By Uwin Lugoda
Local importers have expressed their concerns over the Cabinet’s decision to extend the validity period of the order issued under the Foreign Exchange Act regarding the restriction on outflows of foreign exchange by six months.
Speaking to The Sunday Morning Business, the Import Section of the Ceylon Chamber of Commerce stated that they are concerned for the local importers who are suffering in silence due the current restrictions. They explained that the local importers are already operating at a very low level because of these restrictions, having reduced their scale of operations significantly, and any further extensions would result in a lot of people losing their sources of income.
“We do not have proper figures to give you, since we do not know the full impact of the restrictions. But most products have been completely stopped since April, and the figures we have seen from the Central Bank of Sri Lanka (CBSL) do not reflect on the whole impact,” said one official.
Approval was given at the Cabinet meeting held on 24 June to issue an order valid for a period of six months under the Foreign Exchange Act to impose restrictions on capital transactions that cause foreign exchange outflows, which includes imports.
The Gazette Notification, which was dated 2 July, was enacted and was valid until 1 January 2021. However, the Cabinet approved the proposal to extend the order put forward by the Prime Minister and Minister of Finance Mahinda Rajapaksa recently.
When asked if they plan to appeal, the official stated that when they appealed earlier, a majority of the people thought they were asking for unnecessary imports, despite most of these imports being required for value addition for exports.
“We agree that there is a definite problem with Sri Lanka’s forex, but we cannot accept an exercise like this, as it not only affects the importers but also restricts the economic activity of the country.”
Taking fruit imports as an example, they explained that some of the fruits are currently not allowed to be imported into a country or have a very high CESS tax, which has caused many of the locals involved in the trade to lose their incomes.
“Now one can argue that we do not need oranges and apples, but the fact is these people lost their income, and this restriction is also impacting our economy. The economic activity must go on, so that people can earn something. Otherwise you have to pump Rs. 5,000 every two weeks for these people and this is unnecessarily increasing inflation and the Government’s budget.”
According to available data, Sri Lanka reported a net foreign outflow of Rs. 101.4 billion from 1 January up to the third week of June this year. Out of this Rs. 101.4 billion, Rs. 83 billion is net outflow from Treasury bills and bonds, as the CBSL’s indicators revealed, while the rest was outflow from the Colombo Stock Exchange (CSE).
The net outflow during this period is substantially higher than the Rs. 72 billion in overall net foreign outflow reported from 1 January-20 December 2019, during which period the Easter Sunday incident shook the country’s economy.
Sri Lanka introduced import restrictions initially on nonessential imports in late March, which was later expanded to all imports excluding fuel and pharmaceutical products and subsequently, raw material required for export purposes and construction materials too were exempted. Nevertheless, certain food and beverage category products were allowed to be imported during that time. Following this, on 15 April, the Government announced import restrictions on items such as rice, flour, sugar, liquor, and apparel products, extending restrictions to 15 July which was once again extended until further notice. However, apparel imports are now permitted with a high CESS per kg.
In September, State Minister of Finance and Capital Market and State Enterprise Reforms Ajith Nivard Cabraal further emphasised this and told local media that import restrictions are a temporary measure to avoid a possible foreign exchange crisis in the country and that restrictions would be eased phase by phase when sufficient foreign exchange flows into the country. Cabraal added that the gradual easing of restrictions will be done in a manner that would not hurt local industries.
During the Budget reading which took place on 17 November, there were proposals to relax import restrictions and reduce import taxes on vehicle spare parts. Other imports such as those for the construction sector were also promised the simplification of the approval process, removal of import taxes on construction machinery, and easier access to raw materials such as sand. Investors who wish to set up facilities to recycle construction waste have been granted a 10-year tax concession and any machinery they import for that purpose will be exempt from import taxes.
“We do not have proper figures to give you, since we do not know the full impact of the restrictions. But most products have been completely stopped since April, and the figures we have seen from the Central Bank of Sri Lanka (CBSL) do not reflect on the whole impact,” said one official.
Approval was given at the Cabinet meeting held on 24 June to issue an order valid for a period of six months under the Foreign Exchange Act to impose restrictions on capital transactions that cause foreign exchange outflows, which includes imports.
The Gazette Notification, which was dated 2 July, was enacted and was valid until 1 January 2021. However, the Cabinet approved the proposal to extend the order put forward by the Prime Minister and Minister of Finance Mahinda Rajapaksa recently.
When asked if they plan to appeal, the official stated that when they appealed earlier, a majority of the people thought they were asking for unnecessary imports, despite most of these imports being required for value addition for exports.
“We agree that there is a definite problem with Sri Lanka’s forex, but we cannot accept an exercise like this, as it not only affects the importers but also restricts the economic activity of the country.”
Taking fruit imports as an example, they explained that some of the fruits are currently not allowed to be imported into a country or have a very high CESS tax, which has caused many of the locals involved in the trade to lose their incomes.
“Now one can argue that we do not need oranges and apples, but the fact is these people lost their income, and this restriction is also impacting our economy. The economic activity must go on, so that people can earn something. Otherwise you have to pump Rs. 5,000 every two weeks for these people and this is unnecessarily increasing inflation and the Government’s budget.”
According to available data, Sri Lanka reported a net foreign outflow of Rs. 101.4 billion from 1 January up to the third week of June this year. Out of this Rs. 101.4 billion, Rs. 83 billion is net outflow from Treasury bills and bonds, as the CBSL’s indicators revealed, while the rest was outflow from the Colombo Stock Exchange (CSE).
The net outflow during this period is substantially higher than the Rs. 72 billion in overall net foreign outflow reported from 1 January-20 December 2019, during which period the Easter Sunday incident shook the country’s economy.
Sri Lanka introduced import restrictions initially on nonessential imports in late March, which was later expanded to all imports excluding fuel and pharmaceutical products and subsequently, raw material required for export purposes and construction materials too were exempted. Nevertheless, certain food and beverage category products were allowed to be imported during that time. Following this, on 15 April, the Government announced import restrictions on items such as rice, flour, sugar, liquor, and apparel products, extending restrictions to 15 July which was once again extended until further notice. However, apparel imports are now permitted with a high CESS per kg.
In September, State Minister of Finance and Capital Market and State Enterprise Reforms Ajith Nivard Cabraal further emphasised this and told local media that import restrictions are a temporary measure to avoid a possible foreign exchange crisis in the country and that restrictions would be eased phase by phase when sufficient foreign exchange flows into the country. Cabraal added that the gradual easing of restrictions will be done in a manner that would not hurt local industries.
During the Budget reading which took place on 17 November, there were proposals to relax import restrictions and reduce import taxes on vehicle spare parts. Other imports such as those for the construction sector were also promised the simplification of the approval process, removal of import taxes on construction machinery, and easier access to raw materials such as sand. Investors who wish to set up facilities to recycle construction waste have been granted a 10-year tax concession and any machinery they import for that purpose will be exempt from import taxes.