Brewing Pressure of Taxation: Effect of Unprecedented Government Tax Increases on Performing Factory Operations of Private Tea Factory Owners in Sri Lanka

Sri Lanka’s tea industry, a significant economic pillar, is grappling with the repercussions of substantial tax increases, including a surge in corporate income tax, the imposition of a windfall tax, and a rise in value added tax (VAT). This study investigates the influence of these fiscal policies on the operational performance of private tea factories in the Southern Province, utilizing a positivism philosophy, deductive approach, and quantitative approach. Employing a case study survey with simple random sampling, data from 123 factories were analyzed using descriptive and inferential statistics via SPSS. The findings confirm a significant negative correlation between tax increases and operational performance. Increased corporate tax reduces net income and investment, leading to wage reductions and price hikes. Windfall taxes create uncertainty and raise operating costs, while VAT increases production costs and contributes to unemployment and inflation. These results highlight the broader economic impacts of excessive taxation, aligning with existing literature. Recommendations include a balanced tax approach with potential tax relief for small and medium enterprises (SMEs), targeted incentives for modernization, and alternative taxation methods to mitigate inflationary effects. A predictable tax framework and active stakeholder engagement are essential to ensure the industry’s sustainability. This study underscores the need for judicious fiscal policies that support the tea industry’s growth and resilience, safeguarding its vital contribution to Sri Lanka’s economy.