Sri Lanka Para-Tariff reforms stall as US Zero-Tariff plan fades
Sri Lanka’s long-promised tariff overhaul pitched as a turning point for trade competitiveness has entered a complicated, politically fraught phase.
While the government has recommitted to dismantling para-tariffs under the National Tariff Policy (NTP), the economic stakes are rising, and a once-discussed plan to reduce tariffs on selected US imports to zero has quietly disappeared from official discourse.
The reforms revolve around eliminating three major para-tariffs: the Special Commodity Levy (SCL), the Ports and Airports Development Levy (PAL), and CESS, an official of the Finance Ministry explained.
These levies, long used as a workaround to impose high effective duties despite WTO limits, generate more than 1 per cent of GDP in revenue.
In 2025 alone, they are expected to contribute an additional Rs. 45.7 billion, with another Rs. 23 billion anticipated in 2026 numbers that make their removal a fiscal challenge, he pointed out. The ministry insists that the transition would be revenue-neutral, largely through restructuring the bands of the Customs Import Duty (CID).
The old 10, 15, 20 per cent structure will be replaced from April 2026 with 0, 10, 20 per cent, and a new 30 per cent band. This gives space for policy makers to protect sensitive sectors even as para-tariffs disappear.
A 50 per cent surcharge on the existing 20 per cent CID effectively pushed the duty to 30 per cent of CIF value. The luxury tax threshold was adjusted upward to cushion price shocks.
Other commodities have seen targeted reductions. The CESS on imported fabric was removed and replaced with VAT, easing pressure on apparel exporters now dependent on a functioning tax-credit system after the phase-out of SVAT.
A similar shift occurred for coconut and palm oil where SCL was replaced with VAT and Social Security Contribution Levy (SSCL). Duties were also lowered for essentials like diapers, while new environmental taxes were introduced to curb plastic use and encourage recycling.
Behind the headlines, however, is one more significant, yet largely unanswered, question: what became of Sri Lanka’s plan to reciprocate the US move to lower tariffs on select Sri Lankan goods to 20 per cent?
The proposal was part of an endeavour towards strengthening the bilateral economic relationship and demonstrating a shift toward rules-based, transparent tariff structures. Today that initiative seems to have disappeared from policy documents.
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