Pelwatte Sugar Industries Managing Director Ariyaseela Wickramanayake laments on taxes

After some years of lower sugar production, after this former state company was privatised and came under our ownership, output has improved and we are hopefully on the road to create a sustainable sugar and dairy industry in Sri Lanka that will benefit the generations to come.

Yet we have still a long way to go from current production levels when compared with production of 42,000 tons in 2003/04, which was the highest ever annual production during those years. The main reason for lower output is the unfair taxation process.

Prior to the privatisation, the Company was exempt from GST and also received a subsidy from the Government. Pelwatte Sugar Industries PLC continued to receive the benefit of the GST exemption in the first year of operation under our ownership.

However, with the introduction of the VAT scheme, the Company was ordered to pay 15% of the turnover as VAT to the Department of Inland Revenue. During the first three years of the tax directive an amount of approximately Rs. 2,500 million (Rs. 2.5 billion) was paid by the Company as VAT as there was no input VAT to be claimed from the farmers for the purchase of sugar cane.

This resulted in an unbearable burden on the finances of the Company as large amounts had to be borrowed from banks to meet operations expenditure. As a consequence, the Company was not in a position to make the required investment for the expansion of the plantation to increase the sugar tonnage produced. Since the record crop in 2003/04, production has been steadily falling every year, thereafter as the funds that could be utilised for the development of acreage under cane had to be diverted for the payment of VAT and servicing the bank loans.

This is a classic case of taxation taking over the viability and sustenance of what we believe is a vital nation’s product. Instead of pouring in money to produce more sugar cane which in turn would lead the way towards self-sufficiency and reduce costly imports, the Company was forced to divert these funds to pay taxes. It is ironic that, the authorities are taking a long time to recognise sugar cane as a viable cop and a nation’s product - given the fact that Sri Lanka spends millions of foreign exchange on imports when we can produce much of the demand or all of it if the right policies are in place. According to the Central Bank Report for 2003, Pelwatte Sugar Industries PLC had increased its production by 67 per cent in that year, which goes to show that its taxes and just taxes that is eating into our output and eventually reducing the country’s march towards increasing sugar production and I repeat with sincerity, reducing the burden of costly imports for which foreign exchange is needed .

This is clear evidence of our ability to develop the sugar industry in the country if we were not burdened with unrealistic taxes. In countries such as Brazil, India, Cuba and Thailand, the Governments have recognised the fact that the sugar cane industry is capable of saving and earning foreign exchange, and all incentives, concessions and state facilitation are provided.

In Sri Lanka, sugar cane - as stated earlier - is not even recognised as a commercial crop even though the soil and climate conditions are more suitable for sugar cane than any of the countries named. It shows the flaws in policy making based on national needs and a long-term strategy.

Food security is a key issue in the development of a nation and the recent financial crisis proved how much a role food security plays in acting as a buffer against international market trends. Countries that had sufficient food stocks and commodities were the ones able to withstand the fall-out of the financial crisis which sent food prices into a tailspin. We therefore earnestly appeal to his Excellency the President to rectify the malady of high taxation hurting domestic production of an essential commodity. This could also be dealt with in the next November Budget of the Government.

Yet amidst these difficulties imposed by conditions beyond our control, we have strived to keep the sugar industry going and improve the income of the sugar cane farmer.

We shall continue with our efforts to enhance the value and potential of the sugar industry to contribute to national development in the hope and expectation that Government officials will finally and I hasten to add, urgently realise the need to supplement our effort by providing the necessary incentives and facilitation as suggested above.

(From the Managing Director’s Review in the Pelwatte Sugar Industries 2009/10 Annual Report)