BOI zone leakage ‘immense’ as Customs move stalls: IMF

Tuesday, 3 November 2026 03:44 - - {{hitsCtrl.values.hits}}

Customs control and oversight of Board of Investment (BOI) enterprises remains incomplete despite a 2025 agreement, leaving duty-exempt inputs open to diversion into the domestic market without payment of applicable taxes, the International Monetary Fund (IMF) said, as tax exemptions and incentives, including BOI regimes, cost Sri Lanka close to Rs. 800 billion to Rs. 1 trillion annually in recent years.

Customs responsibilities for some 200 enterprises in special economic zones (SEZs) and 1,500 operating outside them have rested with the BOI rather than Sri Lanka Customs (SLC). “BOI did not carry out a full customs role, with no inspections and documentation being generally accepted as presented by the operator,” the IMF said in its Revenue Administration Diagnostic, adding that the BOI does not closely monitor the movement of goods, check inventory or enforce violations, leaving opportunities for revenue leakage it described as immense.

Under a Memorandum of Understanding (MOU) signed with the BOI in 2025, the initial phase of SLC control included 83 companies selected for scrutiny, but little progress has been made. “Many companies have expressed resistance to this change given the more intense oversight that will ensue,” the report said. SLC has sought additional staff and, for the time being, only imports will be checked, while a GPS tracking system is being procured with Asian Development Bank (ADB) support.

Granting SLC clear responsibility for import and export controls in the 12 BOI-administered SEZs is a commitment under the IMF program. Gaps in oversight also create unfair competition for compliant importers and domestic producers that pay applicable duties and taxes, the Fund said. “Any slowing or reversal after formalizing such commitments through the MOU would introduce uncertainty about the regulatory framework,” it warned.

At the border, aggregate physical examination rates remain high by international standards at close to 38%, down from 53% in 2021, though SLC’s internal risk-targeting framework accounts for about 16.3% of import containers, with the balance reflecting mandatory requirements of other government agencies. Examination success rates vary widely: 58.5% of examinations at grayline yards 1 and 2 resulted in findings in 2026, against 8.5% at the Rank Container Terminal and 7.3% for less-than-container-load cargo. “Examinations with no significant revenue result are an inefficient use of SLC resources, increase compliance costs for traders, and should trigger a review of risk criteria,” the IMF said.

Post-clearance audit (PCA), which checks declarations after goods are cleared, reported results of Rs. 4.6 billion in 2024, Rs. 2.48 billion in 2025 and Rs. 2.75 billion in the first five months of 2026, including additional entries, penalties and mitigated forfeitures, but the function is constrained by limited staffing, with four teams reviewing 304 blue-channel PCA shipments from January to March 2026. The Authorized Economic Operator (AEO) trusted-trader program, comprising 75 companies that represent close to 10% of trade volume, has been slow to take root, while uptake of paperless processing has been slowed by fear of job losses among brokers and concerns over the digital signature requirement. All importers are expected to be paperless by 1 January, 2027.