Sri Lanka to heavily tax both ends of consumer digestive tract

ECONOMYNEXT – Sri Lanka’s President Maithripala Sirisena had called for higher taxes on imported fruits to make it difficult for less affluent people to eat them, soon after businessmen lobbied to raise taxes on toilets, hitting consumers at both ends of the digestive tract.

President Maithripala Sirisena, addressing a crowd at Thalawila, an agricultural area, had promised to raise taxes on imported to fruits "in the near future to protect the local farmers" to give bigger profits to farmers.

Deputy Finance Minister Eran Wickremeratne in a gazette on May 04, had already slapped taxes of 250 rupees a kilogram on cherries, 200 rupees on plums, 175 on Kiwifruit, 175 rupees on pears, 200 rupees on mangosteens and 200 rupees on other fruits.

It is not clear to what extent President Sirisena will push to raise taxes on fruits further.

Sri Lanka has some of the highest food prices in the world due to import duties, which has made domestic agriculture inefficient and encouraged productivity and quality to fall, making them uncompetitive and unable to compete in export markets despite getting fertilizer subsidies, critics say.

The President’s call came in the wake of another meeting at the National Economic Council, where big business making sanitaryware lobbied to raise taxes on toilet fittings.

Sri Lanka has some of the highest taxes on building materials, including sanitaryware, tiles, and steel, pushing up housebuilding costs to the common man.

Among the three main essential good for the poor, food, clothes and housing only, clothes are cheap in Sri Lanka, after Thilan Wijesinghe, then head of the Board of Investment under President Chandrika Kumaratunga, ended high import duties on textiles.

This led to the collapse of three domestic textile factories which enjoyed protective tariffs, ended smuggling or ‘leaking’ of tax free textiles from export factories and raised the welfare of the entire population and led to the emergence of a fast growing retail sector.

Now several hi-tech export capable knitware factories which export to the US and UK have also emerged.

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In Sri Lanka big business has a strong hold over politicians and policy making bodies as the expense of the welfare of the common man.

Despite decades of protective ‘infant industry tariffs’ made popular by German historical economists like Friedrich List and Alexander Hamilton before him, and faithfully followed in Sri Lanka, the industries have failed to ‘grow up’ despite becoming geriatric, critics say.

Current US President Donald Trump, who is touting nationalism and is backed by white Christian evangelists is also pushing for high import taxes to protect domestic industrialists though many US competitive firms are now firmly engaged in global production and value chains including in Sri Lanka.

Analysts have warned that protection given to maize and dairy products tends to contribute to child malnutrition and stunting. In East Asia, especially in former communist states which embraced free trade, an entire generation of children are growing up who are taller than their parents.

Import duties that exploit the common man (protected businesses make profits by taking in the revenues that would have otherwise gone to the state in what is known as tax arbitrage) have become frighteningly ‘normalized’, they say.

In Sri Lanka and many do not see anything wrong with the rents earned from plundering consumers or using the coercive taxation and legal system to give rents to producers, who are heavy funders of political parties.

"When plunder has become a way of life for a group of me living together in society, they create for themselves in the course of time a legal system that authorises in and a moral code that glorifies it,2 French economist and philosopher Frédéric Bastiat wrote two centuries ago.

"It is well know that Aristotle could not even conceive of the idea of a society that would be capable of existing without slavery.

"If the greatest philosophers were incapable of seeing the inequity of slavery, how much easier it is for farmers and manufacturers to deceive themselves concerning the nature and effects of protectionism."

 

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