Sri Lanka Considers High Import Taxes Amid US Tariff Pressure

Recently, the US government imposed a 30% tariff on Sri Lankan exports, effective August 1, 2025. While this is lower than the initially threatened 44%, it's still significantly higher than tariffs faced by some of Sri Lanka's competitors, like Vietnam (20%). This new US tariff puts significant pressure on Sri Lanka's crucial apparel sector, which heavily relies on the US market and is a major source of foreign income and jobs.

In response, Sri Lankan apparel manufacturers are reportedly asking the government to increase taxes on imported clothes by 300% to 400%. They are already thrilled that the government is imposing taxes on goods imported through online platforms like Temu and AliExpress. They hope this move will encourage Sri Lankans to buy locally made clothes. The Ministry of Industries seems to support this idea. If this tax hike goes through, you could end up paying an extra 300 to 1,200 rupees per imported clothing item.

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A Conflicting Stance

Critics point out the contradiction in Sri Lankan clothing manufacturers complaining about taxes on their products in other countries (like the US) while demanding much higher taxes on imports here at home. This kind of tax imposition could also affect ongoing discussions with the US to reduce their tariffs. These manufacturers are also asking for further discussions with the US to reduce the tariff.

Even the International Monetary Fund (IMF) suggests removing such import taxes. The IMF believes these taxes actually hurt Sri Lanka's ability to export goods. As the saying goes, "a tax on imports is a tax on exports."

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Lessons from History

In 19th-century Britain, industrialists fought to remove taxes on imported food. They argued that expensive food meant workers needed higher wages, which in turn made British manufactured products more expensive and harder to export. When food was cheaper, people had more money to spend on other things, contributing to economic growth.

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Benefits of Free Trade

When imported goods are cheaper, people have more money to spend on other things like travel, entertainment, or services. This creates new jobs and businesses in various sectors. That's why countries embracing free trade are generally more prosperous, with lower taxes creating more jobs. In contrast, countries that rely on protectionism often fall behind.

#SriLankaEconomy #ApparelTrade #ImportTaxes #EconomicPolicy #MadeInSriLanka

Neoliberal tax concessions boomeranged on Sri Lankan economy; minus growth now - Champika Ranawaka

Sri Lanka Opposition Samagi Jana Balavegaya MP Champika Ranawaka said that the government of President Gotabaya Rajapaksa had failed to deliver the promise of making a prosperous economy.

"On December 1st 2019, the government introduced a neoliberal tax concession to the wealthy businessmen. They expected fast economic growth through this action. But the stimulus boomeranged and economy recorded minus growth even before COVID-19," MP Ranawaka said.  

"Deposits declined while fiscal state collapsed and economic statistics are contradictory. Census and Statistics Department announced the growth rate in the first quarter by 31 March as minus 1.6. They have failed to present the growth rates in the second and third quarters. Central Bank of Sri Lanka anticipates a minus 1.7 growth. But Ministry of Finance tries to show growth," the former Minister added. 

"Fraudulent statistics cannot cover the fiscal and debt crisis and the economic crisis. All sectors of the economy including agriculture, industry and services record minus growth. COVID-19 is not the reason," Champika Ranawaka said.

 

The reality of rise of per capita in come of Sri Lanka

(February 23, Colombo - Lanka Polity)   Sri Lanka government has proudly announced that the per capita income has risen from $ 2200 to $2300 from 2008 to 2009.

Accordingly, if the national income is distributed equally, each Sri Lankan irrespective of age must have a share of Rs. 240,000 annual income. That simply means Rs. 20,000 monthly income and a family that has four members must earn Rs. 100,000 per month.

But the data released by the state relates a different story.

According to the Ministry of Social Security and Social Welfare, there are 350,000 recipients of concessions provided to extremely poor people of the country. This allowance is yet to be raised to Rs. 1000 a month. These people are subjected to live with 1/3 of a dollar per day.

Sri Lanka government provides 'Samurdhi' poverty concessions to low income groups. The Deputy Minister of State Revenue and Finance Ranjith Siyambalapitiya said in the parliament on May 05, 2009 that the number of Samurdhi recipients were 1,672,159 in 2008. He further stated that by 2007, there were 452,000 families that earned less than Rs. 6283/= per month. This is well over 5% of the population of Sri Lanka. This is the social strata that is in extreme poverty. What about the lower middle class? They too complain about a miserable life due to lack of income.

Sri Lanka government can boast about the increase of per capita income. But if the income does not distribute fairly and if the disparity widens, that means a bunch of affluents in social elite have robbed the national wealth pushing the masses further in poverty.

War cost country Rs 23 trillion – Siyambalapitiya

We re-publish this article by Mario Andree (The Island) since the facts and the arguements in it are vital. Thanks go to the writer and the newspaper. 

Deputy Finance Minister Ranjith Siyambalapitiya said that the Government had spent a total of Rs 23 trillion on the three-decade war. 

This works out to Rs. 920 billion per year in the 25 years of war, which is now a saving for the government in addition to the targeted revenue budget per year.

The 2009 targeted revenue was Rs. 855 billion, and the government spends only around Rs. 2 billion on ministers, and Rs 278 billion on development.

According to the previous situation, compared to the current, the tax and price situations have not changed but have increased.

The expenditure towards war can be used for the benefit of the citizens by reducing taxation and prices of daily needs as the expenditure towards war is a balance after the liberation.

He also told the media on Sunday that the policy statement of Gen (Rtd) Sarath Fonseka is an impossible statement to be implemented in the current situation. To provide some of it, an additional funding of Rs. 350 billion will be required apart from the yearly targeted budget.

These statements’ implications definitely will lead to a high amount of currency circulation within the country which will increase the inflation rates of the country leading to a catastrophe of the livelihood, he pointed out.

He also said this is possible with the high tax amounts charged from the public. An amount of Rs. 1,500 will have to be additionally charged from individuals of the country.

Fonseka’s statement

The policy statement states a salary increment of Rs. 10,000 for all government servants.

This would mean that for a staff of 1.2 million the total salary payment would be increased by Rs 144 billion from the treasury, adding another 10 billion on payments of over time and EPF, Minister Siyambalapitiya pointed out.

The media team of President Mahinda Rajapaksa announced a salary increment of Rs. 2,500 for public servants on on Sunday. This will also need an additional funding of Rs. 36 billion, adding another 2.5 billion for other payments.

"With no proper production and value additional developments, will there be a possibility to provide such increases stated in Fonseka’s Policy Statement?" Siyambalapitiya asked.

The restructure of the pension anomalies will for the increase by Rs. 25 billion, yet according to Fonseka’s policy how this is done is unclear and unstated anywhere in his statement, Siyambalapitiya said.

The minimum Samurdhi benefit to increase to Rs. 500 will need an additional funding of Rs. 5 billion, also 98 billion to provide a Rs. 2,000 monthly payment to the youth and the senior citizens and Rs. 900 million to provide the Rs. 3000 to the estimated unemployed 25,000 degree holders with a Rs. 3000 monthly payment, Siyambalapitiya said.

There is also a further requirement of Rs. 30 billion to provide the fertilizer at Rs. 350. Currently, urea is provided at Rs. 350 while the actual amount is Rs. 9,000, this expense is unnecessary as the agriculture segment is gaining at a rapid pace, Siyambalapitiya said.

He has also stated Rs. 27 billion will be needed to pay all Golden Key investors.

Tax benefits

Sarath Fonseka’s policy statement also states the reduction and removal of some taxes on some food items.

Currently rice has no tax charge, the dhal and sugar tax is at Rs. 1 per kg, onions and potatoes are charged at Rs. 5 per kg.

The tax is to protect local producers. If the tax is removed, they will be in a drastic situation.

The reduction of tax on household LP Gas; the current tax is Rs. 108.75 per 12.5 kg cylinder, the total consumption of the country per year is at 850,000 cylinders the reduction will cause a 1,100 million decline of the state revenue, Siyambalapitiya said.

The reduction of petrol prices, as proposed by the court. It was suggested that petrol is supposed to be supplied at Rs 100 per litre. If this is activated, the government will lose Rs. 31,925 million.

Currently, Siyambalapitiya said the government gains Rs. 22,000 million from diesel, Rs. 550 million from kerosene oil and Rs 9,375 million from petrol.

Totally the government will have to lose 350 billion by providing the promises in Sarath Fonseka’s Policy Statement. The reduction of some taxes will lead to high increases in other taxes which will not suit the Sri Lankan Citizens, Siyambalapitiya said.

Implementing the salary increment announced by the current government would also lead to a tax increase or introduction of new taxes.

The Deputy Minister of Finance strongly stated that he would resign from his position the second Sarath Fonseka or his team proves how he is going to find the funds without heaping burdens on the people by increasing or introducing any other taxes.

Sri Lanka's food imports up despite government rhetoric on self-sustenance

(November 12, Colombo - Lanka Polity)  Rhetoric of the Sri Lanka government to achieve self-sustenance through a a new green revolution named 'Let Us Cultivate and Develop the Country' is highly contrasted with some of the statistics revealed in the parliament last week.

According to information revealed in Sri Lanka Parliament by the Minister Bandula Gunawardane last week in response to a question by People's Liberation Front (JVP) MP for the Anuradhapura district Ranaveera Pathirana, the government imported 52,800,209 kilos of milk food accounting for 89.1 percent of local demand in 2005, but this amount had seen an increase up to 62,518,062 kilos last year.  It was 90 percent of the local requirement.

The country had imported 57 percent of its potato requirement in 2008, and it had been a sharp rise against 33.9 percent imported in 2005. In 2006, the government had imported 37 percent of the country’s potato requirement and 52.6 percent in 2007.

Big onions had recorded an import growth of 71.9 percent in 2008 in terms of local requirement, against 60.4 percent in 2007, 61.9 percent in 2006 and 66.6 percent in 2006.

In contrast to attempts to boost local agriculture, Chillie imports had also registered an increase, as a percentage of the local requirement, from 72 percent in 2007 to 73 percent last year. In 2005, the country had imported only 67 percent of its Chillie requirement and 69 percent in 2006.

However, the Trade Ministry information revealed that the sugar import had declined to 92.7 percent last year from 93.3 recorded the previous year.  The sugar import was 89.6 percent of the local needs in 2005, and 90.4 percent in 2006.

Asked for the reason for this situation, the Minister said the demand had risen locally leading to the increase in imports. He also put the 300,000 plus internally displaced persons from Tamil dominated Northern Province in account of this increase stating that their consumption was restricted earlier when they were in the clutches of the Tamil rebels.