By: Staff Writer
December 22, Colombo (LNW): The Sri Lankan Government has decided not to revise the Special Commodity Levy Act No. 48 of 2007, keeping the levy rates on essential goods unchanged until January 1, 2025. This decision was endorsed by the Cabinet of Ministers, following a proposal from President Anura Kumara Dissanayake, who serves as the Minister of Finance, Planning, and Economic Development.
The Special Commodity Levy Act was introduced to streamline the taxation system on 63 essential items, including staple foods, by consolidating various taxes into one levy. In March 2024, the Cabinet had approved a proposal to revise the Act and introduce additional taxes, such as Value Added Tax (VAT), on these goods. However, after considering concerns about the potential negative impact on local farmers and market prices, the Government decided to retain the current levy structure.
Cabinet Spokesman Dr. Nalinda Jayatissa explained that maintaining the existing levy was essential for balancing the needs of consumers and local producers. He emphasized that introducing VAT could harm local farmers by exposing them to unfair competition, and the resulting price hikes could further burden consumers. The decision to keep the levy intact aims to protect farmers while ensuring that essential goods remain affordable for the public.
Despite this, Sri Lanka is under an agreement with the International Monetary Fund (IMF) to phase out the Special Commodity Levy and replace it with VAT. The previous government had planned to replace the levy with more stable taxes as part of its commitment to IMF reforms. According to senior Ministry officials, the decision to reconsider the levy was influenced by concerns over the revenue losses that could result from abrupt policy changes.
The Special Commodity Levy is unique in that, when it applies, no other indirect taxes, such as VAT or excise duties, are levied on affected goods. However, it has faced criticism for its lack of stability, as the rates can be changed with the signature of the Finance Minister, sometimes with little notice. An example of this occurred in October 2020, when the levy on sugar was drastically reduced overnight, leading to significant revenue losses and windfall gains for certain importers. This move raised questions about the transparency and intent behind such policy shifts.
The IMF’s technical report also highlighted that the ease with which the levy can be altered could conflict with Sri Lanka’s constitution, which requires Parliament to have full control over public finances. Despite these challenges, the Government has chosen to preserve the current tax structure, at least until 2025, as it seeks to balance fiscal reforms with the protection of local agriculture and the welfare of consumers.
