise revenue for
development purposes have voiced concern
over the survival of the hard hit export
sector as well as small-scale industrialists
facing a liquidity crisis.
The Ceylon Chamber of Commerce (CCC) has
said it appreciated the need to raise
revenue for the welfare of security forces
and for rebuilding the infrastructure
facilities in the terrorism affected areas
and thus the need to raise additional
revenue on a temporary basis. However, CCC
points out that the ongoing recession in the
developed economies has led to a slowdown in
Sri Lanka's exports and that the fall in
exports is likely to worsen in the next few
months due to the worsening global economic
environment and may also result in wider
In view of this the chamber, in keeping with
its budget submissions to the government,
has said it believed that all exporters and
foreign exchange earners, direct and
indirect, including the plantations sector,
and the banking and finance sector should be
exempted from this levy.
The chamber has also stated that it has been
consistently lobbying for a simplified tax
"Accordingly our submission to the
government on the Nation Building Levy would
be to broaden the tax base by limiting the
exemptions to the sectors that fit with the
immediate macro-economic objectives and
reduce the rate of tax to ease the burden on
the companies," the CCC states.
"As indicated in the budget proposals, in
legislating the proposals, the chamber would
expect the NBL to be levied only for a
limited duration of two years," it has also
Meanwhile, the Federation of Chambers of
Commerce and Industry of Sri Lanka (FCCISL)
that convened a media briefing last week on
the impact of the Nation Building Tax, which
is to come into effect from January 1, 2009
said it would dramatically affect the
revenue and survival of private tea factory
owners and tea smallholders.
Special emphasis was laid on the plight of
the tea small holders.
Chairman, Private Tea Factory Owners
Association, Anil Perera also addressing the
media has said the tax comes at a time when
the global markets are devaluing their
demands for local tea due to recession fears
and with the decreasing demand for higher
According to Perera the imposition of the
tax should be immediately postponed since it
will impact on the already thin margins and
the sustainability and employment prospects
of tea smallholders.
"This is going to create absolute chaos as
both the tea industry and tea manufacturers
find it extremely difficult. Tea is not a
commodity anymore. It is a food product. The
government does not support or provide any
assistance for the development of our
industry," Perera had reportedly said.
It was also said at the press briefing that
while Sri Lanka produced approximately 310
million kilograms of tea annually, 70% of
this production is from the tea smallholder
It was reported that nearly 92% of
production is exported every year from this
sector. In turn, tea small holders and
private tea factory owners contribute to the
national economy as indirect exporters and
1% of National Building Tax on the tea
industry would entail an additional cost of
Rs. 930 million.
Chairman, Tea Advisory Committee of the
Industries Ministry, Rohantha Athukorala
earlier said that
loses Rs. 1.9 billion due to declining
According to him, one of the key issues in
the tea sector is the declining output. In
the last three years output has declined
from 316 million kgs to 304 million kgs in
2007. A decline of 1.8% in national
production will result in a loss of 5.5
million kgs of tea and at the 2007 FOB price
of US$3.29 per kg will be equivalent to
US$18.1 million. In rupees it's almost 1.9
Chairman, Tea Small Holders Joint Convention
and JVP Parliamentarian Chandrasena
Wijesinghe told The Sunday Leader that the
government without any proper plan to
develop a production based economy is only
piling on taxes.
He charged that the government's survival
depended on the imposition of taxes and
According to Wijesinghe, while the Nation
Building Tax would have an adverse impact on
the tea small holders, it would affect all
stakeholders of the country's economy.
"This move by the government to place an
additional tax burden on the business
community and the industrialists would
result in the consumers being burdened even
further," he said.
"The only solution to the existing problem
is a people's economy," he added.
Wijesinghe pointed out that the plight of
the tea small holders would worsen if the
government introduces the new Nation
Building Tax next year.
"The government has completely ignored the
issues faced by the tea small holders. A
kilo of tea leaves is now sold at around Rs.
10 to 15 when it costs more than that to
pluck them. Tea is one of the key exports of
the country and sustaining its market is
vital. If another country like Kenya or
Vietnam takes hold of the market, Sri Lanka
would not be able to re-enter," he said.
Wijesinghe noted that the government's
actions would only push to an abyss the
already fallen agricultural economy.
He also said that the tea small holders have
held several protests and would be compelled
to resort to more severe action if the
government failed to address the issues
faced by the sector.
With the newly proposed Nation Building Tax
expected to come into effect from January
next year, many sectors are wary in
accepting with open arms the tax that is to
be "development oriented."
The Supreme Court however on Wednesday took
up the Nation Building Tax Bill for a
The President had forwarded the bill as
urgent to the Supreme Court.
While the government looks at implementing
the new tax, consumers could expect yet
another round of price increases, this time
in the name of nation building.