The Colombo-based think tank Advocata Institute has called on the Sri Lankan government to reform its e-commerce tax and customs framework, urging authorities to adopt globally accepted practices such as exempting low-value imports and enabling online platforms to collect taxes at the point of sale.
The appeal comes amid mounting public frustration over recent delays and complications in parcel clearance, especially for goods ordered from platforms like AliExpress.
Advocata criticized the recent changes at Sri Lanka Customs, which now require individual declaration of each parcel using Harmonized System (HS) codes, a move that has resulted in massive backlogs and disrupted the previously smooth process of small-parcel clearance. Traditionally, Sri Lanka Customs had used a weight-based clearance method for e-commerce items.
Globally, many countries adopt a “de minimis” threshold—where low-value goods, usually under USD 150, are exempt from import duties. The U.S. has a generous threshold of USD 800 per shipment.
While VAT is still charged, customs duties are waived to streamline trade and reduce administrative burden. Sri Lanka, however, has not implemented such a system and continues to levy multiple border taxes including Import Duty, CESS, and the Port and Airport Levy (PAL), making the system unnecessarily complex and opaque.
“The current system is unmanageable,” Advocata warned, pointing out that customs officers are overwhelmed and small and medium enterprises (SMEs) suffer delays in sourcing vital inputs from international suppliers. The new HS code requirement for every small parcel makes cross-border e-commerce inefficient and unsustainable, the think tank argued.
Advocata also proposed a Vendor Collection Model, already used by countries like Singapore and Australia, where e-commerce platforms collect and remit taxes at the point of sale. This model improves compliance and reduces pressure on customs while offering fairer treatment to consumers.
They suggested exempting parcels below USD 75 under a clear de minimis threshold and mandating only large-scale platforms to register and remit taxes locally or through appointed agents.
“This approach protects consumer choice, ensures fair competition, and secures revenue for the state,” Advocata emphasized.
Meanwhile, addressing confusion about Value Added Tax (VAT) on digital services, State Finance Minister Anil Jayantha clarified that no new tax has been introduced. He explained that the VAT inclusion for digital services—such as those offered by foreign platforms like Uber—was proposed and passed in the 2025 Budget.
“There’s been misleading media coverage suggesting an 18% VAT will be newly imposed from October 1. This is entirely inaccurate,” Jayantha stated. He said that VAT collection on digital services was legally approved months ago, and delays in implementation were due to procedural formalities, including gazette publication and legal amendments.
He emphasized that the tax is not new, but merely brings previously exempted digital services into the existing VAT net to ensure fairness in revenue generation. “Digital services, regardless of whether they’re domestic or foreign, are subject to VAT as per the amended law. There is no cause for panic,” he added.
Sri Lanka has also faced criticism from the International Monetary Fund (IMF) for its restrictive trade practices, including taxing credit card payments for online purchases. Critics argue that such protectionist measures fuel corruption and limit consumer access to affordable goods, even resulting in instances where food is smuggled due to excessive taxes.
Advocata urged authorities to modernize the legal and tax frameworks to better accommodate the growing importance of cross-border e-commerce and digital services, both to boost consumer welfare and secure state revenue in a fair and efficient manner.
