The tea exporters expressed their concern over the imposition of 18% Value Added Tax (VAT) on tea from 1 January 2024 which was exempted earlier, since over 90% of tea is exported and it could be challenged to remain competitive in the global market.
Issuing a statement, the tea industry said: “The tea industry value chain involves a number of stakeholders – over 400,000 tea smallholder farmers who account for over 70% of the tea production , 21 regional plantation companies (RPCs), about 600 tea manufactures who are the sellers of tea as well, more than 300 tea exporters/ buyers and eight brokers who conduct the weekly tea auction. Each weekly tea auction sells between 5-6 million kg of tea divided into about 10,000 lots of different types and grades of teas. Buyers are required to settle the full value of tea within seven days from date of purchase to ensure that tea farmers/growers get their payment without any delay. On behalf of the tea manufacturers/sellers the invoices are issued by the eight brokers only making it very much convenient for both sellers and buyers in respect of administering the weekly tea selling and buying. This transparent system has been there for more than 125 years and secured the best possible prices for Ceylon Tea that enable the country to receive about $1.3 billion of foreign exchange from tea exports annually.”
They further said that according to the new VAT Bill, the 600 tea producers/factories in the tea industry should get themselves registered for VAT and SVAT to be eligible for issuing VAT invoices to the buyers of tea. Instead of the current system where the exporters/buyers are dealing with eight brokers, in future the exporters will have to deal with about 600 tea factories that may create huge administrative challenges including additional cost, the statement added.
The industry stakeholders under the umbrella body of Colombo Tea Traders Association have made a submission to the Minister of Plantation and to the State Minister of Finance and Commissioner General of Inland Revenue Department (IRD) last week requesting for more time for registration of tea factories for VAT and SVAT, as it may be impossible to register all of them by 1 January 2024. They have also requested to allow the brokers to be the contact point for issue of invoices for easy communication between IRD and the producers.
The statement further read: “The last tea auction of the year concluded on 19 December 2023 and the next tea auction is scheduled for 3 January 2024. The exporters are skeptical about the ability of tea factories to get the VAT/SVAT registration before 1 January and the fate of the first tea auction of 2024. The tea manufacturers who are unable to get the VAT registration by 1 January will not be able to issue VAT invoices and may have to keep away from the auctions until the registrations are completed. This may have multiple effects on tea exports, income of smallholders farmers . Even foreign buyers may keep away from tea auctions temporarily that could affect the tea prices.”
According to the Government gazette notification even the green leaves are subject to VAT however the tea industry has been assured that green leaves may not be liable for VAT payment as it is a basic agricultural raw material.
Tea Exporters Association (TEA) urged the Ministry of Finance and IRD to introduce a mechanism to register all tea manufacturers for VAT in the next few days to ensure that tea supply/tea value chain may not collapse over the VAT issue.
The industry stressed that consultation with the stakeholders, well in time before implementing such sweeping changes, will help the industry to sustain in the current challenging global environment.