The Hon. Nishantha Jayaweera - Deputy Minister of Economic Development

¶ 01 Hon. Deputy Speaker, among the items presented for the approval of Parliament today, let us first consider the Order under the Stamp Duty (Special Provisions) Act. What is being done through this Order is to remit stamp duty that had been charged when the Government makes a payment of assistance to a person affected by a natural disaster. The main objective is to deliver the benefit to the recipient more swiftly and efficiently. That is the first Order before us today.

¶ 02 Second, there is a Regulation under the Ports and Airports Development Levy Act. Third, there is a Regulation under the Excise (Special Provisions) Act. The expectations under these are as follows.

¶ 03 We all know that when goods are imported or exported, the HS codes are used to identify product categories. Under the established practice, goods are identified using HS codes, which are a global standard for product classification updated periodically by the World Customs Organization. Every country aligns to these updates. Correct adoption of HS codes is decisive for customs duties, export control, and for participation in trade agreements such as ISFTA and SAFTA.

¶ 04 What is being done here is to introduce several sub-classifications for a number of identified products by assigning new HS subheadings. For example, the existing HS line for washing machines is being split into two: washing machines with a capacity of less than 15 kg, and others. In that manner, new HS subheadings are introduced across a range of products. When such new HS categories replace existing ones, the Ports and Airports Development Levy applicable on import will be realigned accordingly, and the corresponding excise charge removed where relevant. Through these two special measures, the PAPL at the prevailing rate and the applicable excise will be imposed on the newly introduced sub-classified HS lines. That is the purpose of these Regulations.

¶ 05 Fourth, there is a Regulation under the Value Added Tax Act. At present, anyone manufacturing garments locally pays 18 per cent VAT. However, importers of textiles have, up to now, been subject to a specific Cess per kilogram rather than VAT. Local garment manufacturers have requested a level playing field between domestic producers and importers. Therefore, with effect from 01 April 2026, the specific Cess on imported textiles has been removed and VAT is imposed instead on imported textiles. That is what this Regulation does. Some have expressed a view that this would harm domestic production and that finished apparel could be imported and sold cheaply. However, under the current tax policy, finished apparel imports are subject to VAT and other taxes at the point of import, setting a minimum price structure. If someone imports textiles and converts them into apparel for sale locally, the final goods will not be cheaper than imported finished apparel as alleged. Therefore, this will not adversely affect local production. Moreover, VAT-registered taxpayers can claim input credits; replacing the specific Cess with VAT allows registered taxpayers to credit the tax, thereby reducing production costs. That is the objective of this proposal.

¶ 06 Additionally, it was stated in this House today that under the IMF-supported debt restructuring, the relief under the so-called Macro-Linked Bonds cannot be obtained. Let me clarify. Under these bonds agreed with the IMF, if we achieve the set macroeconomic targets and publish fiscal statements on scheduled dates, we receive a 0.75 percentage point interest relief on restructured debt. For 2025, we have exceeded all the agreed macro targets and published fiscal statements on time. Therefore, we are eligible to receive the 0.75 percentage point interest relief on debt service. Because we have met the macro targets and disclosure timelines, we are entitled to this relief.

¶ 07 Thank you.