By: Staff Writer
November 08, Colombo (LNW): Sri Lanka’s ambition to expand export earnings and strengthen foreign exchange reserves faces a fundamental challenge: reducing the cost of production while ensuring that government incentives deliver tangible economic benefits. The announcement of tax concessions under the Temporary Importation for Export Processing (TIEP) scheme has once again brought the effectiveness of the country’s export promotion policies into focus.
Industry and Entrepreneurship Development Minister Sunil Handunnetti recently announced that export-oriented manufacturers could obtain concessions on imported raw materials and machinery through the Industry Ministry.
Speaking during his ‘Ask Handun’ social media programme, the Minister said businesses manufacturing products for overseas markets could approach the Ministry directly to register for the facility.
The policy recognises an important economic reality. Sri Lankan manufacturers cannot compete internationally if the cost of producing goods remains excessively high. Imported raw materials, industrial machinery and specialised equipment frequently constitute substantial components of manufacturing expenditure.
Tax concessions on these inputs could therefore improve production economics, encourage investment and help local industries expand their presence in overseas markets.
Hitherto the announcement raises a more fundamental question about the Government’s approach to export development: are incentives being designed as part of a comprehensive national strategy, or are they being introduced as isolated administrative measures without publicly disclosed performance targets?
The TIEP scheme could become a valuable instrument if its implementation is supported by transparent eligibility criteria, efficient registration procedures and effective monitoring. However, the absence of publicly announced operational details makes it difficult for manufacturers to determine the actual benefits available to them.
For example, the Ministry has not specified the concession rates, the categories of eligible machinery and raw materials, the expected approval period or the procedures for monitoring imports received under the facility.
These are not minor administrative details. They determine whether the scheme will become a practical instrument for industrial development or another government incentive that businesses find difficult to access.
The potential consequences of unequal access also deserve attention. Large export companies generally possess specialised personnel capable of handling customs documentation, regulatory requirements and complex import procedures. Smaller manufacturers may lack such resources.
If the Government genuinely intends to strengthen the country’s manufacturing base, small and medium-sized enterprises must receive equal opportunities to benefit from the scheme.
Equally important is the protection of public revenue. Tax concessions represent revenue foregone by the Government. Although such concessions may generate greater foreign exchange earnings and employment, their economic justification must be established through measurable results.
The authorities should therefore publish annual information covering the number of participating companies, the value of approved imports, tax revenue forgone, additional export earnings and employment generated.
A proper audit mechanism must also ensure that concessionary imports are used for approved export production rather than diverted into domestic commercial channels.
Furthermore, tax relief alone cannot resolve the structural weaknesses affecting Sri Lankan manufacturing. High financing costs, energy expenses, technological limitations, transport costs and unpredictable policy decisions continue to influence industrial competitiveness.
The Government should therefore connect the TIEP facility with a wider industrial development programme involving technology upgrading, research, workforce training, export market diversification and improved trade facilitation.
Sri Lanka cannot build a competitive export economy merely by announcing incentives. It must demonstrate that public support produces additional investment, higher productivity and sustainable foreign exchange earnings.
The Ministry must now move beyond the announcement and publish a comprehensive implementation framework. Otherwise, the country risks repeating a familiar pattern in which attractive government incentives remain impressive on paper but fail to transform the productive economy.
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