By: Staff Writer

April 17, Colombo (LNW): In a move that has sent shockwaves through Sri Lanka’s export sector, the United States has significantly increased tariffs on imports from several countries, including Sri Lanka.

The sharp hike—reportedly up to 44% on key products—threatens the island’s crucial garment industry, a pillar of its economy and a lifeline for over 350,000 workers, an eminent economist disclosed.

The United States is Sri Lanka’s largest single export destination, accounting for $2.9 billion in goods in 2024—nearly a quarter of the nation’s total exports. Of that, apparel made up $1.7 billion, underscoring the sector’s strategic importance

The imbalance in bilateral trade—Sri Lanka enjoys a $2.5 billion surplus—has prompted criticism from the US administration, which has labelled the trade relationship as one-sided

Currently, US tariffs on Sri Lankan goods stand at 11–12.5%, while Sri Lanka imposes a steep 88% average tariff on US imports.

This discrepancy has fueled tensions, with Washington citing the imbalance as a rationale for its recent tax policy shifts, which appear aimed at countries with which the US runs deficits. an economist and a former member of the Sri Lanka Council for Agricultural Research Policy and former director of the Merchant Bank of Sri Lanka and Finance PLC, Chitral Jayawarna said.

Industry on the Brink

The impact on Sri Lanka’s apparel industry has been immediate. The US market alone accounts for nearly 38% of all Sri Lankan apparel exports. Industry leaders warn that the sharp increase in tariffs is already triggering order cancellations and threatens to force production cuts. If unaddressed, this could result in widespread job losses and social disruption.

Several major manufacturers have begun shifting operations to more cost-effective countries like Bangladesh, raising fears of a long-term exodus. With little meaningful government intervention thus far, stakeholders are calling for urgent measures to safeguard the sector.

Calls for Action

Industry experts have proposed a series of emergency responses, including initiating diplomatic negotiations with the US to reconsider tariff rates, offering financial relief packages to exporters, exploring new trade deals to diversify markets, and investing in technology and innovation to boost competitiveness.

Critics argue that the Sri Lankan government and its diplomatic missions failed to act preemptively despite early warnings about the impending US policy shift. Some have called the official response weak and ill-prepared.

A Trade Policy Reckoning

At the heart of the dispute lies the principle of reciprocity. Former US President Donald Trump’s administration championed the idea of taxing countries in proportion to what the US perceives as unfair trade practices. Under this approach, nations like Vietnam, China, India, and even Sri Lanka have seen higher proposed tariff rates based on their trade surpluses with the US.

In response, Sri Lanka could consider lowering its own tariffs on American goods from 88% to 40% as a goodwill gesture to reset trade relations. In return, Colombo may seek a reduction in US tariffs on Sri Lankan exports to no more than 10%.

Global Implications

These protectionist policies are not just bilateral concerns—they carry global consequences. As production costs rise and trade flows slow, developing nations like Sri Lanka face increased vulnerability. Inflation, unemployment, and reduced investor confidence are just a few of the potential ripple effects.

Amidst these challenges, Sri Lanka’s tax system also comes under scrutiny. The existing structure is complex, inconsistent, and lacks transparency. Reforming it with a simplified and fairer framework could strengthen investor confidence and economic resilience.

Ultimately, while the US tariffs are an external shock, Sri Lanka’s response must be proactive, strategic, and inclusive—protecting both its economy and its people from deeper crisis.

By: Isuru Parakrama

April 17, Colombo (LNW): The escalation of trade tensions led by higher United States tariffs is expected to have a ripple effect across the Asia-Pacific region, potentially undermining the credit stability of several nations, according to recent analysis by Fitch Ratings.

The global ratings agency has warned that Sri Lanka could be amongst the countries adversely affected, particularly when country-specific tariff measures come into effect.

Fitch has observed that heightened trade barriers, coupled with growing economic uncertainty, are likely to dampen export performance and curb export-driven investment across Asia.

Such developments are projected to have a cooling effect on regional economic growth, with both emerging and advanced economies feeling the strain.

For countries like Sri Lanka, which are navigating fragile post-crisis recoveries and ongoing fiscal challenges, the impact could be more pronounced. The island nation remains particularly vulnerable due to its limited foreign exchange buffers and high dependency on external earnings.

A sustained downturn in export revenues, prompted by reduced global demand or higher tariffs, could place added pressure on the country’s external financing and debt servicing capacities.

Fitch also flagged the risk of central banks being forced to step in to stabilise local currencies in the face of volatile capital flows and investor sentiment. Interventions of this nature, whilst necessary in the short term, could lead to a depletion of foreign exchange reserves—posing further challenges for nations with already stretched balance sheets.

The credit agency underscored that the trajectory of regional sovereign ratings will largely depend on how governments respond to the evolving global trade environment.

Strategic policy decisions, including measures to diversify exports, strengthen local industries, and shore up reserve positions, will play a crucial role in determining the resilience of each economy.

Countries such as Bangladesh, Sri Lanka, and Vietnam were singled out as being especially exposed due to a combination of modest reserve levels and significant reliance on export income.

Without timely policy adjustments and prudent fiscal management, these nations could face increased pressure on their creditworthiness in the months ahead.

By: Isuru Parakrama

April 17, Colombo (LNW): The Inland Revenue Department has confirmed significant changes to the country’s Value Added Tax (VAT) framework, following the recent enactment of an amendment to the legislation.

The changes include new exemptions for key sectors and the expansion of tax obligations targeting the digital economy and international trade.

According to a public communication issued by the department, locally produced liquid milk and yoghurt are no longer subject to VAT as of 11 April. This exemption came into effect immediately after the amendment received formal approval from the Speaker, following its passage in Parliament two days earlier.

The tax relief applies only to products where at least half of the content consists of fresh milk, ensuring that genuinely local dairy producers benefit from the policy.

In a parallel move aimed at easing operational costs in the energy sector, the government has also lifted VAT on naphtha supplied by the Ceylon Petroleum Corporation to the Ceylon Electricity Board for electricity generation.

This exemption is expected to support cost efficiencies at a time when the country continues to manage energy affordability and supply challenges.

Beyond the domestic adjustments, the amendment introduces new measures to bring Sri Lanka’s tax system in line with international norms regarding digital commerce. Starting from October 01, non-resident companies providing digital services to Sri Lankan consumers via online platforms will be required to pay VAT on their transactions.

This marks a significant step in capturing tax revenue from global tech firms and service providers operating in the local market without a physical presence.

The tax authority also outlined that all parties involved in the commercial import or export of goods must now register under the revised VAT system. This requirement applies to both individuals and organisations, reinforcing regulatory oversight in cross-border trade and expanding the country’s tax net.

Officials say these measures are designed to improve fiscal discipline, encourage fair competition, and support domestic production, whilst also positioning Sri Lanka to participate more effectively in the evolving global digital economy.

By: Isuru Parakrama

April 17, Colombo (LNW): The Colombo Stock Exchange (CSE) resumed operations on Wednesday (16) following the Sinhala and Tamil New Year holidays, recording modest yet encouraging gains in its key performance indices.

The market opened to a notably quiet trading day but still managed to reflect investor optimism through positive price movements.

The All Share Price Index (ASPI), which tracks the broader market, climbed nearly 100 points to end the session at 15,625.88. Similarly, the S&P SL20 Index — a key gauge of blue-chip stocks — advanced by close to 30 points, reaching 4,644.49 by market close.

Despite the uptick in indices, trading volumes remained subdued. The day’s turnover amounted to Rs. 792 million, signalling a marked drop when compared to the more robust volumes recorded during recent sessions.

Analysts attributed the muted activity to the transitional period following the New Year break, where many investors have yet to return fully to the market.

Local retail and institutional participants accounted for the bulk of the day’s trades. Domestic buying outpaced selling slightly, with Rs. 781 million in purchases and Rs. 730 million in sales — suggesting a cautious but steady return of local interest.

Meanwhile, foreign investor engagement remained notably marginal. Overseas buyers contributed a modest Rs. 11 million in inflows, while foreign outflows amounted to Rs. 61 million, reflecting a continued hesitancy among international participants to re-enter the Sri Lankan market in any significant capacity.

Market observers noted that whilst the post-holiday session lacked vibrancy in terms of volume, the upward trend in indices offered a positive signal of investor sentiment.