Wednesday, February 6, 2013

Tranquillity after storm in tea cup

■Gazette notification on cess affecting bulk exports revised

By Cheranka Mendis

 The tea industry yesterday received somewhat positive news regarding the sudden revision of the tea export cess for bulk teas, which had apparently come into force through a gazette notification dated 23 January 2013 without prior notice to the industry.

An appeal made to the Line Minister of Plantation Industries received an immediate response and damage control measures were taken to arrive at an amicable solution by deferring the effective date of the cess to 1 March 2013 whilst revising the cess to Rs. 10 per kg or 2.5% (as opposed to 5%) of the Colombo Auction Average, whichever is higher.

 The industry last week expressed disappointment and warned of harder times for the industry if the revision were to be held in the coming months, with the bulk tea exporters having to suffer major expenses due to teas sold on forward purchase.

 However, the Tea Exporters Association (TEA) yesterday announced that the subsequent protest made by TEA and other stakeholders in a letter addressed to the Plantation Minister, outlining the difficulties faced by the tea exporters due to the impractical and haphazard imposition of the new cess on bulk tea, had rendered positive results with an ‘amicable solution’ reached.

 The industry was prepared to call up an emergency meeting if a favourable response was not given by the Minister by last evening.

 TEA Chairman Rohan Fernando noted that that the sudden cess imposition would cause financial losses to the majority of tea exporters and would undermine Sri Lanka’s credibility as a reliable supplier of tea to global markets.

 In the letter addressed to the Minister, the TEA pointed out the practical difficulty in implementing a tax adjusted every week based on a percentage of the price averages of The Colombo Tea Auction.

 A statement released to the media by TEA yesterday noted: “It has been instructed through the gazette notification issued today, under the signature of the Director General K.M.M. Siriwardena of the Department of Fiscal Policy, Ministry of Finance and Planning, to revise the cess on a quarterly basis taking into account the average auction price for the preceding three months.  The TEA wishes to express their appreciation to the Minister of Plantation Industries Mahinda Samarasinghe for resolving this issue expeditiously.”

Fernando last week acknowledged that many exporters had expressed total dismay and concern given their inability to absorb losses due to the cess revision and warned that 60% of the auction tea would lose its demand due to this.

“This came as a shock to us as we are paying a substantial amount in duty and cess. At a time when the country is not competitive in the international market in tea, the imposition of a cess posed an even bigger challenge as bulk tea is used as a goods component on consumer packs, which is 60% of the business,” he told the Daily FT last week.

 With no adequate notice given, exporters were facing many issues as honouring the forward contracts already in place was becoming a key concern. Colombo Tea Traders Association (CTTA) Chairman Jayantha Keragala asserted that the cess went up by almost 100%, a significant amount to an industry that is trying to up its game in the market.

 Prices already dropped at the auction in some grades by an approximate 20% last week.

 The effects of the sudden cess last week threatened to pose challenges to not only exporters, but also smallholders.

 Former Chairman of the Sri Lanka Tea Factory Owners Association Anil Perera agreeing with the industry noted that the smallholders who make up 70% of national production would have been under severe pressure.

“The increase in cess would have made to an approximate Rs. 21 per kg based on the previous week’s sales average. In addition to the existing export duty/promotion levy for bulk tea exports of Rs. 13.50 per kg and based on the cess that was to be increased, a total of Rs. 34.50 would have been levied on teas exported,” Perera acknowledged.

 Tea auction prices were expected to drop this week due to the cess hike, which would in turn have had an enormous negative impact on the green leaf rates paid to tea smallholders.
“There are 400,000 tea smallholders in the country,” Perera added.

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