Sri Lanka - Country Commercial Guide
Market Challenges

Learn about barriers to market entry and local requirements, i.e., things to be aware of when entering the market for this country.
 

Last published date: 2021-09-28

Inconsistent and unpredictable policies, including taxation, customs procedures, and regulatory approvals, are common concerns for U.S. and foreign companies.  U.S. and foreign companies also raised concerns regarding opaque public tendering processes and widespread corruption.  U.S. franchise holders have also raised concerns about delays in remitting profits and franchise fees by the banking system.  President Gotobaya Rajapaksa has committed his government to business process reforms. 

The government generally supports import substitution.  Importers to Sri Lanka face high import duties and other taxes.  A variety of taxes have effectively increased Sri Lanka’s tax rates on a range of imported items to between 60 and 100 percent of the cost, insurance, and freight (CIF) value of the product.  Additionally, in April 2020 the government introduced what have proven to be indefinite suspensions on a wide variety of goods deemed non-essential in a bid to preserve the exchange rate.  Agricultural and consumer goods imports face stiff health regulations that sometimes exceed global standards.  For example, genetically-modified (GMO) regulations restrict imports of U.S. agriculture commodities.  In April 2021 the government banned all agrochemical imports and is attempting to transform the entire agricultural and plantation sector to organic farming.  It also aims to save approximately $500 million in agrochemicals imports annually. 

Congested roads slow the movement of goods throughout the island, although the Government of Sri Lanka is working towards improving road infrastructure.  Unreliable power supply, particularly outside the capital, force manufacturers and service providers to install on-site generators.

Businesses cite a lack of sufficient labor supply as a major hindrance for operating in Sri Lanka.  Qualified workers are in short supply as a result of the education system producing too few engineers, technicians, scientists, and English speakers.  Business representatives complain that the rigid labor laws, including exceptionally high severance pay regulations, make it difficult to adjust staff size and composition to market conditions.  There are also numerous and overlapping labor regulations that are often difficult for investors to understand.

Piracy is a problem for U.S. rights-holders in music, film, software, and some consumer products.  Sri Lanka also lacks anti-competition laws.