Sri Lanka has earned 4.3 billion rupees in taxes from imports of 67,000 metric tonnes of rice, reports said, indicating the extent the consumer is taxed to grow expensive rice in the country.

Sri Lanka taxes rice at 65 rupee a kilogram (65,000 rupees a tone) to keep the basic staple of the people, about 50 percent higher than the rest of the world.

The ‘tax’ paid by the consumer in the process of filling their stomachs, is ‘arbitraged’ by the paddy producing and marketing lobby.

Though the International Monetary Fund claims that the tax to GDP ratio is low, a large volume of taxes paid to keep protected businesses are ‘arbitraged’ by domestic industries who are not competitive due to years of protection.

Though the people pay the tax plus price, the money does not go to the Treasury but is pocketed by producers who have no incentive to boost yields.

Sri Lanka produced 1.65 million metric tonnes of rice in the last Maha season and 1.24 million in the Yala season, taking the total to 2.89 million kilograms.

The total tax arbitraged from customers compared to regional prices is 187.8 billion rupees for the rice sector which shows the extra money people in Sri Lanka pay to fill their stomachs. It is about 0.6 percent of GDP.

Sri Lanka is said to have been growing rice at least 800 BC and irrigation works date back over 300 BC, making rice growing one of the oldest ‘infant’ industries in the world.

Both India and Pakistan have export competitive rice industries producing globally traded grades of rice. In Sri Lanka, rice is grown for self-sufficiency or autarky, a concept that gained ground in Nazi Germany following Allied blockades of 1914-18 during World War I.

Infant industry was also taken to food by German historical economists like Adolf Wagner in the run up to full National Socialism.

“The representative literary champion of modern German protectionism was Adolf Wagner,” explained Austrian economist Ludwig von Mises.

“The essence of his teachings is this: All countries with an excess production of foodstuffs and raw materials are eager to develop domestic manufacturing and to bar access to foreign manufactures; the world is on the way to economic self-sufficiency for each nation.

“Adolf Wagner was not a keen mind. He was a poor economist. The same is true of his partisans. But they were not so dull as to fail to recognize that protection is not a panacea against the dangers which they depicted.

“Import duties for food were in their eyes a short-run remedy only, a measure for a period of transition. The ultimate remedy was war and conquest.”

Another German theoretician Karl Marx, also criticized import protection particularly in foods, saying it was to speculate on the famine of the people.

His friend and collaborator Friedrich Engels, who studied protectionism in depth, said it was an ‘endless screw’ from which there was no escape, as a political constituency was created.
(ECONOMYNEXT) 
Except for the headline, this story, originally published by ECONOMYNEXT has not been edited by SLM staff