By Skandha Gunasekara
While some economists agree with the imposition of import controls and restrictions, importers and traders alike have criticised the method by which the ban was imposed, charging that a more calculated and detailed methodology was needed to ensure the other economic activities of the country operated smoothly.
The government decision to ban imports of what it termed “non-essential” items was taken to limit foreign exchange outflow in order to meet debt obligations.
As such, one of the major industries that was directly affected was the vehicle industry, with the import ban prohibiting the importation of any vehicle into the country.
Vehicle Importers’ Association of Sri Lanka President Sirishantha Gamage charged that the ban could be doing more harm than good for the Government in terms of revenue.
“The Government is losing out on significant revenue due to the import ban on vehicles. For example, if you take a Toyota Premio, in Japan, it is between Rs. 3-3.5 million. When it is imported to Sri Lanka, duty of around Rs. 5.5-6 million is levied on that same vehicle. So, the Sri Lankan Government earns about double the amount that is paid for the car in Japan. Now with the ban on imports, this massive amount in government revenue too is lost.”
He said that while the industry understood the reasons for the ban, they hoped it would be relaxed by mid next year.
“Yes, we do acknowledge that the Government is saving on foreign exchange as foreign currency is used to buy and import vehicles. We hope that they will lift this import ban in April 2021. We have an alternative plan to this blanket ban on vehicle imports.”
Noting that over 100,000 people were affected as a result of the ban, he said that they had sought appointments with higher-ups in the Government to discuss the issue, but the pandemic situation has prevented any such meeting.
“We have requested an audience with the President, Prime Minister, Minister, and other officials of the Government to discuss this issue, but because of the Covid-19 pandemic it has been difficult to arrange an appointment with the government officials,” he added.
He said the industry was not requesting a full lifting of the ban, but hoped to come to a compromise where they were allowed to import certain vehicles.
Some concessions needed
Gamage continued: “However, we need some sort of concessions. What we hope to propose is to allow us to bring down small vehicles – 1,000 cc or less; not a lot is spent to buy a 1,000 cc vehicle. It is about Rs. 1.5 million and that import duty would be around Rs. 1.5-2 million.
“So, what we are asking is that we be allowed to import small vehicles with small engine capacities – and a limited quantity too. In addition, we are not demanding that we be allowed to do so now. We are requesting that we be allowed to do so by next April.”
He said the Government also had the option of allowing imports where the payment to the parent country/manufacturer could be delayed so that the government revenue from importing the vehicle is collected immediately but the foreign exchange outflow for that particular vehicle would happen much later.
“Another option is to issue a Letter of Credit (LC) and pay the manufacturer in a period of one year. Then, the vehicles are imported and the duty is levied, meaning the Government will earn revenue immediately while the foreign exchange outflow for that vehicle would only occur a year later – the Government will be holding on to that foreign currency for another year.”
Blanket classification a concern
Meanwhile, the Importers’ Association of Sri Lanka too was critical of the ban and the blanket classification of “non-essential” items.
Sri Lanka Importers’ Association President Delano Dias said that the ban would work if the products had been classified in a calculated manner.
“Firstly, Sri Lanka is an import-dependent country for various reasons. So, although it seems that the statement to say that we can stop imports garners positive responses, we cannot do that without a great impact on our manufacturing industries.
“The import ban would work if highly calculated steps are taken and the ban is programmed so that people will be ready when it happens.”
He said the initial failure of the Government to better categorise non-essential items had led to a host of difficulties and setbacks to the economy.
“The non-essential items criteria was devised by some officials at the Treasury and the Finance Ministry without consultation with the industry or the trade. That is why there was a lot of commotion when it happened.
“The import ban impacts local trade to a great extent. Most imported goods and luxury items are offered for sale via local traders to large shopping complexes. As such, this local trade hugely depends on these imports. Although one may argue that these are not essential and actually harm the country, this claim is not 100% accurate. There is economic activity that is stimulated and dependent on this trade, i.e., the import of these non-essential items. This very trade was badly impacted during the initial stages of the Covid pandemic.”
He said the export sector was spared due to the quick intervention of the industry heads.
“The export sector was impacted the least because of the intervention of the Export Development Board (EDB) and other good people who understand trade. That ban really hurt the people and it took a long time for the Government to see this – two to three months I believe.”
Dias also echoes Gamage’s views on the Government’s loss of revenue as a result of the ban.
Time to review?
While acknowledging the import ban had a positive impact in terms of controlling foreign exchange outflow, Dias asserted that it was high time the ban was reviewed.
“I agree that the import ban had a positive outcome in reducing foreign exchange outflow. However, we cannot turn a blind eye to other economic activities in the country slowing down, which, I have to point out, is not measurable but has an effect on the manufacturer to distribution, right down to the consumer. But this impact is not measured.”
“I think we have had more than six months of this particular import ban. So, we should re-evaluate the ban and identify what needs to be banned and what doesn’t. We have requested the Government to review the import ban. They must also involve and consult the relevant stakeholders in doing so.”
Meanwhile, economic experts have asserted that the import ban was crucial under the current economic conditions the country was facing.
“The import ban is a necessity considering the current circumstances of the country, because we haven’t got enough foreign exchange to make the necessary payments for imports, as well as other commitments we have on account of the debt repayment.
“So as a result, there must be one way of preserving your foreign exchange balance that is available. In that context, the imposition of this import control on different items, which the country has classified as non-essential imports, is a must and there isn’t a question about that,” former Central Bank Deputy Governor and senior economist Dr. W.A. Wijewardena told The Sunday Morning.
However, he said one of the dangers of a prolonged import ban was the opportunity for smuggling of various goods.
“This occurred during 1970-1977, amidst the strictest import control and exchange control regime the country has ever seen; and the Government was satisfied in thinking they had stopped imports and thereby foreign exchange outflow. But there were private parties who were running private ‘central banks’, from which you could buy foreign exchange in any amount. Secondly, there were people who smuggled methodically into Sri Lanka the goods that had been banned.”
However, Dr. Wijewardena was adamant that the ban had achieved its goal thus far and reduced foreign exchange outflow in 2020.
“The current import ban has served its purpose in my view. One example is the motor car industry. Sri Lankans had been importing motor cars despite the fact that duty was about 300- 400%. Now that flow has stopped.
“The import bill, which earlier stood at around $ 20 billion, has come down to around $ 16 billion this year. So, we have saved $ 4 billion.”
He said that the Government should do away with the ban by the end of 2021 to ensure no large-scale smuggling operations occur.
Advocata Chief Operating Officer (COO) Dhananath Fernando opined that the ban would be lifted by the end of 2021.
“I think this will remain at the least till the next Budget at the end of 2021. I saw an interview by (Treasury Secretary) Dr. Attygalle and he said he was thinking to continue the ban for more than one year. I think this will continue for about a year – at least the ban on the main items,” he said.
Meanwhile, the European Union last week expressed its displeasure at Sri Lanka’s prolonged import ban. Issuing a joint statement, the Delegation of the European Union (EU) in Sri Lanka and the Embassies of France, Germany, Italy, and the Netherlands stated: “Such measures impair Sri Lanka’s efforts to become a regional hub and negatively impact Sri Lankan exports by constraining the import of raw material and machinery. We recall that a prolonged import ban is not in line with World Trade Organisation regulations.”
The statement then noted the benefits Sri Lanka enjoys as a trade partner of the EU: “Thanks to the EU’s special Generalised System of Preferences (GSP Plus), Sri Lanka enjoys competitive, predominantly duty and quota-free access to the EU market, based on the continued implementation of 27 international conventions on human rights, labour, environment, climate change and good governance.”
It went on to state that its position has been directly communicated to Minister of Foreign Relations Dinesh Gunawardena via high-level meetings, whilst reiterating it was looking forward to continuing its engagements with Sri Lanka.
As such, one of the major industries that was directly affected was the vehicle industry, with the import ban prohibiting the importation of any vehicle into the country.
Vehicle Importers’ Association of Sri Lanka President Sirishantha Gamage charged that the ban could be doing more harm than good for the Government in terms of revenue.
“The Government is losing out on significant revenue due to the import ban on vehicles. For example, if you take a Toyota Premio, in Japan, it is between Rs. 3-3.5 million. When it is imported to Sri Lanka, duty of around Rs. 5.5-6 million is levied on that same vehicle. So, the Sri Lankan Government earns about double the amount that is paid for the car in Japan. Now with the ban on imports, this massive amount in government revenue too is lost.”
He said that while the industry understood the reasons for the ban, they hoped it would be relaxed by mid next year.
“Yes, we do acknowledge that the Government is saving on foreign exchange as foreign currency is used to buy and import vehicles. We hope that they will lift this import ban in April 2021. We have an alternative plan to this blanket ban on vehicle imports.”
Noting that over 100,000 people were affected as a result of the ban, he said that they had sought appointments with higher-ups in the Government to discuss the issue, but the pandemic situation has prevented any such meeting.
“We have requested an audience with the President, Prime Minister, Minister, and other officials of the Government to discuss this issue, but because of the Covid-19 pandemic it has been difficult to arrange an appointment with the government officials,” he added.
He said the industry was not requesting a full lifting of the ban, but hoped to come to a compromise where they were allowed to import certain vehicles.
Some concessions needed
Gamage continued: “However, we need some sort of concessions. What we hope to propose is to allow us to bring down small vehicles – 1,000 cc or less; not a lot is spent to buy a 1,000 cc vehicle. It is about Rs. 1.5 million and that import duty would be around Rs. 1.5-2 million.
“So, what we are asking is that we be allowed to import small vehicles with small engine capacities – and a limited quantity too. In addition, we are not demanding that we be allowed to do so now. We are requesting that we be allowed to do so by next April.”
He said the Government also had the option of allowing imports where the payment to the parent country/manufacturer could be delayed so that the government revenue from importing the vehicle is collected immediately but the foreign exchange outflow for that particular vehicle would happen much later.
“Another option is to issue a Letter of Credit (LC) and pay the manufacturer in a period of one year. Then, the vehicles are imported and the duty is levied, meaning the Government will earn revenue immediately while the foreign exchange outflow for that vehicle would only occur a year later – the Government will be holding on to that foreign currency for another year.”
Blanket classification a concern
Meanwhile, the Importers’ Association of Sri Lanka too was critical of the ban and the blanket classification of “non-essential” items.
Sri Lanka Importers’ Association President Delano Dias said that the ban would work if the products had been classified in a calculated manner.
“Firstly, Sri Lanka is an import-dependent country for various reasons. So, although it seems that the statement to say that we can stop imports garners positive responses, we cannot do that without a great impact on our manufacturing industries.
“The import ban would work if highly calculated steps are taken and the ban is programmed so that people will be ready when it happens.”
He said the initial failure of the Government to better categorise non-essential items had led to a host of difficulties and setbacks to the economy.
“The non-essential items criteria was devised by some officials at the Treasury and the Finance Ministry without consultation with the industry or the trade. That is why there was a lot of commotion when it happened.
“The import ban impacts local trade to a great extent. Most imported goods and luxury items are offered for sale via local traders to large shopping complexes. As such, this local trade hugely depends on these imports. Although one may argue that these are not essential and actually harm the country, this claim is not 100% accurate. There is economic activity that is stimulated and dependent on this trade, i.e., the import of these non-essential items. This very trade was badly impacted during the initial stages of the Covid pandemic.”
He said the export sector was spared due to the quick intervention of the industry heads.
“The export sector was impacted the least because of the intervention of the Export Development Board (EDB) and other good people who understand trade. That ban really hurt the people and it took a long time for the Government to see this – two to three months I believe.”
Dias also echoes Gamage’s views on the Government’s loss of revenue as a result of the ban.
Time to review?
While acknowledging the import ban had a positive impact in terms of controlling foreign exchange outflow, Dias asserted that it was high time the ban was reviewed.
“I agree that the import ban had a positive outcome in reducing foreign exchange outflow. However, we cannot turn a blind eye to other economic activities in the country slowing down, which, I have to point out, is not measurable but has an effect on the manufacturer to distribution, right down to the consumer. But this impact is not measured.”
“I think we have had more than six months of this particular import ban. So, we should re-evaluate the ban and identify what needs to be banned and what doesn’t. We have requested the Government to review the import ban. They must also involve and consult the relevant stakeholders in doing so.”
Meanwhile, economic experts have asserted that the import ban was crucial under the current economic conditions the country was facing.
“The import ban is a necessity considering the current circumstances of the country, because we haven’t got enough foreign exchange to make the necessary payments for imports, as well as other commitments we have on account of the debt repayment.
“So as a result, there must be one way of preserving your foreign exchange balance that is available. In that context, the imposition of this import control on different items, which the country has classified as non-essential imports, is a must and there isn’t a question about that,” former Central Bank Deputy Governor and senior economist Dr. W.A. Wijewardena told The Sunday Morning.
However, he said one of the dangers of a prolonged import ban was the opportunity for smuggling of various goods.
“This occurred during 1970-1977, amidst the strictest import control and exchange control regime the country has ever seen; and the Government was satisfied in thinking they had stopped imports and thereby foreign exchange outflow. But there were private parties who were running private ‘central banks’, from which you could buy foreign exchange in any amount. Secondly, there were people who smuggled methodically into Sri Lanka the goods that had been banned.”
However, Dr. Wijewardena was adamant that the ban had achieved its goal thus far and reduced foreign exchange outflow in 2020.
“The current import ban has served its purpose in my view. One example is the motor car industry. Sri Lankans had been importing motor cars despite the fact that duty was about 300- 400%. Now that flow has stopped.
“The import bill, which earlier stood at around $ 20 billion, has come down to around $ 16 billion this year. So, we have saved $ 4 billion.”
He said that the Government should do away with the ban by the end of 2021 to ensure no large-scale smuggling operations occur.
Advocata Chief Operating Officer (COO) Dhananath Fernando opined that the ban would be lifted by the end of 2021.
“I think this will remain at the least till the next Budget at the end of 2021. I saw an interview by (Treasury Secretary) Dr. Attygalle and he said he was thinking to continue the ban for more than one year. I think this will continue for about a year – at least the ban on the main items,” he said.
Meanwhile, the European Union last week expressed its displeasure at Sri Lanka’s prolonged import ban. Issuing a joint statement, the Delegation of the European Union (EU) in Sri Lanka and the Embassies of France, Germany, Italy, and the Netherlands stated: “Such measures impair Sri Lanka’s efforts to become a regional hub and negatively impact Sri Lankan exports by constraining the import of raw material and machinery. We recall that a prolonged import ban is not in line with World Trade Organisation regulations.”
The statement then noted the benefits Sri Lanka enjoys as a trade partner of the EU: “Thanks to the EU’s special Generalised System of Preferences (GSP Plus), Sri Lanka enjoys competitive, predominantly duty and quota-free access to the EU market, based on the continued implementation of 27 international conventions on human rights, labour, environment, climate change and good governance.”
It went on to state that its position has been directly communicated to Minister of Foreign Relations Dinesh Gunawardena via high-level meetings, whilst reiterating it was looking forward to continuing its engagements with Sri Lanka.