Sri Lanka’s plan to phase out para-tariffs will reduce import duties by around nine percentage points and reshape cost structures across manufacturing while lifting household consumption and real incomes, the World Bank said in its South Asia Economic Update for April 2026.
The report notes that Sri Lanka’s simple average import duty stands at 19%, of which 11 percentage points come from para-tariffs rather than statutory tariffs. “Less than half of these import duties are statutory tariffs,” the World Bank said, referring to levies such as the Ports and Airport Development Levy (PAL) and the Commodity Export Subsidy Scheme (CESS).
The reform’s impact will be concentrated in manufacturing. Para-tariffs exceed statutory tariffs across all manufacturing sectors, with the largest reductions expected in processed food and beverages — where duties could fall by as much as 28 percentage points. Textiles and mining, already operating under lower effective tariff regimes, would see cuts of below five percentage points.
Gains are projected to be uneven across income groups. Lower-income households, particularly in rural areas, stand to benefit more because of their higher share of spending on food: the poorest rural households allocate about 31% of expenditure to food manufacturing, compared with around 10% to 12% among richer households.
Household consumption is projected to rise by around 3.1% in the short term as a result of the phase-out. The Bank said the largest gains would flow to households more exposed to food and other manufactured goods.
From a trade perspective, the reform shifts incentives across export sectors. Sri Lanka’s strongest export industries — including textiles and tea — already operate under relatively low tariff regimes, while the largest tariff reductions are concentrated in sectors with weaker comparative advantages and higher existing protection, including food and beverage manufacturing and rubber and plastic products.
Under the government’s National Tariff Policy, the phase-out runs from 2025 through 2029. The policy forms part of Sri Lanka’s broader structural reform agenda under the IMF Extended Fund Facility, alongside cost-reflective energy pricing and external debt restructuring.
Source: Daily FT.
