SRI LANKA Law and Practice Contributed by: Ayanthi Abeyawickrama, Varners
• Section 34 – enables the Commissioner General to reallocate profits or income among associated per - sons to prevent artificial income shifting designed to reduce tax liabilities. These rules empower the tax authorities to counteract artificial arrangements, misstatements and schemes designed to avoid or evade tax liability, whether through deliberate misrepresentation or aggressive tax planning. Together, these rules form a powerful multi-layered system aimed at curbing tax avoidance. Taxpayers should be aware that every arrangement lacking commercial substance, involving non-arm’s- length pricing or resulting in artificial income trans - fers may be challenged by the Commissioner General under these provisions, with the potential for adjust - ments, penalties and even criminal proceedings in serious cases. 5.8 Tariffs Sri Lanka applies a range of ad valorem rates depend - ing on the nature of the product, its use and its origin. Raw materials and essential capital goods generally enjoy low or zero tariff rates, while finished consumer goods – especially those competing with local indus - tries – are subject to higher rates. Tariffs on agricultural products, textiles and apparel, and automobiles tend to be among the highest. These duties are designed to offer protection to domestic manufacturing, agri - culture and assembly sectors, which are considered sensitive or strategically important to the national economy. In addition to basic customs duties, imports may attract other levies, such as VAT at 18%, the Port and Airport Development Levy, Excise Duty (on selected goods such as liquor and vehicles) and the Social Security Contribution Levy at 2.5%, depending on the category of goods and importer status. Tariff preferences are available under various regional and bilateral trade agreements, including the South Asian Free Trade Area (SAFTA), the Indo–Sri Lanka Free Trade Agreement, and the Sri Lanka–Singapore Free Trade Agreement, through which reduced or zero duties may apply on qualifying goods. However, Sri
Lanka maintains a sensitive list under these treaties to retain tariff protection for key sectors. Global trade developments, such as shifting supply chains, currency volatility and rising protectionism in other jurisdictions, have also influenced Sri Lanka’s customs and tariff policies. The government periodi - cally reviews rates and trade concessions in response to these external economic factors, as well as to man - age foreign exchange outflows and support domestic producers. In April 2025, the United States imposed a 44% reciprocal tariff on Sri Lankan goods, threatening key export sectors such as apparel and rubber. Following negotiations, the rate was reduced to 30% and then to 20% by the end of July 2025. After the United States Supreme Court struck down the tariffs imposed under the International Emergency Economic Powers Act in February 2026, the United States moved to maintain duties under Section 122 of the Trade Act of 1974, leaving Sri Lankan exports subject to a 10% baseline tariff alongside applicable sector-specific and most- favoured-nation duties; the position remains fluid. In response, Sri Lanka is implementing a National Tar - iff Policy that rationalises customs import duty into bands of 0%, 10%, 20% and 30% and gradually phases out para-tariffs, aiming to boost competitive - ness and align with international trade norms. Sri Lanka does not impose any merger control notifi - cation thresholds based on revenue, market share or asset value, and there is no mandatory pre-merger notification requirement for private unlisted compa - nies unless otherwise required by a sectoral regulator. Amalgamations and company mergers are regulat - ed under the Companies Act, No 7 of 2007, which sets out procedural requirements for amalgamations, including court-supervised amalgamations. For listed companies, the SEC has issued the Takeovers and Mergers Code of 1995 (as amended), which requires prior notification to, and approval from, the SEC when an acquirer crosses specified shareholding thresholds 6. Competition Law 6.1 Merger Control Notification
1012 CHAMBERS.COM
Powered by FlippingBook