TEA shocked by 18 percent tax on vital export earner

The Tea Exporters Association (TEA) sounded an alarm in response to the impending 18 percent Value Added Tax (VAT) set to hit the tea industry from 01 January 2024.

Issuing a press release, TEA expressed serious concerns and highlighted potential disruptions to the entire tea value chain, unless a smooth operational mechanism is promptly established.

IT said: The TEA acknowledges the necessity to broaden the tax net and introduce VAT to stabilise the country’s finances. However, the Association is deeply worried about the repercussions of imposing an 18 percent VAT on a commodity primarily destined for over 90 percent export, requiring a full VAT refund to stay competitive globally. This move has raised red flags within the industry.

“”While it is understood that in order to resurrect the country’s financial stability, we have to widen the tax net and the VAT, the high VAT on a commodity, of which over 90 percent is produced and sold purely for exports, wherein all of the VAT will need to be refunded to stay competitive in the world market, the imposition of the VAT on tea has caused grave concern amongst the tea industry stakeholder,” it said.

Urging swift action, the TEA has called upon the Finance Ministry and Inland Revenue Department (IRD) to swiftly register all tea manufacturers for VAT. The Association stressed the unique nature of the tea sector, requesting special attention from the IRD. They highlighted the need for comprehensive stakeholder consultations before implementing such substantial changes, aiming to sustain the industry amid challenging global conditions.

With over 400,000 tea smallholder farmers contributing to 70 percent of tea production, 21 regional plantation companies, around 600 tea manufacturers, and more than 300 tea exporters/buyers, the tea industry’s complex network involves eight brokers conducting weekly tea auctions. However, the imminent VAT implementation poses a significant shift, requiring all 600 tea factories to register for VAT and Simplified Value Added Tax (SVAT), potentially leading to administrative hurdles and added costs.

“The last tea auction of the year concluded on December 19, 2023 and the next tea auction is scheduled for January 3, 2024. The exporters are sceptical about the ability of the tea factories getting the VAT/SVAT registration before January 1 and the fate of the first tea auction of 2024. The tea manufacturers, who are unable to get the VAT registration by January 1, 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 the tea exports, income of smallholder farmers, etc. Even foreign buyers may keep away from the tea auction temporarily, which could affect the tea prices,” the TEA statement said.

Expressing industry concerns, the TEA highlighted the potential disruption of upcoming tea auctions, impacting payments to farmers, tea exports, and the participation of foreign buyers, thus affecting tea prices.

Additionally, while the government’s gazette notification includes green leaves under VAT, the tea industry seeks assurance that this fundamental agricultural raw material might be exempt from VAT payments.

In summary, the TEA is advocating for thorough consultation, extended registration timelines, and an alternative system to ensure minimal disruption to the established tea value chain. Their primary objective remains the protection of the industry’s stability and competitiveness in the global market.