Sri Lanka’s customs administration is confronting a major institutional challenge: while ordinary importers face increasingly stringent taxation and compliance requirements, thousands of Board of Investment (BOI) enterprises continue to operate under a supervisory arrangement that the International Monetary Fund (IMF) says has left enormous opportunities for customs revenue leakage.
The IMF’s Revenue Administration Diagnostic reveals that weaknesses extend beyond the BOI’s failure to monitor duty-exempt goods. They also involve inefficient physical inspections, inadequate post-clearance auditing, slow digitalisation and institutional resistance to modern customs administration.
The findings raise an uncomfortable question: Is Sri Lanka deploying its limited customs resources effectively, or is the country imposing unnecessary compliance costs on legitimate traders while failing to adequately supervise potentially high-risk transactions?
The report identifies approximately 1,700 BOI enterprises operating inside and outside special economic zones. Hitherto Customs has not exercised comprehensive control over these businesses, despite the privileges they receive on imported inputs.
Under a 2025 Memorandum of Understanding, Customs initially selected 83 enterprises for greater scrutiny. However, implementation has been slow, partly because companies have resisted tighter supervision. Customs has requested additional personnel, while the initial arrangement will concentrate only on imports. A GPS-based tracking system is also being procured with Asian Development Bank support.
But the weaknesses are not confined to BOI enterprises.
At the country’s borders, physical examination rates remain close to 38%, although they have declined from 53% in 2021. Significantly, Customs’ own risk-targeting framework accounts for only approximately 16.3% of import containers, with the remaining examinations largely reflecting mandatory requirements imposed by other government agencies.
More troubling is the enormous variation in the effectiveness of inspections.
In 2026, examinations at Grayline Yards 1 and 2 produced findings in 58.5% of cases. However, the corresponding success rates were only 8.5% at Rank Container Terminal and 7.3% for less-than-container-load cargo.
The IMF has questioned the economic justification for examinations that produce no significant revenue results, warning that they waste Customs resources and increase compliance costs for traders.
Post-clearance audits provide another indication of the potential revenue recovery capacity. These audits generated Rs.4.6 billion in 2024 and Rs.2.48 billion in 2025, followed by Rs.2.75 billion during the first five months of 2026.
However only four teams reviewed 304 blue-channel post-clearance audit shipments between January and March 2026, exposing serious staffing limitations in a function that could identify underpayments and incorrect declarations after goods have already been released.
The trusted-trader programme also remains underdeveloped. Although 75 companies participating in the Authorised Economic Operator scheme account for nearly 10% of trade volume, expansion has been slow.
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