Damage Control

Mar. 27 (LBO) – Sri Lanka may impose a cess of up to 10 percent on imports to plug a loss in tax revenues, when import tariffs are lowered in April under the Indo-Lanka free trade deal. “Cesses will be used in the future to mitigate the negative impact of the increased preference for imports from India and Pakistan to maintain the tax revenue from imports at an acceptable level,” Lal de Mel, Co-Chair of Sri Lanka’s Tariff and Trade Cluster, told LBO on Monday.

Sri Lanka’s bilateral trade agreements with both India and Pakistan allow for a phasing out of tariffs over a eight year period, for goods that are not on a sensitive list.

Under the Indo-Lanka Free Trade Agreement, tariffs are to come down to not less than 70 percent of the general customs duty rate in April this year and by 30 percent on imports from Pakistan, in July.

That means, for imports of finished goods from India, tariffs will drop from 28 percent to 8.40 percent and from 2.5 percent to 0.75 percent for industrial raw materials and machinery.

“For most consumer goods, that brings down the tariff rate to about 8.4 percent, which is a 10 percent drop in tariff revenues and the government cannot afford that,”