Grey Market Imports in Sri Lanka: A Growing Concern for the Economy and Legitimate Imports

The International Monetary Fund (IMF) recently stated that avoiding new tax exemptions will not only reduce corruption risks and fiscal revenue leakages but also ensure a more predictable and transparent tax system in Sri Lanka.

An IMF mission team, led by Senior Mission Chief Peter Breuer, visited Sri Lanka from July 25 to August 2 to discuss recent macroeconomic developments and progress in implementing economic and financial policies under the authorities’ economic reform programme, supported by the IMF’s Extended Fund Facility arrangement.

However, unauthorised grey market imports continue to pose a significant threat to the country's tax system.

The practice of importing branded products without the consent of trademark owners, known as grey market or parallel imports, has resulted in substantial losses in tax revenue. The exact financial impact remains uncertain due to the undiscloused nature of these transactions.

Legitimate businesses are at a disadvantage, unable to compete with the lower prices of grey market goods. These goods bypass legal importation channels, evading taxes and tariffs, and are therefore sold at reduced prices. This creates an uneven market where authorised distributors and retailers struggle to maintain their market share.

While consumers may initially be attracted by the savings offered by grey market products, they may incur higher costs in the long run. Grey market products often lack warranties and after-sales support, leaving buyers with limited options if issues arise. Market experts emphasise the need for a comprehensive strategy to combat these imports, focusing on regulatory enforcement, consumer education, and support for legitimate businesses.