Takeover of import/export facilitation of BOI by Customs
The Sri Lanka Customs is expected to take over the import and export facilitation process of the Board of Investment (BOI) firms from May 2026 onwards as part of a pilot project. An MOU has been entered into between the BOI and the Customs last week enabling the border control agency to undertake the facilitation processes under a pilot project for a period of about 3-6 months according to the Daily FT’s sister paper The Sunday Times.Last June, the Government via its Letter of Intent to the IMF pledged to approve necessary legislation by end-October 2025 to mandate the Customs with clear and unfettered responsibility for the clearance, movement, and control of goods to and from the special economic zones. It is reported that Katunayake Free Trade Zone is to be used for this pilot project. The move appears to be part of the broader efforts to increase the state tax revenue as per the revenue-based fiscal consolidation framework mandated by the IMF. Revenue leakage from BOI firms in Sri Lanka primarily stem from extensive tax concessions, misuse of import/export facilities for local profiteering, and a lack of transparent monitoring.The Customs Director General Seevali Arukgoda has said that there were a large number of fraud cases against BOI companies.
For a long time, there has been a huge concern among many that a considerable amount of revenue leakage takes place due to the exploitation of loopholes by BOI firms. There have been instances of few BOI firms getting involved in smuggling and other fraudulent activities. Concerns have been expressed that some BOI firms illegally sell more of their products in the local market than permitted, while still enjoying tax benefits granted for exporting entities.Despite granting a plethora of tax concessions and holidays, Sri Lanka has failed to attract any meaningful amount of Foreign Direct Investments (FDI) because investors prioritise factors like macroeconomic stability, policy consistency, skilled labour, and infrastructure over tax incentives.
According to the tax expenditure statement released by the Finance Ministry, exemptions provided by the BOI had caused a loss of Rs. 23.94 billion in corporate taxes to the Government in 2022 when compared to higher corporate tax rates approved by the Parliament under the IMF program.Nevertheless, the new development comes in the immediate aftermath of the abolition of SVAT which has caused a great deal of unease and distress among the business community. Furthermore, the Customs is widely perceived by many as an institution in which bribery and corruption is quite rampant and widespread. Investors perceive the Customs as a controlling agency with very little appetite for trade facilitation. But it must be borne in mind that the Customs in the recent past has strived to enhance its trade facilitation credentials although such efforts have not been duly recognised by the observers. Last year, the premier state, revenue-generating agency launched the Authorised Economic Operator (AEO) Program and the participants of the program enjoy a host of benefits including priority processing in Customs clearance and cargo examinations, dedicated service channels at Customs units, as well as reduced physical inspections with reliance on risk-based assessments. Exporters can also avail of the Temporary Import for Export Processing (TIEP) scheme of the Customs to undertake their business operations smoothly.Notwithstanding the Customs’ initiatives to enhance trade facilitation, the business community has expressed reservations about the proposed move. The Customs has been frequently accused of using their power to delay and disrupt supply chains on various grounds using a 200-year-old ordinance. The Customs as well as the Ministry of Finance need to be mindful of the concerns of the investors and should ensure the changeover takes place with minimum disruptions to the import/export trade of the economy.
