Treasury Secretary Mahinda Siriwardana has announced the development of a national tariff policy aimed at fostering an export-oriented economy, pending approval by the cabinet.
Sri Lanka, burdened by high import duties and para-tariffs such as port and airport levies, along with an 'export development' cess, faces challenges in cost competitiveness, particularly for imported raw materials.
This situation has restricted export competitiveness to firms within Board of Investment (BOI) zones, which enjoy tax-free imports.
"The tax structure to support exports and investment is also being facilitated, particularly with the phasing out of para-tariffs such as PAL and Cess which have in the past added to cost of raw materials and intermediate inputs which undermined Sri Lanka’s competitiveness," said Siriwardana during a presentation at the Finance Ministry on April 08.
He highlighted how these para-tariffs contributed to an anti-export bias, diverting resources away from globally competitive sectors. The reforms to the tariff structure, aimed at supporting an export-oriented economy, will be outlined in the National Tariff Policy, set to be approved by the cabinet in the near term. The gradual phasing out of para-tariffs is part of this strategy.
Import duties have hindered spontaneous export diversification, with domestic firms outside BOI zones facing significant challenges in achieving export competitiveness. As a result, they struggle to establish connections with foreign buyers and adapt to global market demands. Instead, they often resort to lobbying for import protection, using state coercion to limit consumer choice and inflate prices.
Concerns have been raised about the impact of high import taxes on building materials, driving up construction costs and hindering services exports. The affordability of housing has become a growing issue, potentially contributing to a brain drain as many wage earners find homeownership unattainable due to these taxes.
In contrast, countries like Vietnam swiftly embraced trade liberalization, leading to economic growth and improved living standards. Farming liberalization in Vietnam notably addressed childhood malnutrition and resulted in taller younger generations compared to those born during the era of self-sufficiency and monetary instability.
Sri Lanka's experience with import taxes and controls on commodities like maize has led to increased costs for essential goods such as poultry, milk, and eggs. The transition to an export-oriented economy, coupled with monetary stability, remains a pivotal goal for Sri Lanka's economic future.
