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Monday March 4th, 2024

Sri Lanka traders oppose calls to further hike 115-pct tile import taxes

ECONOMYNEXT – Sri Lanka’s tile and sanitaryware importers have opposed calls to increase high import taxes which are giving big profits to “domestic producers”, saying young couples looking to build a house and the general public were already sufficiently exploited.

There was no merit in calls for anti-dumping duties as import taxes already totalled around 115 percent, the importers said.

Domestic tile producers had made large profits especially in the past three and a half years at the expense of young couples looking to put a roof over their heads during an import ban, as well as the public in general, an importers’ association said.

Even after imports were freed, taxes of around 115 percent are levied on tiles, up from 94 percent before the Coroanvirus crisis, the importers said.

Houseless Couples

“When a couple gets married, the first thing they are looking for is a to build a house,” Secretary of Sri Lanka’s Tile and Sanitaryware Importers Association, Samendra Gunasekera told reporters.

“About 20 percent of cost of construction is tiles. There is already a protectionists tax for the producers. Now they are trying to increase the tax with a new one.

“We are asking whether we are going to put 22 million people in more difficulties? Or are we putting the construction sector in difficulties?” Gunasekera said.

“We are putting these questions to the government.”

After import ban on tile was lifted, prices had almost halved, despite already high taxes, and demand was picking up.

Before the import ban and the Coronavirus crisis a 2×2 tile was 425 rupees, the importers association said but they were pushed up for fold after the control.

“As soon as import restrictions were placed the 425 rupee tile was taken to 2,100 rupees,” Gunasekera said.

“Over the past month, since the import ban was lifted, the prices of tiles and sanitaryware items are falling rapidly.

“At the same time, we are seeing the demand also going up fast. This is a very good support for the growth of the construction sector. As you know the sector had serious problems.”

High Taxes

Recently domestic tile manufacturers had called for more ‘anti-dumping’ import duties on tiles on the claim that Indian producers were being paid a tax rebate.

“We are already paying duties on the import of tiles at the CIF price of 115 percent,” Samendra Gunasekera, Secretary, Tile and Sanitaryware Importers Association said.

“Before the pandemic the tax was 94 percent. Now it is 115 percent.”

“We are asking what is the tax that has to be raised under an anti-dumping law?”

There were claims from the producer lobby that the Indian government was giving tax rebates., but Gunasekera said as far as they were able to find the tax rebate was 2.7 percent, compared to import taxes of 115 percent in Sri Lanka.

Arguments on ‘dumping’ made by nationalist US and EU producers, who originated the practice are generally based on claims that export prices are lower than domestic prices.

In the Indian domestic market also tiles were around 400 rupees with GST tax and about 350 without the taxes old at about 350 to 400 rupees with value added tax, Gunasesekera said.

“They are exporting to us at the same price,” he said.

A local manufacturer had claimed that Sri Lanka had raw materials to make 85 percent of the tile and imports were a ‘loss of foreign exchange’, he said.

In Sri Lanka many economic policies are made to ‘save foreign exchange’ because the central bank triggers forex shortages.

In the latest money printing bout to mis-target rates, the rupee collapsed from 200 to 330 to the US dollar.

Because Sri Lanka’s central bank prints money to mis-target rates, triggering forex shortages, various economic nationalists have promoted import substitutes at higher than world prices allowing profiteering businessmen to exploit consumers and the poor.

Import controls on 3000 items however failed to stop forex shortages as liquidity was injected to keep rates down and the country ultimately defaulted on foreign loans. Forex shortages were stopped only after rates were hiked.

Interest of the Public

“If 85 percent of the raw materials are available domestically, why did they raise the price of a tile to 2,100 rupees?” Gunasekera said.

“As soon the import ban was relaxed, the price falls to 1,100 rupees. They can no longer sell at that high price, so they lower the price to the level of the imported price.”

“Now by trying to impose another duty they are trying to increase their profits

“This is not for the interest of the country but for their own profit.”

Making large profits by controlling the economic freedoms of the poor with the help of the coercive power of the state is a characteristic of a type of corporate greed that that pre-dated capitalism and free enterprise and was known as Mercantilism, now called ‘crony capitalism’ analysts say.

The UK became an industrial power with monetary stability and removing the ‘absurd tax’ on the fellow man and tightening controls on the central bank, during the time of Prime Minister Robert Peel as advocated by philosophers including Adam Smith and David Ricardo.

Domestic producers are used to making strategic plans are usually good at convincing the public to give up their own interests on the basis that paying high prices was good for the country, Smith had pointed out.

More recently countries like Vietnam also grown fast in less than two decades by freeing trade and tightening controls on its central bank.

Interests of Businessmen

The interest of businessmen do not coincide with that the of the general public unless proposed measures increases competition.

“As their thoughts, however, are commonly exercised rather about the interest of their own particular branch of business, than about that of the society, their judgment, even when given with the greatest candour (which it has not been upon every occasion), is much more to be depended upon with regard to the former of those two objects, than with regard to the latter,” Adam Smith wrote.

“Their superiority over the country gentleman is, not so much in their knowledge of the public interest, as in their having a better knowledge of their own interest than he has of his.

“It is by this superior knowledge of their own interest that they have frequently imposed upon his generosity, and persuaded him to give up both his own interest and that of the public, from a very simple but honest conviction, that their interest, and not his, was the interest of the public.”

“The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public.

“To widen the market, and to narrow the competition, is always the interest of the dealers,” Smith said.

“To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can only serve to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens.”

“It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it

“The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.”
(Colombo/Dec06/2023)

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Sri Lanka’s CEB reports Rs61bn profit for 2023 with Dec quarter gains

ECONOMYNEXT – Sri Lanka’s state-run Ceylon Electricity Bord has reported a profit of 61.2 billion rupees for the year to December 2023, turning around from a loss of 298 billion last year, with all the profits coming in the last year amid heavy rain and price hike, interim accounts show.

The CEB reported profits of 77.9 billion rupees for the December quarter, compared to a loss of 182 billion rupees last year.

About 94 billion rupees in losses were forex losses, coming from the central bank, which printed money to suppress rates and triggered a steep currency collapse in a failed float with a surrender rule.

CEB revenues rose 55 percent to 156 billion rupees in the December quarter, cost of sales fell 45 percent to 78 billion rupees amid heavy rains, giving a gross profit of 78.2 billion rupees for the quarter.

In the year to December, CEB revenues were 606.6 billion rupees, up 96 percent from 308 billion rupees, while cost of sales rose from 444 billion rupees to 506 billion rupees. Gross profits were 99.6 billion rupees.

At group level, which includes LTL Holdings, profits were 75 billion rupees for the year, with income taxes of 6.3 billion rupees, provided.

CEB consolidated profits were 68.4 billion rupees, with other shareholders of subsidiaries accounting for 7.2 billion rupees.

Equity was 498 billion rupees at company level by December 31, with 126 billion rupee capital contribution as well as profits earned in the last quarter. (Colombo/Mar05/2024)

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Sri Lanka rupee opens at 308.20/50 to the US dollar

Sri Lanka stocks reversed its falling trend and gained for the first time in six sessions on Tuesday closed stronger on Tuesday (21).

ECONOMYNEXT – Sri Lanka’s rupee opened at 308.20/50 to the US dollar Monday, from 308.80/90 on Friday, dealers said.

Bond yields were broadly steady.

A bond maturing on 01.08.2026 was quoted stable at 10.90/11.00 percent.

A bond maturing on 15.09.2027 was quoted at 11.90/12.00 percent from 11.90/12.05 percent.

A bond maturing on 01.07.2028 was quoted at 12.20/30 percent from 12.15/35 percent.

The Colombo Stock Exchange opened up; The All Share was up 0.60 percent at 10,755, and the S&P SL20 was up 1.24 percent at 3,077. (Colombo/Mar4/2024)

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Sri Lanka central bank swaps top $3.2bn by December

ECONOMYNEXT – Sri Lanka’s central bank borrowed US dollars from various counterparties through swap transactions, which had topped 3.2 billion US dollars by December 2024, official data show.

The net short position, including swaps disclosed by the central bank, grew by over almost 1.28 billion US dollars from December 2022 to 3,280 million dollars.

The gross position grew from 2,263 million dollars to 3,280 million US dollars over the year.

The central bank supported some state banks with dollars to cover their dollar exposures, which had since been paid back.

By December reported gross reserves of the central bank was 4,491 million US dollars, against swaps of 3,280 billion US dollars.

Swaps of around 1500 related to the People Bank of China.

Swaps allow a central bank to increase gross reserves, without raising domestic interest rates.

Swaps with domestic counterparties lead to liquidity being injected into money markets, which can be mopped if domestic credit growth is moderate.

At the moment many private banks have large dollar positions invested outside the country, which cannot be used for transactions domestically because of a money monopoly given to macro-economists. (Sri Lanka repays debt or collects reserves of U$5bn via banking system since rate correction)

However unwinding swaps after private credit has picked, or engaging in swaps after private credit has picked up, may lead to money being injected to maintain the policy rate, leading to excess credit by banks and balance of payments deficits and or currency collapses, analysts say.

Central bank swaps in the third quarter of 2018 led to a collapse of the currency under the ‘exchange rate as the first line of defence’ policy peddled to Sri Lanka, critics have said earlier.

Domestic currency proceeds of swaps were the primary ammunition to bust East Asian currencies in 1997-98.

Any depreciation after the swap proceeds have been used for imports (effectively mis-targeting rates) a central bank will run a forex loss.

The PBOC however had put a rule, preventing the use of the swap after gross reserves fell below 3 – months of imports, preventing Sri Lanka from getting into further trouble through the use of official reserves for private imports.

Sri Lanka’s central bank also used borrowings from the Reserve Bank of India, via the Asian Clearing Union to run BOP deficits.

Losses from exposed dollar positions of central banks which have gained ‘independence’ from fiscal rules and parliaments and engaged in macro-economic policy, including the Fed, have led to taxpayers bearing the losses in the end.

Swaps were invented by the Fed in the early 1960s, as it deployed macro-economic policy (printed money for growth) threatening its gold reserves and the Bretton Woods system.

Sri Lanka has other borrowings also, including from the IMF, which has made net foreign assets of the central bank negative. (Colombo/Mar05/2024)

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