Wading Through Murky Waters: Sri Lanka’s Import Tax Exemption Schemes

Import taxes are critical for government revenue. However, these taxes are often high and prevent businesses from becoming more efficient – businesses sometimes have to pay up to five different taxes when importing essential materials and products.

The government has introduced a solution to this problem – import tax exemption schemes. Through these schemes, businesses can bypass certain taxes and save money.

Yet, the solution is not as simple as it seems. The current regulatory framework in place for tax exemptions undermines the objective of such schemes – which is to prevent misuse and restrict benefits to eligible parties. Using agricultural equipment as an example, this policy note outlines how the process in place for approving exemptions is (i) opaque; (ii) discretionary; and (iii) prone to abuse.