INTRODUCTION

In response to COVID-19’s impact on the economy, Sri Lanka has imposed restrictions to curb imports since March 2020 with the policy goal of conserving gross official reserves and strengthening the Sri Lankan Rupee. This brief compiled by the Ceylon Chamber of Commerce (CCC) and the USAID Partnership for Accelerating Results in Trade, National Expenditure and Revenue (PARTNER) Activity aims to provide clarity and awareness on the changes in the latest Import and Export (Control) Regulation gazettes published in July and August in comparison to those published in April, May and June[1] 2020. The gazettes are listed below:

1. Imports and Exports (Control) Regulations No. 01 of 2020 published in the Gazette Extraordinary No. 2171/5 dated 16 April 2020
2. Imports and Exports (Control) Regulations No. 02 of 2020 published in the Gazette Extraordinary No. 2176/19 dated 22 May 2020
3. Imports and Exports 6 (Control) Regulations No. 03 of 2020 published in the Gazette Extraordinary No. 2182/10 dated 30 June 2020
4. Imports and Exports (Control) Regulations No. 04 of 2020 published in the Gazette Extraordinary No. 2184/21 dated 16 July 2020
5. Imports and Exports (Control) Regulations No. 05 of 2020 published in the Gazette Extraordinary No. 2189/04 dated 18 August 2020
6. Imports and Exports (Control) Regulations No. 06 of 2020 published in the Gazette Extraordinary No. 2189/05 dated 18 August 2020

KEY TAKEAWAYS FROM THE JULY AND AUGUST 2020 GAZETTES

• The July and August Gazettes[2] confirm that regulations have been extended for an indefinite period from the previous validity of 16^th July 2020 seen in May and June Gazettes.
• The above-referred gazettes used four tools to control imports namely; Temporary Suspension (TS)[3], Credit Basis (C)[4], Import Control License (ICL)[5] and Banning (B)[6]. These are referred to as schedule I, II, III and IV respectively in this brief.
  • July Gazette replaces TS and C (schedule I and II) in May and June gazettes and, made amendments to the regulations pertaining to it.
  • August Gazette made further amendments to ICL[7] and B[8] schedules of May and June Gazettes and, made an amendment to the regulations[9].
• Ambiguity in definitions such as domestic value addition, Section 17 projects, local market etc. have been addressed in the July Gazette.
• Amendments to the Temporary Import for Export Processing (TIEP) scheme have been made in the July Gazette addressing the issues of indirect exporters and giving more clarity to the scheme.
• Provisions for advance payments and more lenience to the Board of Investment (BOI) approved projects have been provided in the July Gazette.
• July Gazette also outlines the course of action Customs will take for violation of the TS and C regulations and release of goods thereon.

KEY CHANGES OBSERVED

Table 01: Key changes in validity periods and schedules 

The Temporary Import for Export Processing (TIEP) Scheme

The June Gazette made amendments to the TIEP scheme particularly addressing concerns of indirect exporters and giving more clarity to the scheme introduced in May (as mentioned above). These amendments were continued in the July Gazette as well. Key details are highlighted below:

• An importer[17] should make a declaration to Customs and BOI or Sri Lanka Export Development Board (SLEDB). This should commence from the beginning of July 2020 followed by the first quarterly statement at the end of September 2020 and continued thereafter on a quarterly basis. This should be done with the below details and certified from a local bank:
  • Remittance receivables as at the beginning of the quarter
  • Value of exports effected within the quarter
  • Remittance received within the quarter
  • Remittance receivables as at the end of the quarter
• An indirect exporter should submit a purchase order issued by the exporter to the bank (to release documents) and to Customs (to release goods). Subsequently, a Goods Received Notice (GRN) issued by the exporter should be submitted to Customs within 14 days from the date of Customs clearance as stipulated in the July Gazette. However, with effect from 18 August[18] this was revised to 120 days from the date of Customs clearance of goods.
• A 20% local value addition (same as stipulated in the May Gazette) is required in order to qualify under TIEP scheme and the export earnings also has to be repatriated to the country within 120 days from the previous 60 days stipulated in the May Gazette.

Provisions for Advance Payments

While the May Gazette made no provisions for advance payments, the June Gazette looked to address this by providing some leniency if an advance payment was made[19]. The July Gazette took a more comprehensive approach by giving leniency to the traders who have made an advance payment prior to the effective date of all regulations published (as given below):

1. Customs will release goods under schedule I and II of the April, May, June and July Gazette, if total amount (on invoice) of goods have already been paid under the advance payment method before the effective date of respective regulations.
2. Customs will release goods under schedule I of the April, May, June and July Gazette under a 90-day credit facility, if 20% or more has already been paid under the advance payment method before the effective date of respective regulations.
3. Customs will release goods under schedule II of the April, May, June and July Gazette without a credit facility, if 80% or more has already been paid under the advance payment method before the effective date of respective regulations.

The above rules also apply to the Banking Act Directions No 1 of 2020 dated 19 March 2020 of CBSL if the above specified amounts under schedule I and II have been paid under the Advance Payment method on or before 18 March 2020.

However, for certain Agricultural items (specific HS codes given in July Gazette) in schedule I targeting the local market, an advance payment of 80% or more had to be made on or before 21 May 2020.

More lenience given to BOI Approved Projects

Both June and July Gazettes allocated the below mentioned provisions in order to provide more leniency to Projects approved under Section 17 of the BOI.

• Items in the current schedule I, which are imported targeting the local market, can be imported on a 90-day credit facility given that they are not in the Negative List issued by the Treasury and where the direct foreign investments of investors are not involved as well.
• However, if the project is expected to commence commercial operations before 31 October 2020 and for which credit facilities cannot be obtained from suppliers, the items in schedule I can be imported subject to the approval of BOI.

Goods Targeting the Local Market

The May Gazette allowed importation when an imported item under schedule I cannot be sourced locally provided that a 35% domestic value addition is achieved with a credit facility of 30-60 days. The June Gazette extended this to both schedule I and II with a credit facility of 30 days and limited it for goods targeting the local market. July Gazette too continued this regulation with an additional requirement of obtaining the recommendation from the Ministry of Industries to clear items, in addition to the previous requirements of 35% domestic value addition and a 30-day credit facility for items in schedule I and II. Agricultural products (specific HS codes given) have to get the recommendation from Department of Agriculture.

For an overview of the sector implications  and summary of import restrictions click here to read the full report