Wage Hike and New Taxes Imperil Ceylon Tea

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Photo credit: Rainforest Alliance

According to tea industry leaders, a government-mandated wage increase for tea workers will make Sri Lanka's tea exports uncompetitive, and an 18% VAT (value-added tax) will increase the domestic price of tea by as much as 36%.

The 70% salary increase to LKRs 1,700 (about $5.63 per day) will boost production costs by 45%. Due to inflation, the price of tea in supermarkets has already spiked to between 550 and 1,400 rupees for a 500-gram packet.

Mlesna Tea founder Anselm Perera said the government’s “ad hoc” policies will significantly impact the sector and consumers. The wage hike is “arbitrary and reckless,” he said. He was one of seven industry leaders representing traders, planters, smallholders, and brands who convened the media briefing.

Collectively, the panel asserts that the Ceylon Tea brand faces irreparable damage.

Spokesman Roshan Rajadurai of the Planters’ Association of Ceylon (PA) said boosting wages by 70% “will place an enormous burden on the Regional Plantation Companies (RPCs), which will face an annual increase in excess of SLRs. 35 billion, inclusive of the EPF/ETF and gratuity payments.”

Regional Plantation Companies (RPCs) and the Sri Lankan State Plantations Corporation (SLSPC) currently pay workers LKR 1000 a day. The new base wage raises that to 1350 rupees a day, plus a 350-rupee special daily allowance and 80 rupees for every kilo of raw leaf above the minimum 22 kilos.

Sri Lanka’s labor commissioner announced the decision on May 27, saying the increase is necessary to offset the country’s much higher cost of living following a two-year financial crisis. Additional wages are needed to pay high-interest loans and provide essential foodstuffs and school fees. Sri Lanka’s tea industry employs 2.5 million workers whose livelihoods are tied to tea.

Tea was previously exempt from paying the 18% VAT. “People often complain why it is so expensive when it is grown here,” said Perera.

T. M. Sandaruwan, representing the Tea Smallholders Association, told Asia News that production costs average 230 rupees per kilo. “The cost of fertilizer, wages, and other expenses, including administration charges, is more than the amount we generate. So, how can we increase wages? It is impossible,” he said.

The island annually exports about 95% of the 250 million kilos of tea it produces.

Rajadurai told the gathered reporters that the wage mandate is unsustainable and unfair. He said this decision was made without proper consultation and will result in declining quality. Planters advocate a wage model linked to productivity and a fixed percent of the auction price to encourage quality.

He said Sri Lanka's key rivals, India and Kenya, have lower prices and higher productivity.

Ceylon tea enjoys a $2 premium because of its quality, but production volume has declined by 100 million tons over the past decade. The country exported more than a billion dollars worth of tea in 2023.