How to Save Money on Sri Lanka Customs Tariff in 2023

If you are planning to import goods into Sri Lanka, you need to be aware of the Sri Lanka Customs Tariff, which is the system of taxes and duties that apply to different categories of products. The tariff is based on the Harmonized Commodity Description and Coding System (HS Code), which is a standardized international classification of goods.

The Sri Lanka Customs Tariff has three main import tariff bands: 0%, 15%, and 30%. Generally, raw materials are at zero percent, intermediate goods are at 15 percent, and finished goods are at 30 percent. However, there are some exceptions and variations depending on the product type, origin, and trade agreements.

In this article, we will explain how the Sri Lanka Customs Tariff works, what factors affect the tariff rates, and how you can save money on your imports by choosing the right HS Code, applying for exemptions or concessions, and taking advantage of preferential trade agreements.

What is the Sri Lanka Customs Tariff?

The Sri Lanka Customs Tariff is the schedule of import taxes and duties that apply to different categories of goods imported into Sri Lanka. The tariff is based on the HS Code, which is a six-digit code that identifies the product type, sub-type, and specific characteristics. The HS Code is used by customs authorities around the world to classify and value goods for trade purposes.

The Sri Lanka Customs Tariff consists of two parts: the Customs Import Duty (CID) and the Para Tariffs. The CID is the basic tax that applies to all imports, unless they are exempted or subject to a concession. The CID rates range from 0% to 30%, depending on the product category and sub-category.

The Para Tariffs are additional taxes that apply to some imports, either to protect domestic industries, generate revenue, or implement policy objectives. The Para Tariffs include:

Cess: A tax that applies to most imports, ranging from 0.05% to 35%, depending on the product type and origin. The Cess rates are revised periodically by the Ministry of Finance.

Ports and Airports Development Levy (PAL): A tax that applies to all imports, except for a few exempted items. The PAL rate is 7.5% of the CIF (cost, insurance, and freight) value of the goods.

Value Added Tax (VAT): A tax that applies to all imports, except for a few exempted items. The VAT rate is 15% of the sum of the CIF value, CID, Cess, and PAL.

Nation Building Tax (NBT): A tax that applies to all imports, except for a few exempted items. The NBT rate is 2% of the sum of the CIF value, CID, Cess, PAL, and VAT.

Excise Duty: A tax that applies to some imports, such as alcohol, tobacco, vehicles, petroleum products, etc. The Excise Duty rates vary depending on the product type and quantity.

Special Commodity Levy (SCL): A tax that applies to some imports, such as sugar, milk powder, edible oil, etc. The SCL rates vary depending on the product type and quantity. The SCL replaces the CID, Cess, PAL, VAT, NBT, and Excise Duty for these products.

The total import tax payable for a product is calculated by adding up all the applicable taxes and duties based on its HS Code and CIF value. For example, if you import a laptop computer with a CIF value of $1,000 from China under HS Code 8471.30.10 (portable automatic data processing machines), you will have to pay:

CID: 0% (zero-rated category)
Cess: 0% (zero-rated category)
PAL: 7.5% x $1,000 = $75
VAT: 15% x ($1,000 + $75) = $161.25
NBT: 2% x ($1,000 + $75 + $161.25) = $24.73
Excise Duty: 0% (not applicable)
SCL: 0% (not applicable)

Total import tax payable = $75 + $161.25 + $24.73 = $260.98

How to Save Money on Sri Lanka Customs Tariff in 2023

There are several ways you can reduce your import tax liability by choosing the right HS Code, applying for exemptions or concessions, and taking advantage of preferential trade agreements.

Choose the Right HS Code

One of the most important factors that affect your import tax liability is the HS Code of your product. Choosing the wrong HS Code can result in paying higher taxes than necessary or facing penalties for misclassification.

Therefore, you should always verify the correct HS Code of your product before importing it into Sri Lanka. You can use the online Sri Lanka Customs National Imports Tariff Guide (NITG) to search for the HS Code and the applicable tariff rates of your product. You can also consult with a customs broker or a freight forwarder to help you with the classification process.

If you are unsure about the HS Code of your product, you can request a Binding Tariff Information (BTI) from the Sri Lanka Customs. A BTI is a written ruling that confirms the HS Code and the tariff rates of your product. A BTI is valid for three years and can be used as evidence in case of any disputes or audits.

Apply for Exemptions or Concessions

Some imports are exempted or subject to a concession from the CID or the Para Tariffs, either partially or fully, depending on the product type, origin, purpose, or end-user. For example, some exemptions or concessions include:

Imports for charitable, educational, religious, or cultural purposes
Imports for diplomatic missions, international organizations, or foreign governments
Imports for personal use or baggage
Imports for industrial or agricultural development projects
Imports for export-oriented enterprises or free trade zones
Imports under special schemes, such as the Temporary Importation Scheme (TIS), the Duty Free Shop Scheme (DFSS), the Duty Rebate Scheme (DRS), etc.

To apply for an exemption or a concession, you need to submit the relevant documents and evidence to the Sri Lanka Customs along with your import declaration. You can find more information about the eligibility criteria and the application procedures on the Sri Lanka Customs website.

Take Advantage of Preferential Trade Agreements

Sri Lanka has signed several preferential trade agreements with other countries or regions, which offer lower or zero tariff rates for some imports originating from these countries or regions. For example, some preferential trade agreements include:

The South Asian Free Trade Area (SAFTA): A free trade agreement among eight South Asian countries, namely Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. Under SAFTA, Sri Lanka offers zero or reduced tariff rates for some imports from these countries.

The Asia-Pacific Trade Agreement (APTA): A preferential trade agreement among six Asian countries, namely Bangladesh, China, India, Laos, South Korea, and Sri Lanka. Under APTA, Sri Lanka offers zero or reduced tariff rates for some imports from these countries.

The Generalized System of Preferences (GSP): A unilateral trade preference scheme offered by some developed countries, such as the European Union (EU), the United States (US), Japan, Canada, Australia, etc., to some developing countries, including Sri Lanka. Under GSP, these developed countries offer zero or reduced tariff rates for some imports from Sri Lanka.

To take advantage of these preferential trade agreements, you need to comply with the rules of origin and provide a certificate of origin issued by an authorized body along with your import declaration. You can find more information about the rules of origin and the certificate of origin on the Sri Lanka Customs website.

The Sri Lanka Customs Tariff is a complex system of taxes and duties that apply to different categories of imports into Sri Lanka. The tariff rates vary depending on the HS Code, CIF value, origin, and trade agreements of your product. By choosing the right HS Code, applying for exemptions or concessions, and taking advantage of preferential trade agreements, you can save money on your import tax liability and make your imports more profitable.

The Impact of Sri Lanka Customs Tariff on the Global Demand for Sri Lankan Products

Sri Lanka is a small island nation in the Indian Ocean that has a diverse economy and a rich cultural heritage. The country exports a variety of products, such as tea, apparel, rubber, gems, spices, and coconut products, to many countries around the world. However, the global demand for Sri Lankan products is influenced by many factors, including the Sri Lanka Customs Tariff (SLCT), which is the schedule of import duties and taxes levied by the Sri Lankan government on imported goods.

The SLCT is based on the Harmonized Commodity Description and Coding System (HS), which is a standardized classification system for international trade. The SLCT has three import tariff bands: 0%, 15%, and 30%, depending on the type and origin of the product. Generally, raw materials are at zero percent, intermediate goods are at 15 percent, and finished goods are at 30 percent. The SLCT also imposes other taxes and charges, such as the Port and Airport Development Levy (PAL), the Special Commodity Levy (SCL), the Cess Levy, and the Value Added Tax (VAT).

The SLCT affects the global demand for Sri Lankan products in two ways: by affecting the cost and competitiveness of Sri Lankan exports, and by affecting the domestic market and production of Sri Lankan goods.

The Effect of Sri Lanka Customs Tariff on the Cost and Competitiveness of Sri Lankan Exports

One of the main effects of the SLCT is that it increases the cost of imported inputs and intermediate goods that are used in the production of Sri Lankan exports. For example, if a Sri Lankan apparel manufacturer imports fabric from China, it has to pay a 15% import duty on the fabric, plus other taxes and charges. This increases the cost of production and reduces the profit margin of the exporter. This also makes the Sri Lankan apparel less competitive in the global market, as other countries may have lower or zero tariffs on imported inputs.

Another effect of the SLCT is that it creates trade diversion and trade creation effects. Trade diversion occurs when a country imports more from a preferential trading partner that has lower or zero tariffs, rather than from a non-preferential trading partner that has higher tariffs. For example, if Sri Lanka has a free trade agreement (FTA) with India, it may import more tea from India than from Kenya, because India has zero tariffs while Kenya has 30% tariffs. This reduces the global demand for Kenyan tea and increases the demand for Indian tea. Trade creation occurs when a country imports more from both preferential and non-preferential trading partners due to lower tariffs. For example, if Sri Lanka reduces its tariffs on imported cars from 30% to 15%, it may import more cars from both Japan and India, because cars become cheaper and more affordable. This increases the global demand for both Japanese and Indian cars.

The Effect of Sri Lanka Customs Tariff on the Domestic Market and Production of Sri Lankan Goods

Another effect of the SLCT is that it affects the domestic market and production of Sri Lankan goods. By imposing higher tariffs on imported finished goods, the SLCT protects domestic industries from foreign competition and encourages domestic production and consumption of local goods. For example, if Sri Lanka imposes a 30% tariff on imported shoes, it makes imported shoes more expensive and less attractive to consumers, while making domestic shoes more affordable and competitive. This increases the domestic demand for Sri Lankan shoes and stimulates domestic production and employment in the shoe industry.

However, by imposing lower or zero tariffs on imported raw materials and intermediate goods, the SLCT also encourages domestic industries to rely more on foreign inputs rather than developing their own value chains and capabilities. For example, if Sri Lanka imposes a zero tariff on imported tea leaves, it makes imported tea leaves cheaper and more accessible to domestic tea processors, who can then export processed tea at a higher value. However, this also discourages domestic tea growers from investing in improving their quality and productivity, as they face lower prices and demand for their tea leaves. This reduces the value addition and innovation potential of the domestic tea industry.

References:

https://core.ac.uk/download/pdf/6958854.pdf

https://www.treasury.gov.lk/web/budget-estimates/section/budget%20estimates%20-2023

https://economynext.com/sri-lanka-appoints-new-heads-for-inland-revenue-customs-dept-97896/

https://www.customs.gov.lk/international-customs-day-2022/

https://www.trade.gov/country-commercial-guides/sri-lanka-import-tariffs-and-taxes

https://www.customs.gov.lk/wp-content/uploads/2023/05/Preamble-intergrated.pdf

https://www.trade.gov/country-commercial-guides/sri-lanka-import-tariffs-and-taxes

https://legacy.export.gov/article?id=Sri-Lanka-Import-Tariffs

https://www.customs.gov.lk/wp-content/uploads/2023/05/Preamble-intergrated.pdf