As the industry remains crippled following hefty 2000% cess
Customs prepare draft on categorization of herbal actives for taxation

With the import of herbal actives at a standstill, the Ayurveda Department has stepped in to forward five different schedules to the Customs to form the basis for taxation as the herbal pharmaceuticals industry remain in a spin over the imposition of a hefty 2000% cess.

"We have categorized imports under five diverse sub-headings to avoid the blanket application of the cess on all products", Ayurveda Commissioner, Ms. Ramani Gunawardena said last week.

"Earlier, all these imports were listed under a single ‘HS Code’, but we have now recommended the cess be imposed on a categorized basis", she explained.

"That’s why we have submitted five schedules so that each different segment can be taxed on their individual merits and de-merits", she noted.

"Take schedule four as an example, where we have recommended that the products under this category be allowed in tax-free because there are no identical ayurveda medicines in Sri Lanka to match them", Ms. Gunawardena said.

"Neither do we have the technology to manufacture these medicines".

Such imports do not in any way constitute a threat to the local ayurveda industry, the Commissioner pointed out. "But, where we have identical products here, the cess could be applied".

She said schedule one refers to Over-the counter (OTC) Drugs, which could be taxed as medicines with similar properties that are manufactured in Sri Lanka as well.

"This is a tough job as there are thousands of diverse products to be categorized", a senior Customs official said. "Our officers are now in the process of preparing the lists".

"We don’t want to end up creating 400 sub-divisions", he explained. "That’s why each product, whether it’s a leaf, food or whatever, has to be properly classified for taxation".

He said that the Customs, as the implementing authority, will sit down with the Treasury and discuss the matter after the draft is ready. "But, tariffs are an issue for the Treasury to decide".

"The whole idea was to stop some imported balms being brought down but it has ended up with all the products caught in the net", the official pointed out. "Now it is no small job for us to sort out".

"With restrictions on legal imports, drugs brought in as personal baggage are now being sold at fancy prices in the market", says Shirantha Peries, Chairman/Managing Director, Mega Pharma, Sri Lanka’s biggest importer of prescription herbal medicines.

"This means a lot of people down the line are making a fast buck as herbal actives continue to be smuggled into the country", he asserted.

"At the end of the day, it boils down to the fact that patients have to pay exorbitant prices for herbal medicines they have depended on for years to relieve pain and suffering", Peries explained. "This is very unfair".

"We understand the predicament of importers", the Customs official said. "We should be able to sort out this issue within the next two weeks"

"A Revenue Protection Order (RPO) will then be published".

"We are due to have another round of talks with the Customs as we need to resolve this matter expeditiously", the Ayurveda Commissioner said.

"This should be taken up on a priority basis as patients are suffering", Peries suggested. "Now there is a gray market created with smugglers thriving".

The incredible tax on imported herbal actives — ranging from 400% to 2000% - was slapped without the knowledge of even the Ayurveda Commissioner — the regulator in this area.

"I should have been consulted in the first place", Ms. Gunawardena complained. "Now, I am expected to clear the mess".

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