Consumer durables take high tariff hit

The consumer durables (retail electronics and electrical goods) market is facing a slump mainly due to heavy taxes and the current economic conditions, industry experts noted. "Last year and up to the first quarter of this year we have seen between 10 to 20 % drop in the electrical goods market.

This is mainly due to the huge taxes. As it is the middle income group is feeling the brunt," Abans Pestonjee, Chairperson, Abans Group, which is into manufacturing and distributing electrical goods, told The Sunday Times FT.

Ashok Pathirage, Chairman Softlogic said there is a 20% drop in electronic goods' sales in his company. "The main reason is the heavy duties while the economic situation is also to blame," he said.
He said sales in mobile phone market (Softlogic is a vendor) have also dropped 20%. "Across the board our retail sales have dropped 25%,” he noted, adding that jacking up taxes is not a panacea for increasing government revenue.

“Each time the taxes are raised the consumers reduce their purchases, because the prices of the goods (which we raise to accommodate the taxes) are not justified. As such when taxes are high, the government revenues will drop. Therefore the taxes should be reduced to increase state income," he said.

He noted that Sri Lanka has the highest tax structure for consumer electronics in the world. "India has reduced such taxes to stimulate its economy and we should do the same," he added.
He also noted that heavy taxes increases smuggled goods and thereby expands the black market.
Singer (Sri Lanka) Plc, in its annual report has said that the country's economic situation had its impact on the consumer durables industry .

"The high inflation rates for much of the year (2008) affected spending patterns for the average household. Research shows that in 2008, consumer durables spend reduced from 4% of the previous year to 3% of household income. This scenario was further compounded by the high tariff structure applied to imported products which resulted in an increased influx of duty free foods to the gray market," it said.