Tax shake-up triggers palm oil price drop, coconut oil up
The Government has introduced a new import tax structure for coconut oil and palm oil. It has replaced the earlier structure with a general tax structure that includes 20 per cent customs duty, 20 per cent, 10 per cent Social Security Contribution Levy (SSCL) and 18 per cent Value Added Tax (VAT) per consignment. Under the new scheme, the Special Commodity Levy (SCL) has been removed.
Earlier there was a SCL of Rs. 150 per kg for coconut oil and a higher SCL of Rs. 275 per kb on palm oil. This policy shift represents a fundamental realignment of Sri Lanka’s edible oil market. While the SCL previously protected both coconut oil and created barriers to palm oil imports, the new VAT/SSCL structure inadvertently creates an uneven playing field, several market analysts said.
This change, proposed in the 2026 Budget, aims to create a level playing field between imported and locally produced oils, a senior official of the Finance Ministry told the Sunday Times Business.
Customs Import Duty (CID): New duty bands of 0, 10, 20, and 30 per cent are being introduced under the updated national tariff policy.
Because the new taxes are largely percentage-based (ad-valorem) rather than fixed-rate, the impact depends on the global market price (CIF value) of the oil. The new tax structure makes imported coconut oil more expensive, which continues to protect local farmers from being undercut by foreign imports.
Local manufacturers may prioritise exports to foreign markets to avoid domestic price pressures, potentially shrinking the local supply, a leading coconut oil industrialist said.
Cheaper palm oil imports will likely to flood the market, forcing local edible oil producers to compete with a much lower-cost alternative, he pointed out. Food manufacturers are expected to switch from coconut oil to palm oil to take advantage of these significant cost savings.
While the tax for palm oil could drop, the total tax liability for importing coconut oil could nearly triple compared to the previous flat-rate system.
At present, Sri Lanka imports several types of edible oils, including crude palm oil, refined and unrefined coconut oil, Sunflower oil, Palm kernel oil and Soybean oil
Under the new tax rates, it is believed that the total taxes imposed by the government could increase significantly. Given the current situation, cooking oil prices may also rise considerably.
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