The Ministry of Finance and Economic Affairs under the 'purported' minister Mahinda Rajapaksa, recently announced a package of tax exemptions for the agriculture sector. However, the announced measures have little or no real impact on the agro sector as most small-scale farmers do not fall into the bracket of income tax payers.
Data over the last few years showed that revenue collected from all agriculture-based income taxes accounted for approximately 0.03% of total government tax revenue – this is a negligible figure and suggests that the reductions of these taxes will not have a material impact on the agriculture sector and the productivity thereof.
Key issues in the agricultural sector
However, the real requirements with regard to the agricultural sector in Sri Lanka are access to affordable finance, good quality irrigation facilities, state of the art storage and warehousing facilities, and access to foreign/domestic markets.
Through former Finance Minister Mangala Samaraweera’s ambitious ‘Enterprise Sri Lanka’ programme, the ousted government initiated several loans schemes including ‘Ran Aswenna’ (subsidised interest rate of 6.8%) and ‘Govi Navoda’ (subsidised interest rate of 3.4%), that covered the entire agriculture value chain. Before the unconstitutional coup that took place on October 26, over LKR 9 billion was disbursed under the Ran Aswenna credit scheme that was geared to provide financial assistance for farmers, farmer organizations and agro-processing establishments for upgrading the sector through infusion of productivity enhancing technologies and practices. It also opened avenues for small farmers to transform their businesses from subsistent level to commercial level.
Similarly, under the Govi Navoda loan scheme, over LKR 8 billion was disbursed before the illegal takeover of the government. This was a special loan scheme introduced to improve the mechanization of agriculture. This concessionary loan scheme provided financial assistance for farmers and farmer cooperatives in order to encourage them to mechanize their agriculture activities.
Furthermore, through the ‘Gampereliya’ rapid rural infrastructure development programme, the former government initiated the rehabilitation of small irrigation tanks around the country that had been neglected for decades, that left farmers vulnerable to the droughts of the last two years.
They also initiated several major state of the art warehousing projects in Polonnaruwa, Ratnapura, and Killinochchi through the 2018 budget, which has helped stabilise farmer incomes. Through the ‘Agriculture Modernisation Programme’, the former government initiated numerous schemes to connect small scale farmers with larger domestic and global value chains. At a recently held press conference, former finance minister Samaraweera said that all of these programmes were targeted for expansion through the 2019 budget.
The proposed tax breaks of the ‘purported’ government will not address any of these critical issues in agriculture. However, it will benefit the large plantation companies and commercial agricultural players, who could afford to pay taxes. Therefore, in effect, the agriculture relief package provides a tax break for corporates but provides no benefit to the small-scale farmers. These tax breaks are lazy, populist measures that do not address the real underlying issues of the agriculture sector.
The tax exemptions for agriculture will however, raise other questions. What about support for the other small-scale industries? What about small and medium scale businesses engaged in carpentry, retail, manufacturing, construction, and fisheries sectors? Do they not deserve tax relief? Why just agriculture? Perhaps, since it is a sector with a large number of individuals of which only a very few would actually benefit from the proposed tax breaks. The tax package also includes measures to reduce taxes for agricultural processing which will benefit large scale, highly profitable rice millers.
The Big Four
It also noteworthy that the four biggest rice millers in the country are all affiliated to the Maithri-Mahinda illegal government.
Dudley Sirisena, the president’s younger brother, was allegedly a key figure that worked behind the scenes to broker the partnership between Sirisena and Rajapaksa. Incidentally, he is also the owner ‘Araliya’ rice mills.
Polonnaruwa district parliamentarian, Siripala Gamplath, from the UPFA, is the owner of the famous ‘Nipuna’ rice mills.
L. Mithrapala, who is the Polonnaruwa district organiser for the UPFA, is also the owner of the ‘New Rathna’ rice mills.
Matale district parliamentarian from the UPFA, Lakshman Wasantha Perera, is the owner of the ‘Lak Sahal’ rice mills.
The income tax policy of the former government was based on levels of profit, and not based on favouring certain sectors. Accordingly, whether you were in agriculture or in IT, if you made a profit over a certain level, you were liable to pay a tax of 14% or 28%. At the same time, if you did not make a profit, the company wasn't required to pay taxes regardless of which sector it was under.
It could be argued that the income tax policy of the former government was based on fairness and equity, whilst also recognising the need for profitable companies to contribute to government revenue in order to fund public services such as free education, health, and infrastructure.
However, as per what is proposed by the 'purported' Minister of Finance Mahinda Rajapaksa, only large-scale companies and profitable multinationals engaged in the agriculture sector would benefit by paying reduced taxes. Companies like the ones mentioned above would qualify to pay taxes under the 28% tax bracket.
Therefore, it is highly questionable as to what the ‘purported’ government intends to achieve by introducing such haphazard policies aimed at reducing the tax liabilities of only a handful of companies that have direct affiliations to the ruling coalition.
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