Advocata urges Govt. not to kill what’s helping e-commerce customers; pushes for checkout tax reform

The Advocata Institute yesterday urged the Government not to drive away what’s helping consumers when it comes to e-commerce and recommended adopting a Vendor Collection Model.

It said thousands of parcels ordered by Sri Lankans from popular e-commerce platforms like Temu, AliExpress, and eBay are now stuck at Customs, caught in a legal grey zone that is choking the flow of goods. 

The Advocata Institute warned ensuring consumer choice through a competitive market is key to delivering reasonable prices and better quality for Sri Lankans. 

“Without a modern legal framework enabling e-commerce platforms to collect taxes at the point of sale, the country faces worsening Customs delays, supply chain bottlenecks for small businesses, and the loss of millions in potential Government revenue, disrupting consumer choice. Sri Lanka’s already complicated tariff system only compounds the problem, making it harder for importers and Customs officials alike to navigate duties and clearances efficiently,” Advocata said. 

Advocata...

Until June, it said, incoming parcels were taxed under an informal ‘per kilo’ system, where agents declared goods as personal effects and paid a flat fee. 

This unofficial arrangement was manageable until a surge in cross-border shipments, driven by platforms like Temu, AliExpress, and eBay, overwhelmed the system.

In response, the Customs scrapped the workaround, informing the public that they are now using the ‘correct’ instrument. Tax is now levied at the level of individual items. Every parcel’s contents must be individually declared by the Harmonised System (HS) code to the Customs. At current volumes, this is impossible. The result translates into severe backlogs, consumer frustration, and growing pressure on Customs officers. Small and Medium Enterprises (SMEs) are also suffering, as they often source critical inputs from these platforms.

Advocata said the core problem is legal and tariff complexities: Sri Lanka lacks the legislation to enable e-commerce platforms to act as tax intermediaries. In contrast, countries such as Singapore and Australia have modernised their tax codes to allow foreign vendors to collect and remit taxes upfront before goods even leave their warehouse.

What’s the solution?

Sri Lanka’s current tariff system is notoriously complex, with a maze of duties, levies, and exemptions that make Customs clearance both time-consuming and unpredictable. This complexity creates uncertainty for importers and increases the administrative burden on Customs authorities. This also leads to an uneven playing field, where arbitrary exemptions and discretionary application of rules result in unfair advantages for a few at the expense of others.

Advocata recommends adopting a Vendor Collection Model, where platforms collect and remit taxes at the point of sale. This model is used globally and offers several advantages:

Bullets

Efficiency: Removes the need for HS code classification at the Customs.

Fairness: Exempts low-value goods through a “clear de minimus” threshold (e.g. $ 75).

Accountability: Only high-volume platforms (e.g. >10,000 parcels/month) must comply.

Compliance: Platforms register locally or appoint a tax representative.

In mooting urgent action, Advocata said it is not just about revising tariff rates, it is about fixing how we collect taxes. Relying on HS code-based tariff enforcement at the border for thousands of small parcels is not just impractical, it risks driving e-commerce platforms away altogether. Without reform, parcel delays will worsen, the Customs will choke, and public revenue will continue leaking all while e-commerce grows. 

Allowing e-commerce platforms to operate and expand is ultimately about protecting consumer choice and ensuring trade integrity, and State revenue. As these platforms widen access to goods, they empower consumers with greater choice, driven by the economics of the long tail. This expands variety, coupled with increased competitive pressure, delivering tangible benefits to consumers, including lower prices, faster innovation, and greater convenience. Inaction risks undermining these gains.