Regulatory & Policy News
View all(74)📈 CoPF Approves New Four-Band National Tariff Framework
Sri Lanka's Committee on Public Finance (CoPF) has approved a Resolution under the Customs Ordinance and two Orders under the Export Development Act, setting the stage for a major overhaul of the country's trade and investment environment. • New Four-Band Tariff Structure: Effective April 1, 2026, the previous import duty system (0%, 15%, 20%) is restructured into a four-band system of 0%, 10%, 20%, and 30%. Based on the UN Broad Economic Categories (BEC Rev. 5), imports are now categorized under capital goods, intermediate goods, sensitive intermediate goods, and consumer goods. • Phasing Out Para-Tariffs: To establish a simpler trade regime, the government aims to completely phase out temporary para-tariffs, including the CESS and Ports and Airports Levy (PAL), by 2029. • Relief for Construction: The effective import tax rate on ceramic tiles, currently at 85–90%, will be gradually reduced to 20% by 2029 to ease infrastructure and housing development costs. • Export Targets & Supply Chains: The reforms are designed to help the Export Development Board double Sri Lanka's annual export earnings from US$ 18 Bn to US$ 36 Bn over the next five years. The framework prioritizes global integration for rubber products, electronics, pharmaceuticals, and information technology. • Data Integrity Mandate: Expressing serious concern over trade statistics that have remained un-updated since 2021, the CoPF Chairman ordered the Department of Trade and Investment Policy to update all data records within one week to facilitate evidence-based policymaking.
Combating Tax Crimes: The Gap Between Theory & Practice 📈
Tax crimes and evasion present severe challenges to both local and global financial systems by draining public resources and undermining economic stability. • The Global Impact: According to research, the global tax gap across 145 countries represents roughly 18% of global GDP, translating to an estimated US$ 3.1 Trillion in evaded taxes annually. • Sri Lanka's Legal Framework: Criminal proceedings for tax crimes are governed primarily under Chapters XVIII (Sections 186–193) of the Inland Revenue Act No. 24 of 2017, alongside provisions from Act No. 10 of 2006. • Penalties & Convictions: Tax Evasion (Sec. 189): Willful evasion or fraudulent refund claims carry a fine of up to LKR 10 Million, imprisonment for up to two years, or both. Impeding Administration (Sec. 190): Failure to file returns, providing false information, or blocking tax officials carries a fine up to LKR 1 Million and/or up to one year of imprisonment. Fraudulent Documentation (Sec. 190A): Introduced via Amendment Act No. 10 of 2021, certifying or preparing false documents carries a fine up to LKR 1 Million and/or up to six months of imprisonment. • Framework for Resolution: Broadening domestic revenue collection requires addressing both the policy gap and administrative gap. Experts emphasize aligning with the OECD’s "Ten Global Principles" to enhance investigative powers, ensure inter-agency cooperation, and safely secure state revenue.
📈 EPF Reform Proposal: EFC vs State Custody
A critical debate has emerged over the governance of Sri Lanka’s multi-trillion-rupee Employees’ Provident Fund (EPF), which accounts for over 15% of the national GDP. • The Corporate Proposal: The Employers’ Federation of Ceylon (EFC) has submitted proposals to remove EPF management from the Central Bank of Sri Lanka (CBSL) and transfer it to an independent, tripartite trustee board (employers, employees, and Government), while aggressively expanding investments into the private sector. The Government has approved a committee to study this feasibility. • The Critique: Analysts warn the plan acts as a "Trojan Horse" masking corporate capture. Because the EPF is a legally mandated, closed-loop retirement scheme, a private-led board would operate without market competition or capital flight risks, creating severe moral hazard and risks of "front-running" (insider trading using asymmetric market information). • Alternative Public Solution: Critics argue true reform requires fixing the principal-agent problem by legally merging the exclusive CBSL Staff Provident Fund into the general public EPF. This would force regulators to have "skin in the game" and protect worker yields against both political manipulation and private exploitation, keeping the multi-trillion-rupee fund under transparent State custody.
Digital Youth Crisis: Moving Beyond Social Media Bans 📱
• Global vs Local Context: Australia's proposed ban on social media for under-16s highlights global anxieties over cyberbullying and addictive algorithms. In Sri Lanka, regional research by think-tank LIRNEasia suggests media and information literacy (MIL) training is a highly effective, proactive countermeasure to digital harms. • The Physical Space Vacuum: Adolescents increasingly use platforms like Instagram and WhatsApp because modern urban environments lack physical social spaces. While elite schools offer after-school activities, schools in lower-income areas of Colombo often sit deserted after hours, leaving children isolated at home. • Key Recommendations for Sri Lanka: Repurposing Infrastructure: Transform public schools into safe community hubs after hours (sports, arts, ICT/BPM or robotics) to rebuild physical social ecology cost-effectively. Curriculum Integration: LIRNEasia strongly recommends integrating MIL into formal education curricula alongside targeted training for parents. Adult Behavioral Change: Parents must address their own screen addiction, establishing healthy boundaries (e.g., screen-free family time from 6:00 PM to 10:00 PM).
📈 New Sri Lankan MSME Insolvency Law Passed
• Overall Change: Sri Lanka has enacted the Rescue, Rehabilitation and Insolvency Act, No. 12 of 2026 (certified June 17, 2026). It shifts the national framework from a "liquidation-first" regime to one focused on rescue and rehabilitation, retiring the 1853 Insolvency Ordinance. • The MSME Mechanism: Part XI introduces a standalone Debt Restructuring Arrangement. It allows small businesses to avoid expensive administration or liquidation by negotiating flexible repayment plans using the cash-flow insolvency test (pre-emptive entry allowed before actual default). • Key Eligibility & Figures: Outstanding debt threshold must not exceed Rs. 50 million at submission. Financial structures of related MSME companies can be bundled together. Requires approval from creditors holding two-thirds (66.7%) in value of the claims voting. • Key Operational Rules: Mandates the appointment of a registered personal insolvency proposer to investigate affairs and build proposals. Employs a striking "Silence is Consent" rule—creditors who do not attend or vote are deemed to approve. Confirmed plans grant a protective shield, barring legal actions, asset repossessions, and utility terminations. • Implementation Timeline: Institutional provisions establishing the Insolvency Regulatory Authority are active immediately. All other mechanics come into operation in mid-December 2026 (6 months post-certification), with ministerial powers to extend up to mid-2028.
💸 Sri Lanka Faces US$ 100 Mn Forex Loss Over Delayed Salt Imports
A one-year delay by the Government in deciding the fate of approximately 50,000 metric tons of imported salt has triggered massive economic damage. The imports were originally authorized under emergency measures in May 2025 to bridge domestic shortages caused by severe rains. • Overall Impact: An estimated foreign exchange loss exceeding US$ 100 Mn. This includes capital already sent overseas, accumulated container detention, shipping line demurrage, port storage, and logistics costs. • The Consignments: Around 52,000 metric tons of salt remain completely idle. This consists of 42,000 metric tons held across 1,500 containers and an additional 10,000 metric tons imported as bulk cargo. • Regulatory Failures: Gazette No. 2437/04 lifted the Import Control Licence (ICL) requirement but failed to set a maximum import ceiling. Importers over-ordered from India and China, while numerous consignments subsequently failed to meet the June 10, 2025 shipping deadline or Sri Lanka Standards Institute (SLSI) iodine specifications. • Quality Deterioration: Because iodized salt has an 18-month shelf life, much of the stranded cargo has now expired, drastically reducing its commercial value and making it unfit for direct human consumption without reprocessing. • Proposed Way Forward: Re-exporting is no longer commercially viable. Experts recommend releasing the cargo to National Salt Limited for technical evaluation, reprocessing, and controlled industrial utilization to salvage remaining economic value.
📈 EDB Hopeful on Avoiding Proposed 12.5% US Tariff Through Trade Pact
• Overview: The Export Development Board (EDB) clarified that the proposed 12.5% US tariff under the USTR’s Section 301 investigation is an extension of an existing reciprocal tariff process, not an entirely new levy. The current 10% tariff rate is set to expire this July. • Tariff Trajectory: Sri Lanka was initially facing a 44% tariff when reciprocal actions were announced on April 2. Following negotiations, the rate was successively reduced to 30%, 20%, and finally the current 10% rate. • The Core Issue: The Office of the US Trade Representative (USTR) proposed the 10% to 12.5% tariff adjustments for 60 economies, including Sri Lanka, following determinations regarding the enforcement of bans on goods produced with forced labour. Sri Lanka is currently grouped under the higher 12.5% rate. • Next Steps & Mitigation: • The Ministry of Trade, Commerce, Food Security and Co-operative Development is actively negotiating to halt the tariff before its scheduled July 24 implementation. • Sri Lanka's formal appeal deadline is July 9. • EDB Chairman Mangala Wijesinghe expressed optimism that signing a pending bilateral trade agreement or securing favorable consideration on representations could help avoid the levy or maintain a competitive regional rate between 10% and 12.5%.
🌾 Government Lifts Ban on Using Rice and Paddy for Animal Feed
The Government of Sri Lanka has officially revoked restrictions on utilizing rice and paddy for the production of animal feed, reversing previous regulations that strictly prohibited their use in the sector. • Regulatory Update: The Consumer Affairs Authority (CAA) announced that the previous restrictive Gazette Notification, which remained in force until June 24, has been formally withdrawn through a new Gazette issuance. • Permitted Activities: Under the updated framework, the use of rice and paddy is now fully permitted for the processing, purchase, sale, transport, storage, and distribution of animal feed. • Sector Impact: The policy reversal removes all prior operational limitations, allowing agriculture and livestock feed manufacturers to legally reintegrate these grains into their production supply chains.
📈 CBSL Defends FATF Reforms Against Lawmaker Regulatory Concerns
• Overview: The Committee on Public Finance (CoPF) questioned the Central Bank of Sri Lanka (CBSL) on whether proposed anti-money laundering and counter-terrorism financing (AML/CFT) frameworks are expanding regulatory powers beyond international benchmarks. • Legislative Debate: CoPF Chairman Dr. Harsha de Silva raised concerns from civil society regarding civil liberties and broad criminal provisions. MP Ravi Karunanayake questioned if Sri Lanka is over-legislating beyond domestic interests to satisfy external bodies, warning of potential "technical defaults" from excessive regulations. • CBSL & Legal Defense: CBSL and the Financial Intelligence Unit emphasized that financial sector stability relies on avoiding costly FATF grey-listing. Officials noted that the current FATF evaluation cycle shifts focus from having laws in place to active enforcement metrics (investigations, convictions, and asset freezes). • Economic Context: CBSL Governor Dr. Nandalal Weerasinghe stated that compliance is a critical national interest to prevent economic damage. Grey-listing increases cross-border transaction scrutiny, raises compliance costs, and harms Sri Lanka's international financial reputation. • Conclusion: CoPF indicated it would approve the pending bills but stressed that Parliament must continue balancing stronger state enforcement powers with clear safeguards for individual rights.
📈 Sri Lanka Toughens AML Laws: Real Estate & Tax Evasion Targeted
Sri Lanka is set to significantly expand its anti-money laundering (AML) framework through proposed amendments to the Prevention of Money Laundering Act, aiming to align with global Financial Action Task Force (FATF) standards ahead of its next mutual evaluation. • New Predicate Offence: Wilful tax evasion under the Inland Revenue Act will now officially become a predicate offence for money laundering. Officials clarified this applies strictly to deliberate criminal evasion, not ordinary tax disputes. • Impact on Property & Assets: The definition of money laundering will expand to cover the use, purchase, conversion, and beneficial ownership of criminal proceeds. For property investments linked to crime, buyers must prove in court that they acquired the asset in good faith without prior knowledge of its origin. • Strengthened Enforcement: - Asset-freezing powers for investigators will double from 7 days to 14 working days before requiring a High Court order. - A newly proposed Proceeds of Crime Management Authority will oversee and manage confiscated assets during legal proceedings. Confiscated properties will eventually be sold, with proceeds channeled into the state's Consolidated Fund. _Note: Based on proposed legislative amendments currently before Parliament._
📈 SEC Invites Applications for New Credit Rating Agencies
The Securities and Exchange Commission of Sri Lanka (SEC) has opened applications for new credit rating agencies under the SEC Act No. 19 of 2021 to strengthen the capital market's credit assessment infrastructure and enhance market transparency. • Current Market: Sri Lanka currently has only two licensed agencies—Fitch Ratings Lanka Ltd. and Lanka Rating Agency Ltd. (LRA)—providing domestic ratings for banks, finance companies, corporates, and debt securities. • Eligibility Criteria: Applicants must be promoted by either a licensed foreign credit rating agency with minimum 5 years of experience, or a CBSL-licensed commercial bank with at least 5 years of experience in rating entities/securities. • Regulatory Goals: The initiative aims to support informed investment decisions, improve risk management, and foster market discipline by introducing independent, objective, and credible rating alternatives. • Timeline: Applications will be accepted through the SEC website until October 5, 2026.
⚖️ Tax Experts Warn IRD’s Growing Policy Role Risks Sri Lanka’s Investment Climate
Private sector tax professionals at the CA Sri Lanka 5th Annual Economic and Tax Symposium issued sharp criticisms against the Inland Revenue Department (IRD), warning of growing taxpayer uncertainty and poor administration despite record revenue collections. • Policy Encroachment & Secrecy: Experts claim tax policymaking is increasingly being delegated to the IRD, blurring the line between Parliamentary intent and administration. Legal interpretations remain opaque, with calls to publish anonymized private rulings to prevent inconsistent treatment across taxpayers. • Tax Base Concerns: While the IRD achieved record collections in 2025 and is on track to exceed 2026 targets, critics argue higher revenues stem from over-taxing existing taxpayers rather than widening the tax base. This erodes local saving, expenditure, and investment capabilities. • Administrative Bottlenecks: Practitioners highlighted inconsistent technical views among officials, lengthy refund delays, and an over-cautious culture fueling unnecessary litigation. There are urgent calls to upgrade the technical capacity of IRD staff. • Digitalization & Solutions: To improve compliance, tech leaders proposed a taxpayer-centric online platform, open APIs to integrate payment systems with existing point-of-sale infrastructure, and leveraging AI to streamline tax services.