Sri Lanka’s Cargills see consumer recovery, hit by perverted VAT regime
COLOMBO (EconomyNext) – Sri Lanka’s Cargills (Ceylon) Plc, a consumer goods firm which runs the island’s largest retail chain said revenues rose 19 percent in the March quarter from a year earlier, but it was hit by unrecoverable taxes.
During the 9-monhs to December revenues rose only 7.13 percent, with a 2.1 percent drop in the December quarter.
Cargills said revenues rose 19 percent to 1.47 billion rupees, and expenses rose at a faster 23 percent to 13.3 billion rupees, narrowing gross profits 13.5 percent to 1.4 billion rupees.
Cargissl said a so-called ‘deemed Value Added Tax’ hit the fresh produce sector, which discouraged potential to grow locally sourced fruits, vegetable, meats and seafoods.
Though fresh produce is not liable to VAT, supermarkets owned by citizens can only reclaim taxes to the value of 25 percent of turnover.
This has forced supermarkets to pay ‘VAT’ on goods, such as fresh produce, that are not subject to VAT in the first place.
Cargills said in the year to March 2015 it had paid 870 million rupees as tax, on goods which were exempted from tax.
"As a result the sector was compelled to retract aggressive sales drives for the fresh produce category," the firm said.
"The ad-hoc VAT policy has far-reaching implications on smallholder farmers and your company is continuously engaging with policy makers to reach consensus on applying the policy in a manner that would stimulate growth in local agricultural produce."
Other critics had also pointed out that while any citizen-owned shop with a turnover of over 12 million rupees a year has to pay VAT, ruler-connected firms like LakSathosa do not pay any VAT at all, discriminating against businesses run by private citizens.
Ruler-connected firms can therefore can pocket the entire tax and get a subsidy to run an inefficient operation, while also undermining the VAT tax regime.
Meanwhile Cargills said it posted profits of 295 million rupees from the March 2015 quarter, down 6.9 percent from a year earlier giving earnings of 1.32 rupees per share.
For the full year 2014 the firm only posed profits of 574 million rupees.