More of the Same: Budget 2016 increases protection and dependence on trade taxes

Abstract

Sri Lanka was amongst the early movers in trade and economic liberalisation in South Asia. However, this initiative was somewhat backtracked upon in the past 10 years. This insight points out that, despite the claims, the policies outlined in the Budget 2016 are continuing rather than reversing this trend of backtracking. The Budget Speech states a commitment to a simplified tariff structure by further reducing the number of tariff bands from four to three. However, the details reveal that the government has in fact increased taxes on imports, while presenting a policy front of reducing these taxes. One of the challenges that Sri Lanka faces in moving away from trade taxes is the weakness in its administration of domestic direct and indirect taxes. This weakness has trapped the government into high dependence on trade taxes which in turn have consequences on consumers and investors. These reflect more continuity than change with regard to trade liberalisation.