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New size-based cess on ceramic tiles

03 Mar 2021

  • A cess of Rs. 490 per square metre of tile finalised

  •  Cess is to 'promote competition in the market'

  The Ministry of Finance and local ceramic importers have reached an agreement to implement a size-based cess of Rs. 490 per square meter of tile, following a number of discussions with the relevant authorities, The Morning Business learns. Speaking to The Morning Business, Tiles and Sanitaryware Importers Association President Kamil Hussain reported that both he and Ministry of Finance Treasury S.R. Attygalle have come to an amicable solution to facilitate a healthy level of imports while at the same time nurturing local manufacturers and decreasing foreign exchange outflow.  Hussain, commenting on the discussions which took place, stated: “We actually spoke about the industry issues that I’ve mentioned before, and also about helping local manufacturers stay in line with the President’s ‘Saubhagya Dakma’ programme, as the government policy is to encourage local manufacturing; as an association, we also subscribe to that.”  Furthermore, both parties agreed on a square metre-based (size-based) cess standardised to 15% which amounts to a total charge of Rs. 490 per square metre per tile.  The cess was reportedly a measure taken to promote competition in the market, increase tax revenue, prevent unethical importer activities, and re-establish the importers’ tiles and sanitaryware market.  Additionally, the latest cess that was to be implemented was estimated at more than 46% of the previous duty levied.  Also, Hussain reported the main reason the association suggested that the Ministry base the cess on size rather than value was to avoid the complications and fraud that can take place if the cess was calculated on a value basis.  “In order to avoid these, we convinced them to go forward on a square metre basis. Thus, this duty will be based on size rather than value because people can develop suspicions on the correct value,” Hussain commented.  The Association President further highlighted the importance of importers within the tiles and sanitaryware market.  In addition to this, the pivotal requirement to cater to the remaining 50% of the market demand, as local manufacturers only hold the capacity to cater to half the market demand, are prominent shoes that the association plans to fill once again. Moreover, the need to strike a balance between locally manufactured products and imported tiles and sanitaryware products where consumers have a range of choices against which to evaluate their purchase, is also essential for a healthy market rather than a monopolistic or duopolistic market.  “There’s no problem between local manufacturers and importers at all, but we also feel that we need to strike a balance where importers challenge local manufacturers, so as to encourage them to reach their full potential by giving them healthy competition,” Hussain revealed.  A slight increase in the duty levied was the solution to achieving the aforementioned aims whilst increasing revenue for the Government. This decision was also taken so as to give local manufacturers a chance to increase its capacity along with promoting the Government’s “Vision of Prosperity”. It was also highlighted that the association is currently anticipating a response and confirmation from Attygalle to the formula the union submitted to the Ministry.  Furthermore, it was stated that the re-establishment of businesses owned by importers is necessary to regulate the demand in the market which has contributed to illegal black market resale activities in the absence of importers. In addition to this, the Association President mentioned that Attygalle was aware of the aforementioned illegal activities. He further added that the cess was a counter measure taken to regulate this excess demand in order to minimise these activities.  “Although we can’t stop this immediately, we can regulate and minimise these activities. That is why both parties agreed to go on a size basis rather than value basis. We also support the elimination of these illegal and unethical activities,” Hussain stated.  Moreover, reportedly, the Government’s aim to enhance the local production of tiles is likely to be completed in the span of two years.  Local manufacturer Mackson Tiles Lanka is reported to have ordered new machinery to increase its production capacity in early February 2021. The problem in the tile industry was said to involve the inability to increase production at a rapid rate.  It was reported that this was due to the machinery being complicated to operate, the time taken for local workers to master the latest technology, as well as the time taken for it to arrive to the country from Italy, which is estimated to take five to six months.  As local manufacturers only cater to 50% of the local demand, the current capacity has to be doubled. Thus, one manufacturer increasing its capacity may not increase the overall capacity drastically. “As importers, we provide choices; local manufacturers’ choices are not as vibrant as ours. That is because the manufacturer flexibility is not as efficient as that of imports. Today’s architects and designers want to build something aesthetically pleasing,” Hussain added.  He went on to mention that retailers of imported product have run out of sock for a year and that locally manufactured products are priced higher than imported products in the tiles and sanitaryware market. This was said to be due to the high energy cost involved in local manufacturing along with the fact that 50% of the raw materials need to be imported. In addition, the Association President also mentioned that both local manufactures and imported retailers cater to segments in the market where some consumers prefer local products while others prefer imported products.  He went on to mention that both parties are needed for the market to operate smoothly and that the association is looking forward to working with the Ministry of Finance.  “We will meet very soon. We want to ensure that imports are open again. Over 100,000 people depend on this industry, and so we are very worried for these workers. Or else, the workers, consumers, and owners will all suffer,” Hussain stated.  Sri Lanka’s tiles and bathware manufacturing capacity is currently limited to three local large-scale tile manufacturers and seven bathware manufacturers with a current combined annual production capacity of 17 million square metres of tiles and approximately 700,000 bathware pieces.  Further plans to increase tile local production capacities by another 3.5 million square metres this year will result in a total local production output of 20.5 million square metres by mid-2021.  Being a key contributor to the local economy and government revenue, these large-scale local manufacturers have invested over Rs. 35 billion throughout the years, paying over Rs. 5.5 billion in government taxes per year. At present, these manufacturers employ over 7,500 Sri Lankans. The local industry is well equipped with the latest manufacturing technology that’s among the best in the world, capable of producing any high-quality tiles and bathware across a range of different sizes, designs, surface finishes, and variations that are on par with global leaders in the industry. As the nation’s economy struggles to get back on its feet, it is commendable that such government policy decisions are taken to nurture local industries in a post-Covid economy in this journey towards creating a self-sufficient Sri Lanka.

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