In just a few weeks since the newly imposed 18% VAT, the coconut industry in Sri Lanka is in dire straits, with oil millers reducing operations to a few days per week, resulting in the loss of over 50,000 jobs. Even “punnakku” is subject to VAT.
Coconut oil millers in the medium and large scale sectors began asking workers to report to work only three days a week about three weeks ago, despite the fact that the industry was tax-exempt. Nearly 1,200 large and medium-sized businesses operate in the domestic market, with some closing for the entire week.
Oil millers have imposed the VAT on manufacture that came into effect on January 1, 2024, and as a result, the prices of coconut oil have been increased. VAT is imposed on all other byproducts manufactured for the local market, the Joint Coconut Industry Association (JCIA) said.
Some millers have already closed due to a coconut shortage in the last two years, but the rest are now closing as well, according to R.M. Ratnatunga, President of the Oil Millers Association.
Manufacturers are forced to pay market prices for coconuts because they are unable to buy them at a lower price, which would harm the growers. As a result, they would have to raise the final product’s price.
But this would mean locally manufactured coconut oils would not be able to compete with the imported brands that are not subject to the VAT component that will in time become less expensive than the locally produced coconut oil.
Furthermore, interestingly the “punnakku” or oil cakes (animal feed) produced as a byproduct by the millers is also subjected to VAT and this has led to a complete halt on its exports to India due to their inability to find adequate crop and high processing costs involved. Animal feed is also likely to increase in price locally. This animal feed was exported to India over the last three years.
The industry’s joint body highlighted that if they needed to export and sell their product in April, May and June then they would have to market them now else there would not be anyone to buy. Producers complain that consumers have changed their purchasing pattern from buying processed coconut products to fresh coconuts not subject to VAT.
The coconut substrates like coco peat are also charged VAT but since the local market prices are lower and cannot be matched with this new tax increase the manufacturers are compelled to absorb this price increase.
Growers are also impacted by this sudden increase in VAT with the taxes in the fertiliser that has sent prices skyrocketing from Rs.1500 in 2021 to Rs.12,750 today but the farm gate price of coconuts has only changed by a few rupees from Rs.62.85 to the current Rs.68.65. The ban on chemical fertilisers by the state and high prices meant coconut production has dropped due to the non-application of fertiliser for three years.
VAT has also been imposed on agriculture machinery, irrigation systems and renewable energy making the use of these today unaffordable to the grower.
Coconut growers insist that they too be afforded the same benefits as the paddy farmer as this crop is also a staple diet of the local people. About 2 billion fresh nuts are consumed locally and around 500 million used for processed products while 1 billion nuts are used for export products.
Source : Sundaytimes
