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Sri Lanka: Illusions are not Solutions

Agriculture Income Tax Breaks Are Lazy, Populist Measures That Do Not Address the Real Underlying Issues






by Mangala Samaraweera

( November 26, 2018, Colombo, Sri Lanka Guardian) The purported Ministry of Finance has announced a package of tax exemptions for the agriculture sector. However, the announced measures have little or no real impact on the sector. Most small-scale farmers do not fall into the bracket of income tax payers. Data over the last few years shows that revenue collected from all agriculture-based income taxes accounts for approximately 0.03% of total government tax revenue – this is a negligible figure and suggests that the removal of this will not have a material impact on the agriculture sector and the productivity thereof.

The real requirement for the agriculture sector in Sri Lanka is access to affordable finance, good quality irrigation, quality storage and warehousing, and access to markets. Through the Enterprise Sri Lanka programme we initiated several loans schemes including Ran Aswenna (interest rate 6.8%), GoviNavoda (interest rate 3.4%), that cover the entire agriculture value chain. Through the ‘Gampereliya’ programme we initiated the rehabilitation of small irrigation tanks around the country that had been neglected for decades, leaving farmers so vulnerable to the droughts of the last 2 years. We initiated several major agriculture warehousing projects including those at Polonnaruwa, Ratnapura, and Killinochchi through the 2018 budget, which has helped stabilise farmer incomes. Our Agriculture Modernisation Programme initiated numerous schemes of connecting small scale farmers into larger local and global value chains, connecting the village farmer to global markets. All of these programmes were targeted for expansion through the 2019 budget.

The proposed tax breaks will not address any of these critical issues in agriculture, it will however benefit the large plantation companies and commercial agricultural players, who could afford to pay taxes anyway. Therefore, in effect the agriculture relief package provides a tax break for corporates but provides no benefit to the small farmer. Tax breaks are lazy, populist measures that do not address the real underlying issues of a sector.

The tax exemptions for agriculture will however raise other questions. What about support for the other small-scale industries? SME carpenters, SME retailers, SME manufacturers, SME construction sector, SME fisheries? Do they not deserve tax relief? Why just agriculture? Perhaps since it is a sector with a large number of individuals of which very few actually benefit from the proposed tax break. The tax package also includes measures to reduce taxes for agricultural processing which will benefit large scale, highly profitable rice millers.

The income tax policy of our government was based on levels of profit, and not based on favouring certain sectors. Accordingly, whether you are in agriculture or in IT, if you make a profit over a certain level, you pay a tax of 14%, whereas if you do not make a profit you do not pay tax whichever sector you are in. Our income tax policy was based on fairness and equity, whilst also recognising the need for profitable companies to contribute to government revenue to fund services such as free education, health, and infrastructure which they also used in creating such profits.

As per what is proposed by the purported Finance Ministry, a large plantation company and profitable multinationals in the agriculture sector will not pay any taxes, whereas a local construction company would pay 28% tax. This is an unfair proposal which will have no real impact on the agriculture sector.




Mangala Samaraweera M.P. is the Minister of Finance and Media, Government of Sri Lanka

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