Finance Ministry mulls reduction of milk powder taxes
Milk powder importers are to be been given a tax relief of Rs.35 per kg to maintain their present selling price as a remedy to the issue of incurring losses as a result of global price escalation during the past six months.
The Finance Ministry will issue a gazette notification removing Income tax of Rs.15 and Port and Airport levy of Rs. 20, a senior Treasury official said.
This action was taken on the directions of Finance Minister Basil Rajapaksa, he said adding that further concessions to milk powder companies (importers) are underway but there was no final conclusion on this matter as yet.
The Ministry, he said, is mulling a further reduction of taxes without however removing all the taxes as such a move will deprive the government of Rs.14.7 billion per annum to state coffers.
The Government levies Rs. 175,000 per metric ton or 45 percent of the value from importers.
The Treasury official said the Cabinet of Ministers has decided to authorise Minister Rajapaksa to take necessary measures to address the shortage of milk powder in the market.
This decision has been taken at the cabinet meeting held via online using the zoom facility on August 9 considering a proposal to abolish taxes on milk powder imports, the official said.
The ministry is evaluating the proposal considering the options relating to this matter including the reduction of taxes, he added.
Sri Lanka’s milk powder importing companies have been requesting the Consumer Affairs Authority (CAA) to allow a price hike since May claiming that their costs are very high due to increased prices in the global market, unbearable freight charges, and depreciation of the rupee. The CAA has not granted permission to allow an increase in the Maximum Retail Price (MRP) of Rs. 945 for 1kg pack and Rs. 380 for a 400 gram packet of milk powder.
Thereafter the country has experienced a shortage of milk powder pushing consumers into severe difficulties.
A member of the Milk Powder Importers’ Association (MPI), Lakshman Weerasuriya said that they are incurring a loss of Rs. 275 per kg since 2020 and the companies cannot survive under these circumstances.
Importers are also facing problems in opening LCs to import milk powder due to the dollar scarcity, he added.
MPI Media spokesman Asoka Bandara noted that the companies have repeatedly appealed to the CAA to allow them to increase prices by at least Rs. 100 per 400 kg pack of milk powder to Rs. 480 from the current price of Rs. 380.
Minister Rajapaksa has advised the relevant senior officials of the ministry to prevent the shortage of milk powder in the local market by taking appropriate measures ensuring the supply of 6500 metric tons imported monthly to meet consumer consumption. Another 1,000-1,500 metric tons to the market is sourced locally.
Sri Lanka spends US$ 360 million annually to import milk powder and the government is now considering importing breaking the oligopoly of the private sector, the official said.
Milk powder stocks are being imported mainly from New Zealand and Australia and other countries including Denmark, the Netherlands and India.
Industry sources said that apart from rising milk food prices, prices of packaging material, operational cost and transshipment cost have also risen.
Some of the importers have also withdrawn from the market while Fonterra, the country’s largest importer, had, at one point, been forced to cut production by 50 percent due to COVID-19 health and safety issues. A Fonterra official said that at times they have had to shut down production lines due to infections among staff. “The bigger challenge is the volatility of global prices,” he said, adding that they have now resumed full production and stocks are going to the market.