Government revises import duties
Sri Lanka is gearing up for a series of tax changes aimed at bolstering local trade and industries ahead of the 2025 budget, with a key focus on increasing government revenue.
These reforms have been in motion since January 2023, when the country began phasing out para-tariffs on imports.
Major shifts include the gradual elimination of the Customs Excise and Cess (CESS) levy, set to be fully removed by 2026, and the Ports and Airports Development Levy (PAL), which will be phased out over five years until 2028. Notably, exceptions remain for solar panels and inverters, Finance Ministry sources revealed.
One significant development is the introduction of a value-added tax (VAT) on digital services, with the elimination of income tax exemptions on service exports.
Additionally, the social security levy, currently applied to sales, will be replaced by VAT. Companies in sectors such as alcohol, tobacco, and gaming are set to face higher corporate income taxes, with rates rising from 40 to 45 per cent, effective January 2025.
In another measure, a tax on the imputed rents of owner-occupied and vacant homes will begin in April 2025. The International Monetary Fund predicts these tax changes, coupled with the resumption of vehicle imports, will generate annual revenue equivalent to 1.5 per cent of Sri Lanka’s GDP.
The Cabinet of Ministers this week approved a series of import duty adjustments aimed at various sectors, including brown sugar, footwear, and electrical machinery, plastics, and rubber raw materials.
One of the reforms focuses on reducing import duties on items such as baby and adult diapers, which will benefit consumers by lowering costs. New tax measures are also being introduced to encourage plastic recycling and minimise plastic usage.
Furthermore, new Customs codes will promote the export of palm products and help differentiate electrically operated toys and long pepper, a key ingredient in traditional medicine.
Tax revisions will also simplify the process for exempting CESS levies on raw materials used in local medicine production.
These reforms will be implemented through ordinances under the Revenue Protection Act of 1962, the Export Development Act of 1979, and the Special Commodity Levy Act of 2007, among others.
Sri Lanka’s main trade policy tool, import tariffs, remains a critical part of the tax structure. Goods imported into the country are subject to various taxes, including Customs Duty, VAT, Excise Duty, and the Ports and Airports Development Levy, with rates following a simplified three-tier tariff structure.
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