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 in Sri Lanka's exports and a further tax burden would have an adverse impact on the major sectors that contribute immensely to the country's economy.

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.

Quarterly payments

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. 100,000.

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 socio-economic implications.

Submissions

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 system.

"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 stated.

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.

Bad timing

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 priced teas.

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 sector.

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 Sri Lanka loses Rs. 1.9 billion due to declining production.

Key issues

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 billion.

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 levies.

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.

Fallen economy

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 special determination.

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.