Government launches sweeping tariff reforms to boost exports
The government is initiating a phased removal of para-tariffs including the Cess and Port and Airport Development Levy (PAL) to modernise its trade policy and improve export competitiveness.
This initiative aims to shift from protective, complex import taxes to a more transparent, four-band structure (0, 10, 20, 30 per cent) by April 1, 2026.
This reform was also a prerequisite under the World Bank’s RESET Development Policy Operation, aimed at stabilising the economy and enhancing resilience.
As of February 2026, the Ministry of Industry and the Ministry of Finance have concluded the third round of discussions with the World Bank to finalise the technical aspects of these transitions.
These reforms are critical for the fifth review of Sri Lanka’s Extended Fund Facility (EFF), which emphasises removing protectionist measures to integrate into global value chains, according to IMF sources.
Although the initial deadline was missed due to political changes, the current administration has renewed its commitment.
A National Tariff Policy Committee, headed by a Deputy Secretary to the Treasury, was recently established to oversee implementation, underscoring the Finance Ministry’s crucial role especially given the fiscal implications of tariff reforms, a senior official of the ministry told the Sunday Times Business.
It is moving forward with its new tariff policy, a cornerstone of the 2026 Budget aimed at increasing export competitiveness and aligning with IMF-supported reforms.
The government has confirmed the phased removal of trade-distorting para-tariffs, primarily the Cess and the Ports and Airports Development Levy (PAL).
It will implement a strategic proposal to phase out the Cess and other non-tariff barriers on 2,634 imported goods over a 4-year period, spanning from 2026 to 2029.
The Rs. 100 per kg Cess on imported fabric will be removed, replaced with VAT to ensure a level playing field for local manufacturers.
The Special Commodity Levy (SCL) on imported coconut and palm oil is to be replaced with a combination of VAT and Social Security Contribution Levy (SSCL). These measures are part of a broader commitment to trade liberalisation to integrate into global value chains.
The removal will be gradual, with a focus on mitigating revenue loss while supporting local industry competitiveness and to improve export competitiveness by reducing the cost of imported inputs. It will reduce the discretionary power of tax authorities and replace complex levies with standard VAT/duty.
