By: Staff Writer

March 08, Colombo (LNW): Several companies granted investment incentives under Section 17 of Sri Lanka’s Board of Investment (BOI) Act are facing mounting allegations that they have quietly shifted from export-only operations to full-scale domestic market sales, placing intense pressure on local industries.

Industry leaders claim the practice undermines businesses that operate under normal tax regulations while benefiting from duty concessions meant strictly for export-oriented manufacturing.

Section 17 agreements under the BOI framework were originally designed to attract foreign direct investment by offering generous fiscal and administrative incentives. These include exemptions from customs duties on imported machinery and raw materials, relief from certain levies, enhanced capital allowances, and fast-tracked regulatory approvals.

However, heads of several local industrial sectors including aluminium fabrication, apparel, processed foods, and plastics say some companies registered under these agreements are now supplying their entire production to the local market without proper authorization.

They argue this practice has created a major competitive imbalance.

Local manufacturers say they have invested heavily using domestic capital and large-scale bank borrowings at commercial interest rates. In contrast, BOI-approved firms allegedly import machinery and raw materials duty-free and operate under bonded warehouse systems where taxes are deferred until goods are used in production.

“This creates a completely different cost structure,” one industry representative said, noting that companies enjoying BOI concessions can price their products far more aggressively than fully taxed domestic producers.

The result, industry stakeholders warn, is a growing strain on locally funded manufacturers who must comply with full customs duties, licensing requirements, and a range of indirect taxes including Value Added Tax (VAT) across their supply chains.

In addition, local companies must obtain import licenses and approvals from the Ministry of Industry and other regulatory agencies before bringing in certain raw materials.

According to business leaders, companies operating under BOI status are allegedly bypassing these procedures. They claim such firms obtain approval solely through the BOI while presenting imports to Sri Lanka Customs as inputs intended for export production.

Over time, critics say, these imports have been used to manufacture goods sold entirely in the domestic market.

The alleged practice also raises concerns about potential tax losses to the government. Large sums of customs duties that would normally apply to imported machinery and industrial equipment may have been avoided through the export-oriented status.

A senior official from the Finance Ministry acknowledged that the government has been reviewing the structure of investment incentives.

A cabinet decision in November 2023 allowed certain non-BOI companies to enter Section 17 agreements, enabling them to access investment protections and guarantees under the BOI framework.

However, analysts warn that the policy could widen loopholes if monitoring mechanisms remain weak.

To address concerns over tax incentives and exemptions, the government operationalized the Tax Policy Analysis Unit (TPAU) in early 2026. The unit is expected to ensure that future tax concessions are granted based on rigorous economic analysis rather than lobbying pressure.

Industry leaders say stricter oversight will be essential to restore a level playing field between export-oriented investors and domestic manufacturers.

By: Staff Writer

March 08, Colombo (LNW): A government programme designed to protect the savings of Sri Lanka’s elderly has turned into a major fiscal headache, forcing authorities to rethink how the state supports retired depositors.

The latest chapter unfolded when the government shut down enrolment for its “3 percent extra interest” scheme for senior citizens at the end of 2025. Although existing participants will continue receiving the subsidy until their deposits mature in 2026, no new government-backed accounts will be permitted.

The move follows revelations of large unpaid obligations linked to earlier interest subsidy programmes.

Finance Ministry sources say hidden arrears tied to senior citizen interest schemes reached around Rs. 138 billion. The discovery prompted a review of the programme’s long-term viability and triggered major policy changes.

The International Monetary Fund also flagged the scheme as a contributor to fiscal stress. According to IMF analysis, the annual cost of maintaining the subsidy exceeded Rs. 63 billion by 2022, highlighting how rapidly government support had expanded.

Officials say these financial pressures ultimately forced the state to withdraw from directly supporting deposit rates for retirees.

Instead, the government is shifting toward a system that prioritises settling past debts while offering targeted assistance to vulnerable elderly citizens through broader social welfare policies.

Sri Lanka’s senior citizen interest scheme has gone through several major transformations over the past decade.

The first phase began in 2015, when the government introduced a guaranteed 15 percent annual return for senior citizen fixed deposits up to Rs. 1 million. While the policy initially helped retirees secure higher income from savings, it created a structural problem once market interest rates began to change.

Banks continued paying the promised returns to depositors, but the government was responsible for compensating financial institutions whenever market rates fell below the guaranteed level. Over time, the subsidy bill ballooned and payments to banks began falling behind.

The result was a growing backlog of unpaid obligations.

To stabilise the situation, the government’s 2026 Budget has allocated Rs. 45.7 billion to begin clearing the accumulated debt owed to banks under the earlier scheme. Overall, authorities plan to settle approximately Rs. 126 billion in various government arrears by the end of 2026.

A second phase emerged in mid-2025 when the government introduced a revised interest support programme aligned with IMF reform guidelines.

Instead of guaranteeing a fixed return, the state offered seniors a modest premium 3 percent above the Average Weighted Fixed Deposit Rate for deposits of up to Rs. 1 million with a 12-month tenure.

The subsidy was funded through an allocation of roughly Rs. 15 billion to Rs. 30 billion for the limited six-month enrolment period.

But by late 2025, policymakers decided that continuing the programme risked creating new financial obligations.

Under the new policy direction reflected in the 2026 Budget, the government is moving away from large-scale interest subsidies and toward a more disciplined fiscal approach.

Officials say the focus now is on repairing public finances while ensuring assistance reaches the most vulnerable elderly citizens without creating another cycle of hidden debt.

By: Staff Writer

March 08, Colombo (LNW): A growing dispute between Sri Lanka and India over deep-sea mineral exploration rights is drawing attention to the strategic importance of seabed resources in the Indian Ocean.

The disagreement centres on the Afanasy Nikitin Seamount, an underwater mountain believed to contain cobalt-rich ferromanganese crusts, a resource increasingly sought after for manufacturing electric vehicle batteries and green energy technologies.

India has applied to the International Seabed Authority for permission to explore the area, but Sri Lanka has formally objected, arguing that the seamount lies within its extended continental shelf claim submitted to the United Nations.

According to oceanographers familiar with the issue, Sri Lanka’s objection has resulted in the International Seabed Authority temporarily placing India’s application on hold while the territorial claim is examined.

The dispute highlights the intensifying competition among regional powers to secure access to seabed minerals that could play a crucial role in future energy and technology industries.

Sri Lanka submitted its request to extend its continental shelf beyond 200 nautical miles to the United Nations Commission on the Limits of the Continental Shelf in 2009. However, the review process has remained stalled largely because India has overlapping claims in the same region.

Until the competing claims are resolved, uncertainty will continue over which country holds the right to explore and potentially exploit resources in the contested zone.

Experts say the situation also reflects a broader strategic rivalry in the Indian Ocean. India is reportedly keen to secure exploration rights for the seamount partly to prevent rival powers from gaining access to the resource-rich region.

China has already increased its scientific presence in the Indian Ocean by deploying research vessels that conduct seabed surveys and oceanographic studies.

However, analysts argue that Sri Lanka’s institutional response to these developments has been relatively slow.

One mineral sector specialist noted that the country has yet to appoint a permanent representative to the headquarters of the International Seabed Authority, a move many consider essential for defending national interests in global seabed governance.

The absence of consistent diplomatic engagement, he said, signals a lack of institutional momentum at a time when other countries are aggressively pursuing deep-sea exploration opportunities.

At the same time, Sri Lanka is attempting to maintain a delicate balance amid geopolitical rivalries between major powers including India, China, and the United States.

Some experts believe the government has deliberately limited large-scale maritime exploration activities in order to avoid becoming entangled in regional strategic competition.

While such caution may help preserve diplomatic neutrality, critics warn that excessive restraint could cost Sri Lanka valuable opportunities in the rapidly expanding blue economy.

With seabed minerals expected to become a key driver of future industrial growth, the outcome of the Afanasy Nikitin Seamount dispute may ultimately shape Sri Lanka’s role in the evolving geopolitics of the Indian Ocean.

By: Staff Writer

March 08, Colombo (LNW): Sri Lanka Customs has embarked on a sweeping digital transformation aimed at tightening revenue collection, streamlining trade processes, and reducing opportunities for corruption as part of the government’s broader strategy to centralise control over state revenues.

Senior officials at the Finance Ministry say the reforms will significantly expand the authority of Customs, enabling it to manage import, export, and cargo clearance functions currently handled by the Board of Investment (BOI). The move is aligned with policy commitments made to international lenders and is expected to reshape how trade operations are regulated in the country’s key export zones.

A major milestone in the transformation occurred on May 7, 2025, when the government made it mandatory for all shipping lines and freight forwarders to submit cargo manifests exclusively through the ASYHUB digital platform. This replaced the earlier Automated System for Customs Data (ASYCUDA World) method for manifest submissions.

ASYHUB is a cloud-based platform developed by the United Nations Conference on Trade and Development under its long-running ASYCUDA Programme. Authorities believe the new system will improve transparency and data sharing while reducing manual interventions that historically created loopholes for irregularities.

The digital transition is also linked to the planned launch of the Trade National Single Window System (TNSWS), a platform designed to integrate 18 government agencies into a unified digital interface. Officials expect the system to reduce paperwork, accelerate approvals, and simplify compliance requirements for traders.

The initiative will begin with a pilot phase scheduled for late 2026, with full operations expected to commence in 2027. Government officials note that the implementation of the single window is a benchmark tied to the country’s ongoing programme with the International Monetary Fund.

Another key reform involves transferring full regulatory oversight of goods in special economic zones to Sri Lanka Customs by October 2025. Under this arrangement, Customs will supervise the entire trade cycle, including the arrival of raw materials, the manufacturing process, and the final export of finished goods.

To facilitate the transition, a joint committee comprising officials from Sri Lanka Customs and the BOI has been established to determine the operational framework for the takeover.

Authorities are also introducing several digital trade facilitation measures. These include pre-arrival clearance systems that allow documentation to be processed before cargo reaches the port, an automated risk management system to identify high-risk shipments, and an electronic cargo tracking mechanism to monitor goods in transit.

Efforts to strengthen accountability have accompanied the technological reforms. In early 2026, Customs issued a new Code of Ethics and Conduct developed with assistance from the International Monetary Fund and the World Bank. The code is intended to institutionalise integrity standards and improve internal governance within the department.

Meanwhile, a pilot programme for Authorised Economic Operators launched in late 2025 allows accredited traders to submit Customs declarations digitally using verified electronic signatures.

Officials say these reforms represent a decisive shift toward modernising Sri Lanka’s trade administration. By replacing fragmented procedures with integrated digital systems, the government hopes to plug revenue leaks while creating a more transparent and efficient border management framework.