COLOMBO – Sri Lanka’s opposition legislators pleaded with the government to cut a 40% food tax on rice amid a rise in consumption and import controls that pushed up prices but has since turned into shortages due to enforcement of price controls.

The state allowed rice to be imported till December 2024 in a small concession to the public who have been battered by a currency collapse from flexible inflation targeting but did not remove the food tax.

Food taxes are imposed at high levels in Sri Lanka to protect producer lobbies keep prices above global levels and operate an autarky (self-sufficiency)

“Importers have to pay on average of about 150 rupees a kilo to Indian suppliers,” opposition legislator Mujiber Rahuman said, adding that when a 65-rupee tax is slapped at the port, the price of rice soars to 215 rupees, and the controlled price is 220 rupees.

He said the tax at 65 rupees was almost 40% of the cost. The FOB price of some par-boiled Indian rice grades is about 450 dollars (about Rs130,000) a tonne making the tax at 220,000 a tonne, almost 50% higher than the rest of the world.

Domestic rice lobbies and millers have long sold rice at the tax plus price, knowing that imports cannot give them any competition.

In addition to the tax that can at least keep up supply, Sri Lanka also places import controls.

“You charge a 65-rupee tax on rice. When you were in the opposition, you criticized the taxes charged on fuel. When you come to power you are charging a 65-rupee tax on food.

“What is the justice on that?” he questioned.

Sri Lanka has a decades-long policy of promoting economic nationalism and high food prices for the ideology of ‘self-sufficiency’ which worsened during the Rajapaksa regime.

Along with rice, alternative starches including potatoes are taxed at similar levels, cornering poor consumers and slapping them with high prices wherever they turn. Some cereals have been taxed at rates of around 300 rupees a kilo.

Maize is also taxed and under import controls, keeping protein and dairy prices high, and driving feed producers to use rice to make chicken feed.

Rahuman said in the past when imports were allowed due to domestic shortages, taxes were reduced to around 10 rupees or less.

Sri Lanka has previously cut the rice tax to one rupee a kilo amid criticism from nationalists.

Between the end of the Yala (minor season) harvest and the ramping up of the Maha (main season) harvest in Eastern Sri Lanka in late January to early February rice prices tend to go up.

Trade Minister Wasantha Samarasinghe defended the government decision saying the tax was already in place when they came into power, and that things have to be done in a planned manner. If you remove the tax there will be a problem for farmers. So we have to protect both the consumer and farmer,” he noted.

In Sri Lanka, malnutrition of children which was already high under self-sufficiency has worsened after recent currency collapses under flexible inflation targeting.

African nations that saw steep currency crises, some of which ended in sovereign default under flexible inflation targeting (in some African nations macro-economists have pushed parliaments to give them the right to print money and/or depreciated the currency to push the cost of living higher than 5%  a year as demanded in Sri Lanka), have cut import taxes on food.

Some African countries with monetary instability have chilling inflation targets as high a 9%.

Nigeria recently suspended taxes on wheat, sorghum, husked brown rice, maize and millet.

“Don’t look at the tax. At this time you cannot look at the farmer,” Chamara Sampath, another legislator said. You have to look at the consumer.”

Meanwhile, other opposition legislators said that price controls and raids were turning what was simply a rise in prices to actual shortages of rice as some shop owners avoided selling rice at prices set by the Consumer Affairs Authority (CAA) due to the inability to cover transport costs and cost of the bag.

What was earlier problem with only Nadu rice has now turned into red rice as well, they said. Price controls promoted by the CAA have got successive governments into trouble.

The National People’s Power also got the votes of layer chicken farmers who had to close down as the CAA imposed price controls, according to some farmers.

“They put the price controls when feed prices went to 16,000 rupees a bag,” one farmer said at the time.

-economynext.com