Exporters struggling to maintain market shares amidst high taxes and rising power tariffs

By Nishel Fernando 
In the absence of tax incentives and fuelled by the recent hike in power tariffs, Sri Lanka’s exporters are struggling to carry out the necessary upgrades and expansions of their manufacturing facilities, in order to maintain their market shares in the export markets,  according to a leading exporter.

“The exports and other industries are on par with taxes. There’s no incentive for exporters. We are fighting with very large manufacturers in the world. There have to be some sort of incentives for exporters to get their production facilities upgraded. In keeping up with the latest developments, we have to upgrade our technology each year. These kinds of upgrades and expansions have to take place because when the demand comes up, our economy of scale is going to be challenged when there are no sufficient funds,” Dipped Product PLC Managing Director Pushpika Janadheera said.

He noted that the recent decline in export earnings is partly due to the removal of tax incentives and high interest rate regime. In particular, he lamented the government’s decision to increase the tax rate on exports from 14 percent to 30 percent, on par with the other taxes, while stressing that the move is not in line with the best interest of the country.

“The country’s main issue is forex. So, we have to increase export earnings. But I don’t see that focus or the objective right now. When you grow a tree, you have to eat the fruit, not the tree. When you start eating the roots, the tree will die off soon,” he said.

In December last year, Sri Lanka’s merchandise export earnings declined by 7.7 percent year-on-year to US $ 1.07 billion, mainly driven by the decline in industrial exports.

Meanwhile, Janadheera emphasised that the recent increase in electricity tariffs would also impact the competitiveness of Sri Lankan exports.

“During the first hike, we were on par with Thailand and Malaysia but in the second hike, we are above the region and that’s hazardous. 

And all these things will be added to the final price and we will not be competitive with the others,” Janadheera said.

With Sri Lankan exporters becoming uncompetitive, he feared that they stand to lose the market share in a contracting global market.

“When the world is slowing down, if we lose the market share, our future will be gloomy. Sustainably is the main concern,” he added. 

Under the current environment, he also warned that the companies may move their operations to other countries.
“Although I don’t think it will happen, industries may shift from Sri Lanka to other countries,” he said.