The Hindu : `Discriminatory sales tax on imports will affect investments'

Online edition of India's National Newspaper
Wednesday, May 28, 2003

Southern States

Southern States - Tamil Nadu

`Discriminatory sales tax on imports will affect investments'

By Our Special Correspondent

CHENNAI May 27. The discriminatory sales tax on imports levied by the Tamil Nadu Government is proving a hurdle to development of bilateral trade and investment cooperation, said Mineka P.Wickramasingha, industrialist and pro-tem chairman of one of the regional economic development commissions being set up by Sri Lanka.

The discriminatory tax was not only violative of the basic principle (viz, national treatment of duty-paid imports) of international trade and the World Trade Organisation, but was also likely to affect investment prospects in Tamil Nadu, Mr Wickramasingha said.

Talking to presspersons here today, he pointed out that manufacture normally followed trade. If a manufacturer found that there was a good market for his products in another country through established experience of exports to that country, he would venture into manufacturing in the importing country itself. The Tamil Nadu tax, by making imports costlier than warranted by the normal tariffs levied by India, would thus prove a disincentive for potential investors.

Mr. Wickramasingha said a whole range of food products from Sri Lanka had been affected. The tax (which, in effect, gives at the State-level a tariff protection of up to 12 per cent to domestic manufacturers over and above the import duties levied by the Centre) raised the cost of imports distributed through trade channels.

The imports had to bear, besides the Centre's import duty and State sales tax, special additional duty of customs, shipping freight and port handling and clearing charges, which tended to be higher in India than elsewhere, he pointed out.

Mr. Wickramasingha, who is here in connection with the launch of a product by his own company, which operates a biscuit manufacturing unit, said Sri Lanka was keen on expanding investment both ways. The proposed five regional-level economic development commissions (for which legislation had been passed by Sri Lanka, but is awaiting gazette notification) would have private sector industrialists such as him as their head to promote investment and economic development in the respective region.

The regional bodies, including the one for the southern region of Sri Lanka, which he was heading, would become more effective than the Board of Investment of Sri Lanka now operating at the federal level. Sri Lanka was also thinking of setting up a mission here for promoting investment, Mr Wickramasingha said.

He felt that garment manufacturing in which Sri Lanka was specialising at present to penetrate global markets was not the best choice for promoting investment. Garment units (based on imported raw material and targeted at global markets) tended to be "sweat shops". His emphasis would be on investments, which could add value to Sri Lanka's own produce such as spices, tea and rubber.

Indian industrialists were interested in investing in edible oil extraction, hotels and tourism and power generation in Sri Lanka. Meetings would be held with prospective Indian investors shortly, he said.

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