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Sri Lanka 13.02.2024

Sri Lanka's Dairy Sector Urges Government to Reconsider VAT Increase

Source: The DairyNews
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The All Island Dairy Association (AIDA) is calling on the Sri Lankan government to reconsider its decision to increase the Value Added Tax (VAT), warning of potential severe repercussions for the dairy sector.
Sri Lanka's Dairy Sector Urges Government to Reconsider VAT Increase
In a statement, AIDA highlights that the VAT hike, aimed at broadening the tax base, could jeopardize the profitability of the sector, contradicting the government's goal to boost dairy production by 53%.

Previously, fresh milk production and related products were VAT-exempt, providing crucial support to around 300,000 small-scale farmers and over two million dependents in the sector. AIDA points out that the sector, which saw significant growth from 2017 to 2021, is facing a precarious situation, with a 1.33% decline in 2022 indicating sensitivity to economic fluctuations.

The AIDA warns that the VAT increase would exacerbate vulnerability, leading to a pronounced decline in production and real income losses for farmers. Between 2013 and 2022, the cost of producing a liter of milk surged by 174%, with retail prices following suit, increasing by 168% in the same period.

The association expresses concern that the additional burden of increased VAT could strain the affordability of dairy products, potentially leading to a decline in consumption. This, in turn, could have dire consequences for public health, especially among vulnerable groups, intensifying the nation's existing malnutrition problems.

While the AIDA is not wholly against the VAT, it suggests a gradual rollout with support measures to allow the sector to adjust and ensure relief for essential inputs. The association proposes facilitating the import of feed ingredients to enhance productivity and reduce local production costs. Strengthening cooperatives and promoting the production of value-added dairy products are also recommended to improve profitability within the sector.

The AIDA emphasizes the importance of proactive monitoring and consumer awareness initiatives, suggesting the Animal Production and Health Department take responsibility for tracking the VAT's impact, recommending policy adjustments, and conducting consumer awareness campaigns. These recommendations aim to safeguard the interests of the dairy sector and ensure sustainable growth amid the proposed VAT increase.

AIDA's members, key stakeholders in Sri Lanka's dairy sector, contribute to the collection of nearly 60% of the nation's daily milk, processing 200 to 250 million liters of fresh milk annually.
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