By: Staff Writer
March 17, Colombo (LNW): A growing number of companies originally approved as export-oriented manufacturers under Sri Lanka’s investment promotion laws are now supplying their products entirely to the domestic market sparking allegations of unfair competition and large-scale tax avoidance.
Several industrialists in sectors such as aluminium fabrication, apparel, processed foods, and plastics claim that firms registered under the Board of Investment Law No. 4 of 1978, operating through agreements under Section 17, have shifted away from exports and are selling their full production locally.
The concessions granted under the Board of Investment of Sri Lanka (BOI) were originally designed to attract foreign direct investment and boost export earnings.
These incentives include customs duty exemptions on imported machinery and raw materials, relief from certain levies, enhanced capital allowances, and streamlined regulatory approvals.
Local manufacturers say the misuse of these privileges is distorting competition.
“Companies that were supposed to export are now competing directly with us in the local market while enjoying tax exemptions we don’t receive,” said the head of a Colombo-based aluminium fabrication company.
Industrialists argue that local manufacturers must pay full customs duties, value-added tax, and other indirect taxes on imported machinery and raw materials.
In addition, they must obtain licenses and approvals from multiple regulatory authorities, including the Ministry of Industry and Entrepreneurship Development and related sector regulators.
By contrast, some BOI-approved firms allegedly import raw materials duty-free under bonded warehouse facilities and then supply the finished goods domestically.
“This creates a huge cost advantage. Their production costs are far lower than ours,” said another industrialist in the plastics sector.
Industry representatives claim the practice has allowed companies to avoid significant tax payments on machinery and equipment imports.
According to several business leaders who spoke to the Sunday Times Business, some firms continue to operate under BOI status even when importing raw materials that are ultimately used for products sold in the local market.
They allege that these companies often obtain approvals solely through the BOI and declare that imports are intended for export production.
Customs officials are then allegedly informed that the materials will be used for export manufacturing, even when the final products enter the domestic supply chain.
The issue comes at a time when the government is attempting to tighten oversight of fiscal concessions.
A senior Finance Ministry official confirmed that the Tax Policy Analysis Unit (TPAU) was operationalized in early 2026 to ensure future tax incentives and exemptions are based on rigorous economic analysis rather than lobbying pressure.
Meanwhile, industrialists warn that the current situation is placing domestic manufacturers under severe financial strain.
Many of them invested heavily in factories using local capital and large bank loans at commercial interest rates.
“If this continues, local industries will struggle to survive,” said one apparel manufacturer.
They are now urging authorities to investigate the alleged misuse of BOI concessions and enforce stricter monitoring of export obligations.