Includes information on average tariff rates and types that U.S. firms should be aware of when exporting to the market.
Tariffs and Taxes
Sri Lanka’s most-favored nation (MFN) applied tariff rate for agricultural products averaged 26.9 percent, and its MFN applied tariff for non-agricultural goods averaged 6.3 percent in 2017. However, Sri Lanka’s simple average World Trade Organization (WTO) bound tariff rates are generally much higher, and most products do not have their rates bound, which gives Sri Lanka flexibility to increase the rates.
Sri Lanka uses import tariffs as their main trade policy instrument. In November 2017, Sri Lanka Customs adopted the WTO’s new Harmonized Commodity Description and Coding System in its tariff schedule. There are currently three import tariff bands: 0, 15, and 30 percent. Generally, raw materials are at zero percent, intermediate goods are at 15 percent, and finished goods are at 30 percent. Additionally, some items, such as some agricultural products, are subject to an ad valorem or specific tariff, whichever is higher. In addition to the import tariff, supplementary taxes and levies on imports, taken together with tariffs, commonly total 100 percent or more of the value of some food and consumer goods, making them prohibitively expensive to import and sell. The 2017 and 2018 government budgets removed certain supplementary taxes on several items. However, supplementary taxes still exist for a wide range of items, sharply raising their prices.
The Export Development Board (EDB) levy, often referred to as a “cess,” ranges from 10 percent to 35 percent ad valorem on a range of imports identified as “nonessential” or as competing with local industries. Further, when calculating the EDB levy, an imputed profit margin of 10 percent is added to the import price. With some products, such as biscuits, chocolates, and soap, the levy is charged not on the import price but is charged instead on 65 percent of the maximum retail price.
A Ports and Airports Development Levy (PAL) is also applied on most imports. The government revised PAL on December 6, 2019 with tariffs ranging from 5 to 10 percent on different product categories. Locally manufactured products are not subject to the PAL. The 2018 government budget removed the PAL on 1,000 items.
Additionally, the Sri Lankan government imposes a value-added tax (VAT) on imports rates from 8 to 15 percent on most goods. Financial Services VAT remain at 15 percent. Tourism-related services are untaxed. When calculating the VAT, an imputed profit margin of 10 percent is added to the import price. Locally manufactured products are also subject to VAT, but not the imputed profit margin.
A special commodity levy (SCL) is charged on some imported food items. The SCL rates on basic food items are changed frequently, creating uncertainty for importers. Locally manufactured products are not subject to SCL. Items subject to SCL typically include sugar, canned fish, chickpeas, potatoes, onions, vegetable oil, and margarine. Apples, grapes, oranges, dairy spreads, butter, and yogurt are also subject to SCL.
Textiles are subject to an EDB levy of LKR 100 per kg (approximately $0.57). In addition, starting September 17, 2018, textiles are subject to a 5 percent VAT. Sri Lanka does not have import duties on textiles. The Nations Building Tax (NBT) and Airport Levy (PAL) are not applicable on textiles.
Apparel is subject to a 15 percent VAT, an EDB levy of 15 percent or LKR 200 ($1.14) per unit, whichever is higher, and a Nations Building Tax (NBT) of 2 percent. Sri Lanka does not have import duties on articles of apparel and clothing accessories. Port and Airport Levy (PAL) are not applicable on these items.
In October 2014, the Sri Lankan government introduced an all-inclusive tax on cars under the Excise Special Provisions Law replacing the VAT, the NBT, the EDB levy, the import tariff, and the PAL. The tax is based on the engine capacity. The total excise tax on cars was changed in the 2019 budget and ranges from LKR 2,000,000 (approximately $10,800) on a small car to LKR 5,500,000 (approximately $29,700) for a large vehicle. Electric cars are taxed at lower rates.