Government releases new interim trade and customs tax policy framework as part of COVID-19 Economic Revival Plan

By Chandani Kirinde

As part of its efforts to revive the economy and reduce the COVID-19 impact, the Government yesterday eased import restrictions on several product categories linked to exports and production of import substitution goods but retained the ban on vehicles.

The interim trade and custom based tax policy framework, which is part of the COVID-19 Economic Revival Plan of the Government was released yesterday 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 Thursday.

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.

“The main thrust of the Government strategy is to create an export-oriented production base while facilitating domestic import substitution industries, which should also aim at strategy going beyond local market over the medium term,” it said.

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%.

The new policy allows rubber manufacturing companies to import latex and raw rubber provided they purchased 50% or more of local supply, to encourage local rubber cultivation. According to the economic revival plan, the Special Commodity Levy will be maintained for sugar and sugar substitutes, milk powder, and canned fish to encourage local production.

The new guidelines as listed in the letter are as follows.

*Imports for exports on No Foreign Exchange basis is allowed strictly under Board of Investment (BOI) Export Development Board (EDB) and Customs supervision.

*Imports for exports, using domestic foreign exchange market, are permitted provided value addition of an average of 35% (based on India-Sri Lanka’s FTA) except selected industries, like electronics, where value addition may be around 20% but value of industrialisation strategy is high and such materials are not available locally. Then foreign exchange earnings from exports are surrendered to the Sri Lankan banking system within two months from the date of export with the BOI, Sri Lank Customs, EDB, Tea Board and Ministry of Plantation Industries and Export Agriculture monitoring and enforcing the guidelines.

*Import of agriculture produce to be restricted/banned except for those items which are subjected to Special Commodity Levy (SCL). The SCL will support guaranteed prices recommended by the Ministry of Agriculture or Ministry of Plantation Industries. Agriculture items not produced in Sri Lanka but considered important in term of availability for local households, high-end tourist and consumers to be liable to SCL. These include lentils, kiwi fruits, and apples.

*Import of ethanol to be banned. Import of palm oil to be restricted. High quality coconut oil to be imported under SCL. High quality ethanol imports by State Pharmaceuticals Corporation to be allowed.

*Import of required raw materials for the manufacture of cement, steel, plastic and ceramics to be imported, subject to standard duty, Cess, whichever is logical and under credit arrangements. Bulk import of cement will be subjected to specific duties to encourage local value addition.

*Raw material required for the production of incense sticks, fragrances, flavours, etc., for local cosmetic and similar industrial products to be allowed, subject to Cess, duty, whichever is appropriate in terms of relevant tax structures.

* Import of raw materials for local manufacturing activities to be permitted, provided domestic value addition is at least 30% and foreign exchange savings from import replacement activity should be higher than the value of import of finished products.

*Foreign investment projects in fruit drinks and canned products relying on import of foreign fruits should be based on foreign currency earning basis and should require purchasing local fruits. BOI and EDB are required to pursue such investors and factory owners to increase local fruits.

*Rubber manufacturing companies will be permitted to import latex and raw rubber, provided they purchase 50% or more of local supply at 25% higher than international rubber price to encourage rubber cultivation and tapping.

*Import of items for the telecommunications industry to be allowed, subject to applicable taxes and TRC regulations.

*Import of IT equipment and computer accessories, mobile phones and electronics are to be permitted to promote local assembly industry and IT-related businesses.

*Furniture imports other than exclusive furniture for flagship projects to be banned.

*Project-related imports for flagship projects are to be imported using foreign funds raised by investors abroad. BOI should ensure such investors will not borrow from Sri Lanka’s banks during the project completion period and until commercial operations begin.

*Material imports for the plastic industry for packing industry to be closely monitored. Required import items to be carefully placed to promote local packaging industries with environmental standards.

*Aluminium products other than those for construction industry to be restricted. Raw materials required for aluminium manufacturing industries to be allowed, subject to credit arrangement.

*Temporary Import for Export Processing (TIEP) currently in operation in Sri Lanka. Customs duty should be implemented, given the value of exports exceeds value of imports by at least 35% and export proceeds should be surrendered to banks within 60 days from the date of exports to promote SME credit export businesses and promote local supply chain.

*High-value branded items, beverages, etc., will be kept at lower duty rates, recognising 10% PAL and 8% VAT apply to such goods.

*SCL will be maintained at high level on sugar and sugar substitutes, milk power and infant milk products, and canned fish to encourage local produce.

*Cement, palm oil and sugar imports are to be subjected to a maximum of six months credit raised outside Sri Lanka.

*Import of pharmaceutical products, related raw materials, seed and planting materials, fertiliser, and fuel will be allowed.

*Petroleum product imports (crude oil, refined petroleum, bitumen, lubricant oil, etc.) will be liable to standard excise taxes and price advantages to be credited to the Petroleum Price Standardisation Fund.

*Import of motor vehicles, including motor cars and three wheelers, etc., to be suspended other than the agriculture, services, and construction-related vehicles.

*Goods that have arrived for payments for LCs and other are documents opened after the suspension of imports will be cleared, subject to payments of relevant duties.

* Import of project-related capital and consumables, approval granted under Section 17 of the BOI Act, should be funded through external funding (EDI).

*For payment for LCs and other trade documents which have not been made, credit arrangements from suppliers would be required.

Courtesy:Daily FT