Sri Lanka allows imports of some foods at high taxes after money printing

ECONOMYNEXT – Sr Lanka has allowed the import of some foods at high tax rates after money printing and excess liquidity led to a forex shortages and also threatened the ability settle foreign loans triggering a downgrade of the sovereign rating.

Potatoes are allowed t be imported at a tax of 50 rupees a kilo, sugar at 50 rupees, oranges at 125 rupees, lemon 350 rupees, grapes 200 rupees, dried or fresh, apples 100 rupees, dates 100 rupees, cummin seeds 162 rupees and maize 25 rupees.

But some basic food are allowed at lower rates.

Peas are allowed at 5 rupees a kilo, split peas at 10 rupees, split red dhall and yellow dhall at 10 rupees a kilo and whole seeds at 5 rupees, under a simplified excise style import tax called the special commodity levy.

Sri Lanka’s Consumer Affairs Authority created a blackmarket in both dhall and tinned fish by slamming price controls as the population was hit by a Coronavirus crisis, further inconveniencing poor people in particular.

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Sri Lanka’s CAA ends black markets it started in dhall and tinned fish

Tinned fish is taxed 100 rupees a kilo.

Dhall is not produced in Sri Lanka but there are several rent seeking businessmen political connections who make tinned fish in import substitution drive by pocketing the import tax in a tax arbitrage import substitution scheme.

Yoghurt is allowed in at a tax of 800 rupees a kilogram and margarine at 650 rupees a kilogram.

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Butter and dairy products are made by key rent seeking import substitution businesses in Sri Lanka who pocket the tax in an import substitution tax arbitrage scheme.

The profits come at the hunger and malnutrition of less affluent persons in particular, critics have pointed out.

Palm oil is allowed at 350 rupee a kilo. There is a also tax protected domestic palm oil industry but it was not driven by corporate greed but an un-intended consequence of protecting politically influential landowners who grew coconut.

Sri Lanka has suspended the import of many goods as the rupee came under pressure but some goods will be allowed under licenses in an import substitution drive as inputs under a controlled announced this week.

Other goods are allowed if the foreign supplier is willing to give credit.

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Sri Lanka trade controls extended, license regime in import substitution drive

Sri Lanka sovereign rating downgrade by on fiscal stimulus, import controls, Covid hit by S&P

Sri Lanka sovereign rating downgraded to ‘B-‘ by Fitch, outlook negative

Sri Lanka’s central printed large volumes of money over-issuing reserve money by over 150 billion rupees in excess of a cash drawdown amid a Coronavirus crisis leading to a loss of credibility of the peg with the US dollar and the rupee fell from 182 to 200 to the US dollar.

The foreign currency shortage from excess liquidity also raised fears over the ability of Sri Lanka to repay foreign debt.

Fitch Ratings downgrade the sovereign rating from ‘B’ to ‘B-‘ as the rupee came under pressure.

Amid a consumption collapse from curfews and severe import controls the rupee has stabilized.

Standard and Poor’s which also downgraded the rating to ‘B-‘ warned that trade controls will further hurt the economy.

Trade controls are expected to hit gross economic output and state tax revenues. (Colombo/May24/2020)

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