21 December 2023 04:21 am Views - 1382
Starting from January 1, 2024, the tea industry, which was previously exempt from the VAT, will be subjected to an 18 percent VAT.
“While it is understood that in order to resurrect the country’s financial stability, we have to widen the tax net and the VAT, the high VAT on a commodity, of which over 90 percent is produced and sold purely for exports, wherein all of the VAT will need to be refunded to stay competitive in the world market, the imposition of the VAT on tea has caused grave concern amongst the tea industry stakeholder,” the TEA said in a statement.
It also urged the Finance Ministry and Inland Revenue Department (IRD) to introduce a mechanism to register all tea manufacturers for the VAT in the next few days, to ensure that the tea supply/tea value chain may not collapse over the VAT issue.
“The tea industry is a unique industry and needs special attention by the IRD. While the country needs to reform its taxation, the VAT on export commodities at such a high rate of 18 percent only to be refunded after going through a lot of administrative procedures in the private sector as well as the government sector seems to be unproductive.
Better consultation with the stakeholders, well in time before implementing such sweeping changes, will help the industry to sustain in the current challenging global environment,” the statement pointed out.
The tea industry value chain involves a number of stakeholders – over 400,000 tea smallholder farmers, who account for over 70 percent of the tea production, 21 regional plantation companies, about 600 tea manufactures, who are the sellers of tea as well, more than 300 tea exporters/buyers and eight brokers, who conduct the weekly tea auction.
Each weekly tea auction sells between five to six million kilogrammes of tea, divided into about 10,000 lots or different types and grades of teas. The buyers are required to settle the full value of tea within seven days from the date of purchase, to ensure the tea farmers/growers get their payment without any delay.
On behalf of the tea manufacturers/sellers, the invoices are issued by the eight brokers only, making it very much convenient for both the sellers and buyers in respect of administering the weekly tea selling and buying.
According to the TEA, this transparent system has been there for more than 125 years and secured the best possible prices for Ceylon Tea and enables the country to receive about US $ 1.3 billion of foreign exchange from tea exports annually. At present, only the tea exporters are registered for the VAT and Simplified Value Added Tax (SVAT) but according to the new VAT Bill approved by Parliament a few days ago, the 600 tea producers/factories in the tea industry should get themselves registered for the VAT and SVAT, to be eligible for the issue of VAT invoices to the buyers of tea.
As a result, the TEA pointed out that instead of the current system, where the exporters/buyers are dealing with the eight brokers, in future, the exporters would have to deal with about 600 tea factories that may create huge administrative challenges, including additional costs. The industry stakeholders under the umbrella body of the Colombo Tea Traders Association made a submission to the plantation minister, finance state minister and IRD commissioner general last week, requesting for more time for registration of the tea factories for the VAT and SVAT, as it may be impossible to register all of them by January 1, 2024. They have also requested to allow the brokers to be the contact point for the issue of invoices, for easy communication between the IRD and producers.
“The last tea auction of the year concluded on December 19, 2023 and the next tea auction is scheduled for January 3, 2024. The exporters are sceptical about the ability of the tea factories getting the VAT/SVAT registration before January 1 and the fate of the first tea auction of 2024. The tea manufacturers, who are unable to get the VAT registration by January 1, will not be able to issue VAT invoices and may have to keep away from the auctions until the registrations are completed. This may have multiple effects on the tea exports, income of smallholder farmers, etc. Even foreign buyers may keep away from the tea auction temporarily, which could affect the tea prices,” the TEA statement noted.
According to the government gazette notification, even the green leaves are subject to the VAT. However, the tea industry has been assured that green leaves may not be liable for the VAT payment, as it is a basic agricultural raw material.