Traders appeal to President over escalating prices

Traders also complained of excessive taxes they were forced to pay as contributing to escalating prices. They appealed to President Mahinda Rajapaksa, in his capacity as Minister of Finance, to formulate a method for recovering all taxes including the import duty, economic service charge, security levy to the harbour, VAT, SRL and Ports Authority levy.

Wholesale traders in essential food commodities say they have been compelled to violate the limits and prices agreed upon for June 2007 with the Ministry of Trade, Marketing Development and Consumer Affairs due to price increases in the international market.

Wholesale prices in the Pettah market, particularly in regard to big onions and potatoes have experienced vast increases.

The price for big onions agreed upon was a maximum of Rs.48 a kilo and the agreed price for potatoes was a maximum of Rs.55 a kilo. Already, these two products are far above the agreed prices with onions at over Rs.50 and expected to go over Rs.55 in the coming weeks. Similarly, potatoes have risen to Rs.60 and may go up further. Local potatoes have gone over Rs.70 a kilo.

Media Secretary for the Essential Food Commodities Importers and Traders Association, Hemaka Fernando asked about the dramatic price surges, saying these commodities were imported mainly from India and Pakistan. "There is a tremendous shortage of these two products in the region and the prices in both countries for onions and potatoes have risen beyond our expectations.

The traders find they are unable to cope with the price agreed to by Minister Bandula Gunawardena because the cost for onions imported at present is around Rs.52 a kilo and the cost of potatoes imported from Pakistan is Rs.57 a kilo with South Indian potatoes costing Rs.65 a kilo."

Fernando also said the world market for red split lentils have shot up by 20% during the past week.

With no further season for this product expected until December, the price is expected to increase further. Traders will sell red split lentils at the agreed price until stocks last but all future shipments will be 'way above the price they have agreed with the government.' He added that today's price for the cheapest source in the world is about US$700 per metric ton from Turkey. "The landed cost with 5% VAT and no import duty for this price in Colombo will be around Rs.83.50 or Rs.84 depending on the exchange rate and other market factors." Traders will soon be appealing to the government for an increase for the selling price of red split lentils as well.

Fernando explained that the situation was further aggravated by a Sri Lanka Customs Department decision to put every container of perishables on a weigh bridge where traders end up paying duty for at least 600 – 700 kilos of packing material that go into a forty foot container. What importers declare on the invoice and bill of loading is the weight of the goods but the actual weight of the container will be more when the packing materials are also taken into account. Fernando also said that it is customary for exporters to give one kilo of goods free for damages and wastage which the importers are also compelled to pay duty on. Therefore, the cost of these two products has gone up and has created at total cost increase of approximately 3%.

The Association wrote to President Mahinda Rajapaksa last week, seeking an appointment to discuss and resolve the crisis. Traders are hoping to recover all the taxes connected to the essential food commodities at the customs gate, leaving nothing to be paid after clearing the cargo.

Fernando said this will help them to evaluate their cost before entering into an agreement with the government at what prices the commodities are to be sold. He added it is nearly impossible to offset the VAT paid at the harbour after the cargo is cleared due to the hidden taxes.

The benefits of recovering all the taxes at one point would make it easy for importers to identify the entirety of costs at one point rather than agree for prices for the wholesale market with the government and later having to face deficits by subsequent taxes which are payable after the transaction is completed.

"Traders are under a tremendous amount of stress because we don't know what kind of new taxes are to be paid," Fernando said. Some food commodities, in particular spices such as coriander and fennel seeds are liable for 15% tax. However, Senior Advisor for Tax Policy at the Ministry of Finance, RPL Weerasinghe told The Sunday Times FT that from 1 June 2007, the government has reduced the VAT for essential items such as canned fish, green mung and chick peas from 15% to 5% as well as given other tax exemptions. Weerasinghe added that he does not agree with the criticisms of the traders since action has already been taken.

Director General of Fiscal Policy at the Ministry of Finance, S.R. Attygalle said that when it comes to taxes, the associations and traders cannot grumble.

"These are their normal grievances," he said but added that increases in the international market may account for the price increases here. "From the taxes side, the VAT is 5% and there are customs duty waivers or partial waivers."

Attygalle explained that there are different taxes for every item that is imported. "Right now, we have identified commodities at the lowest VAT rate at 5%." These are basic essential items such as potatoes, onions, big onions, red onions, green gram, lentils, salmon and dry fish. "If you take flour or rice for example, there is no VAT."

Attygalle said there are specific customs duties and from time to time, the Minister of Finance, under Section 19A of the Customs Ordinance, has the authority to give duty waivers.

"If the Minister and the government think the prices are high, they will intervene and give a duty waiver. We have also given duty waivers to counter seasonal effects.

This is mostly to protect the local farmers." He said essential commodity prices for this year have been 'relatively okay' and added that the government will appropriately decide on when to decrease, waive or even increase
duties.