By: Staff Writer
May 28, Colombo (LNW): Sri Lanka’s fragile economic recovery is facing renewed turbulence amid growing allegations that Sri Lanka Customs is artificially inflating the value of the US dollar for import-related transactions, triggering higher costs for businesses and consumers already struggling under severe economic pressure.
According to an official Customs circular, the department continued to apply an exchange rate of Rs. 351.17 per US dollar for import valuations and duty calculations between 25 and 29 May, despite the Sri Lankan rupee showing signs of recovery in the interbank foreign exchange market. Financial analysts and trade sector representatives argue that the Customs valuation rate significantly exceeded prevailing market rates quoted by commercial banks during the same period.
The controversial move has prompted criticism from legal and economic observers who warn that the arbitrary maintenance of an elevated dollar rate could undermine confidence in Sri Lanka’s stabilising currency market. The Free Lawyers Organisation publicly questioned why Customs persisted in using a higher exchange benchmark even after the Central Bank of Sri Lanka intervened to restore liquidity and calm volatility in the forex market.
The Central Bank had earlier announced that emergency monetary measures introduced last week had successfully reduced panic-driven distortions and stabilised interbank currency trading. However, importers claim the Customs valuation mechanism appears disconnected from actual market conditions, effectively imposing an invisible financial penalty on goods entering the country.
Industry representatives say the consequences are immediate and severe. Importers are compelled to pay duties and taxes calculated on an inflated dollar rate, sharply increasing the landed cost of essential goods, industrial raw materials, pharmaceuticals, food items, and consumer products. Many businesses fear these additional costs will inevitably be transferred to consumers through higher retail prices, worsening inflationary pressures across the economy.
President’s Counsel Maithri Gunaratne and Free Lawyers Organisation Chief Executive Officer Rajith Keerthi Tennakoon have called on authorities to urgently align Customs exchange rates with prevailing market rates. They argue that maintaining an unrealistic valuation system creates market distortions, unfairly burdens importers, and weakens public trust in economic governance.
Economists note that Customs exchange rates are traditionally used as administrative benchmarks for taxation and import valuation purposes and do not always mirror daily fluctuations in the interbank market. However, critics argue that the unusually wide gap between the official Customs rate and the actual trading rate raises concerns about transparency and policy consistency during a period of economic vulnerability.
Several import sector associations have warned that the discrepancy could discourage trade activity and create uncertainty for businesses already grappling with tight credit conditions, rising shipping costs, and reduced consumer demand. Small and medium-scale importers are expected to be hit hardest, with many lacking the financial flexibility to absorb sudden increases in import duties.
The controversy has also revived broader concerns regarding the balance between Government revenue collection and economic recovery. While Customs remains one of the State’s largest revenue-generating institutions, analysts caution that excessive taxation through inflated exchange valuations could slow down imports, disrupt supply chains, and intensify the cost-of-living crisis affecting ordinary Sri Lankans.
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