Who's stealing baby diapers?

By  D A Jayamanne

Originally appeared on the Sunday Times

Last month, the Lady Ridgeway Hospital in Borella made a public appeal for help with a shocking revelation: Distressed parents of sick babies are resorting to stealing diapers.

“Each day around three to five heart operations are carried out on little ones from all parts of our country free of charge” wrote Dr Shehan Perera, a child heart specialist at Lady Ridgeway. “Once a child is admitted to the intensive care unit, the parents are requested to provide pampers for the child — about 4-10 pampers per day, sometimes for two weeks or even longer” He explained.

In Sri Lanka, baby diapers are expensive. Depending on the brand, a diaper retails at about Rs 45 – 60. For poor parents with children in hospitals, this is a serious burden. The hospital was asking for help to finance a monthly requirement of 4,000 diapers.

When the appeal hit social media, concerned citizens donated more than Rs. 200,000 to the hospital to buy diapers. The parents’ plight clearly resonated with people, particularly parents of young children.

Other parents certainly know the pain. Traditionally restricted in use, disposable baby diapers are now a more commonplace item. For working parents, it’s almost a necessity. Diapers helps keep babies clean, and ensure parents and babies at least somewhat of a good night’s sleep. If you are a young parent, diapers will be certainly on your shopping list each time you go to the supermarket.

The diaper bill quickly adds up to become a significant chunk of the monthly budget. A baby tends to run through about four to seven diapers a day. For a typical family, the cost works out to about Rs. 6,000-10,000 a month.

The diaper bill would have been lower had it not been for the more than 60 percent tax the government levies on imported diapers.

Most diapers are imported, even the diapers sold under Sri Lankan brands are manufactured in China with minor work done here. This punitive tax means it is cheaper to buy diapers in Singapore or the United States rather than Sri Lanka. A casual look through retail prices of the same products through online stores reveals the difference.

At the time of writing, the Drypers brand, popular in East Asia, retails at less than Rs 30 in Singapore, whereas the same product is sold at Rs. 57 in Sri Lanka. Pampers, a leading brand, retails at about (SL) Rs 32 in India and Rs 33 in the United States but in Sri Lanka, the Indian brand is sold at Rs 50 and the U.S. version at over Rs 60.

Put another way, for every three diapers bought, the Sri Lankan Government is ‘stealing’ at least one of them.

The ridiculously high diaper tax is a combination of high border and sales taxes. This includes duty, sales tax and “para tariffs” — a kind of tax-on-tax that seems small, but compounds when calculated. According to work done by Advocata institute, diapers are liable for 30% duty, on top of which a 7.5% Port and Airport Development Levy (PAL), 15% Value Added Tax and 2% Nation Building Tax are charged, bringing the total tax component of a diaper to 62%.

All this means that there is a cottage industry of sorts that sources grey market diapers and sells it through social networks. Yes, diaper smuggling is a thing, at least in Sri Lanka.

This should be more of a scandal. In the United States, a movement has sprung up to abolish the diaper taxes. Yet the total tax that has caused much outrage ranges from 3 to 7% of sales taxes — a miniscule figure compared to what it is imposed here. Some states in the U.S. have already made tax exemptions.

So why on earth is the Sri Lankan government taxing diapers at exorbitant rates? The main reason is that border taxes have been a convenient way to raise revenue for the government.

Stuck with a small direct tax base and large spending commitments, successive Sri Lankan governments have used these border taxes as a revenue raising measure. This means that all manner of products are taxed heavily at the border. Allied products such as Tampons and sanitary pads are taxed even higher, at rates of more than 100%.

Economists have long advocated the abolishing of the complex para tariff system in Sri Lanka and moving towards a low uniform tariff structure. While the government has agreed in principle, the movement towards this is stifled by revenue concerns and at times, because of lobbying by local industry to keep its margins at the expense of the consumer.

In moving towards the goal of low tariff uniformity, diaper taxes should lead the way. Whilst the VAT maybe reasonable to apply for the sake of tax uniformity, other border taxes should have no place in a country that’s trying to encourage women to participate more in the workforce and promote upward mobility. With no major local producers to speak of, the government likely wouldn’t encounter any major opposition.

To be sure, abolishing the diaper tax might not mean that they become affordable to those suffering at the Lady Ridgeway hospital. Community driven “Diaper banks” have proven useful for low income parents in other countries and perhaps can be adopted here. Other solutions should be experimented.

Cheaper diapers, however, would make everyone’s life much easier. The diaper tax is a tax on choice and upward mobility, and on young families and working mothers.

Like all border taxes, it’s regressive, so that the least well off pay the most as a share of their income. It should have no place in a forward looking country. The Government should stop stealing baby diapers.

(The author is a fellow at the Advocata Institute, a free market think tank based in Colombo. His diaper duties began ten months ago.)