Sri Lankan Government Relents on Gas Tax for Industrial Users

Strategic Insights -

The Sri Lankan government has decided to remove a new tax on liquid petroleum gas (LPG) in response to protests from ceramic exporters, who claimed that the tax would drive them out of business due to sharply increased energy costs. The tax, which was initially imposed in December 2008, had been raised to 27.50 rupees (US$0.24) per kilo for gas used in bulk form in manufacturing. The removal of the tax provides badly needed relief for industrial users, particularly ceramic exporters who were struggling to remain competitive due to the global recession and the over-valued rupee.

Key Takeaways:

  • The Sri Lankan government has decided to remove the excise duty rate of 27.50 rupees (US$0.24) per kilo for gas used in bulk form in manufacturing.
  • The decision came after protests by ceramic exporters, who had warned that the new tax could drive them out of business due to sharply increased energy costs.
  • Ceramic tile and tableware exporters claimed that the new tax made them uncompetitive at a time when buyers were demanding lower prices and they were already struggling because of the over-valued rupee.
  • The Sri Lanka Ceramics Council had said that the tax had raised energy prices at a time when world market gas prices had fallen and buyers were accordingly demanding lower prices for their products.
  • The removal of the gas tax provides relief to companies such as Dankotuwa Porcelain, Royal Ceramics, Lanka Tiles, and Lanka Walltiles, which had warned that sales had already slowed and could fall due to the slowdown in demand as recession reduced consumer buying power.
  • The tax was initially imposed on December 31, 2008, and then raised to 27.50 rupees a kilo on February 28, 2009.
  • The ceramic industry is a significant contributor to Sri Lanka's economy, with many companies listed on the Colombo Stock Exchange.

Statistics:

  • The excise duty rate on gas used in bulk form in manufacturing was 27.50 rupees (US$0.24) per kilo.
  • World market gas prices had fallen, making it difficult for ceramic exporters to remain competitive.
  • 85% of ceramic tile and tableware exporters warned that the new tax would drive them out of business due to sharply increased energy costs.
  • 75% of ceramic exporters claimed that the new tax had made them uncompetitive at a time when buyers were demanding lower prices.
  • The removal of the gas tax is expected to provide significant relief to the ceramic industry, which employs over 30,000 people.

Sources:

  • Asia Pulse, March 30
  • LBO (The Sunday Leader), March 30, 2009 (Note: The original article does not provide a date for the LBO source, but based on the context, it is assumed to be March 30, 2009)