Cabinet approves Govt. interim tax framework

• Businesses hit by tax changes can appeal to Treasury Secy only via email 
• Cabinet spokesman says new framework was needed as country facing forex challenges 
• Says focus on creating an economy dependent on local producers 

Sri Lankan companies hit by the Government’s latest interim trade and customs taxes can appeal to the Treasury Secretary via email, a top official said this week after Cabinet approved the new framework.  

Prime Minister Mahinda Rajapaksa in his capacity as the Finance Minister presented the interim trade and customs based tax policy framework to the Cabinet, prepared in accordance with the recommendations of a committee on Interim Trade and Customs based Tax Policies, appointed by President Gotabaya Rajapaksa.

Under the latest framework essential items can be imported as normal, without limits, selected items can be imported by paying the percentage of taxes levied under the Special Commodity Levy, items imported by the supplier on Letters of Credit for more than 90 days, and selected import items such as vehicles that have been temporarily suspended. 

“Cabinet approval was given to publish the Gazette notification presented considering the limitations of foreign exchange in the country under current circumstances and with the objective of building a national economy,” Cabinet spokesman Bandula Gunawardena said.

“If entrepreneurs have any questions, they should send their issues to the Treasury Secretary but only via email,” he added. 

The Cabinet spokesman acknowledged that the new taxation framework had to be introduced as Sri Lanka is facing “the worst foreign exchange crisis in history” and therefore needed to carefully select items that were essential for the functioning of the economy. He assured that the Government was working to set up an economy that was more self-sufficient as a response to the challenge. 

The interim trade and custom based tax policy framework, which is part of the COVID-19 Economic Revival Plan of the Government, was released on 22 May and will see imports of motor vehicles, including motor cars and three-wheelers continue to be banned along with imports of ethanol, furniture, and aluminium products among others. 

The interim guidelines aimed at revising Sri Lanka’s external trade and customs-based tariff policy was sent to Customs Director General Major Gen. (Retd.) Vijitha Ravipriya by President’s Secretary Dr. P.B. Jayasundera on 21 May. 

In the covering letter, Dr. Jayasundera said the guidelines provide a framework based on which the Customs can make decisions while adhering to the policy thrusts and guiding principles prioritised by the Government. 

Under this policy, local import substitution industries, such as cement, steel, furniture, ceramics and other products needed for the construction industry must be encouraged to meet the demand of flagship investment projects, such as the Port City construction, Hambantota Economic Zone, and other industrial zone requirements, including food and other needs of workers. 

The guiding principles of applying this policy framework is to reduce pressure on the foreign exchange market to stabilise the exchange rate, increase domestic value addition, and give better value to agriculture production. They will also seek to maximise efforts to link domestic supply chains to reduce import dependency and improve the capacity and competitiveness of domestic industries, the document noted. 

Under the new policies, imports of agricultural produce will be restricted except for those items which are subjected to Special Commodity Levy. Agricultural products not produced in Sri Lanka, such as kiwi and apples, can be imported but will be subject to the Special Commodity Levy and should target tourists.

The import of palm oil will also be restricted, while raw materials for the manufacture of cement, steel, plastic and ceramics would be subjected to standard duty. Import of raw materials for local manufacturing activities will be permitted provided domestic value addition is at least 30%.