tariff barriers faced by exporters 50580300

8/3/2019 Tariff Barriers Faced by Exporters 50580300

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B.S.T KARIYAWASAM REG NO:-50580300 MCU 4206 ASSIG NO 611

There are many organizations, which export many commodities for various countries from Sri Lanka. Since I am

interested in exporting agro products, I looked in to export of one of major products, especially coconut products

for writing my essay.

Coconut is a prominent plantation in Sri Lanka and today and the sri Lanka has become the fifth largest Coconut

producer in the world. Therefore, I selected Wichy Plantation Company (Pvt) Ltd, 107, UDA Industrial Estate,Katuwana, Homaga as the identified exporter for data collection. This is a one of noticeable coconut exporter of

the country. Wichy Plantation Company (Pvt) Ltd in Sri Lanka, which was established in the year 1984, pioneered

the export of Coconut Milk from the island. Within the duration of 25 years, the company has progressed steadily

with a range of coconut kernel based products such as Coconut Milk, Creamed Coconut, Sweetened Creamed

Coconut, Desiccated Coconut, Coconut water, Coconut Juice, Virgin Coconut Oil and a collection of coconut based

ethnic products. Wichys age old in-house expertise in processing coconut kernel products are backed with

modern well equipped state-of-the-art production facilities and is committed with high qualified and dedicated

staff which has placed the company on a firm footing in the industry. Having conformed to stringent quality

controls and quality systems, Wichy has achieved many compliments; the recent one being ISO 22000:2005

system certification. Presently Wichy products are exported to a prestigious clientele in Europe, Canada, USA,Jamaica, India, Australia and New Zealand, while exploring new markets to achieve more coverage internationally.

Wichy is fully geared to be most trusted partner for coconut based products and supplier in Sri Lanka meeting

customers specific commercial requirements through a personalized service.

At present, the coconut sector faced lack of coconuts at competitive prices for export purposes. Hence, expanding

the coconut cultivation and adopting measures to enhance the productivity will be a relief to the export oriented

coconut industry. In this this endeavour tariffs are major obstacles, which affect the profit margin of the company.

Nonetheless, this is inevitable in an economy because in simplest terms, a tariff is a tax. It adds to the cost of

exported and imported goods and it is a part of trade policy in a country. As an exporting-company, it has to face

so many tariff barriers imposed by not only Sri Lanka but also importing country.

Tariff is an oldest form of government intervention of commodities, which are exported and imported in to

specific region. Those are imposed on two clear purposes. First, they provide revenue for the government. Second,

they improve economic returns to firms and suppliers of resources to domestic industry that face competition

from foreign imports. This type of tariffs is called protectionist tariffs. Even in this coconut industry, we can

observe that higher tariff rates are imposed in the palm oil exporters in Sri Lanka. It is some kind of protectionist

action for coconut industry taken by the government for the benefit of coconut producers

In the coconut exporting industry, they have identified three kinds of tariffs. Those tariffs are levied for exporting

and importing they have been involved.

(1) Ad valorem (2) Specific (3) Compound

1. Ad Valorem duty

This kind most commonly used, is one that is calculated as a percentage of the value of the imported or exported

goods - for example, 10, 25 or 35 per cent. As an example, the company has to use specific type of foil, and plastic


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package in which they can preserve their product e.g. desiccated coconuts while it will reach the customer and

distributor.

Various sophisticated machines are required for retaining and improving the quality of the product and holding

the competitiveness of the products and they should import those from other countries. In case, the company

import those materials and machines they incur taxes of huge amount. They have to pay those taxes imposed onthose normally it depends on the ad valorem rates imposed by the government time to time.

Following ad valorem duties and fiscal levies are collected at the time of importation by the Sri Lanka Customs

E.G.

1. Customs Duty [Preferential and General]2. Ports and Airports Development Levy (PAL)3. Vat4. Cess

Computation is as follows

Cess = cost in freight value x Cess Levy rate

According to the implementation, it can be identified as ad valorem or specific duty. Even if coconut exporters do

not want to pay, custom duties they have to pay Cess. The Cess tax is not only imposed on imports but also on

exports. According to the cess rates policy, Export development board Cess also imposed on coconut products

exported from Sri Lanka.

This may be based, depending on the country, either on destination (cost in freight value), or on the value of the

goods at the port in the country of origin (free on board).

2. A Specific duty

Specific duties are often levied on foodstuffs and raw materials. Specific duty is assessed based on some units of

measurements, such as quantity (based on weight, number, length, volume or other unit of measurement e.g. 2 Rs

per nut.)

E.G

Cess

Computation is as follows

Cess = quantity x unit rate of cess levy

The following table shows how the Wichy Plantation Company (Pvt) Ltd pays the cess for their exports. The total

amount depends on the output produced by the company


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3. Compound duties

this tariff barrier is assessed as a combination of the specific duty and ad valorem duty (Rs 20 per kilogram net,

plus 30% of FOB price).

E.G

1. Vat2. Excise3. Surcharge4. Social Responsibility Levy (SRL)

Computations are mentioned below


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SURCHARGE DUTY = Custom duty x Rate of Surcharge

VALUE ADDED TAX

Formula 1 = [V+7%V+D+S+C+P+E] x RT

Formula 2 = [1.07+ (1.05 x RE)] x V x RT + [(D+S+C+P) x (1+ RE)] RT

[1-(RE X RT)]EXCISE (SP) DUTY (E)

Formula 1 = [V+5%V+D+S+C+P+T] x RE

Formula 2 = [1.05+ (1.07 x RT)] x V x RE + [(D+S+C+P) x (1+ RT)]RE1-( RE

x RT)

SOCIAL RESPONSIBILITY LEVY (L)

= (D+S+E) x Rate of SRL

Abbreviations are mentioned below

V = Cost In Freight Value in Rupees

D = Customs DutyS = SurchargeC = EDB CessT = Value Added Tax (VAT)E = Excise (Special Provisions) DutyP = Ports & Airports Development Levy (PAL)L = Social Responsibility Levy (SRL)RE = Rate of Excise DutyRT = Rate of VAT

These burdensome taxes are imposed on various imported materials and machines, which are used for

productions relating to the coconut. Fertilizers, chemicals, weedicide and pesticide that are used for the coconutagriculture industry are also under the influence of higher rates of tariffs. Therefore, the cost of services and

equipment relating to industry is very high.

Those taxes are huge barriers to coconut producers and exporters because those were revised time to time.

Therefore, the fluctuations of those taxes are onerous to coconut exporters. When the exporters send their

shipments, they have to pay following rates according to the volume they export. These chargers also should be

reduced to encourage the exporters.

Current charges are as follows


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Therefore, some kinds of tax exemption and subsidies are given to those who export coconuts and other products.

tariff barriers faced by exporters 50580300

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