ECONOMYNEXT – Sri Lanka’s ban on ethanol imports had given profits to state run sugar factories which were making losses earlier, President Gotabaya Rajapaksa had said.
“Our sugar factories are making a profit today because the importation of ethanol has been completely banned,” President Rajapaksa said in a national address.
Imported ethanol which were taxed at high levels, brought revenues to the Treasury.
However when import duties are raised or imports are banned, businesses running ‘import substitution’ schemes collects the taxes, a process which economists call ‘tax arbitrage’.
The people still pay high prices, but the profits go to businesses and the state loses revenue. In 2020, Sri Lanka saw a steep collapse in revenues, amid import bans, deliberate tax cuts and Coronavirus lockdowns.
Sri Lanka is also taxing brown sugar at a higher rate than white sugar to give profits to sugar SOEs.
The sugar SOEs were expropriated from the people in 2011.
President Rajapaksa said a ban on turmeric imports had also expanded a market for domestically made turmeric.
Other key strategies include a ban on tea imports to stop blending in the country and re-export of pepper, he said. (Colombo/June29/2021)