AGLOBAL / COUNTRY STUDY AND REPORT
ON“POLICIES AND NORMS OF INDIA FOR IMPORT OR EXPORT TO
THE SRILANKA COUNTRY INCLUDING LICENSES OR PERMISSION TAXATIONS”
Submitted To(LDRP Institute of Technology and Research)
IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE AWARD FOR THE DEGREE OF
MASTER OF BUSINESS ADMINISTRATION
InGujarat Technological University
UNDER THE GUIDANCE OF
Prof. Pooja Sharma(Assistant Professor)
Submitted byIrene D’costa (2002)RohanParimal (2015)Pratik Somaiya (2028)KunjalChahar (2029)
DipaliVaria (2056) [Batch: 2010-12]
MBA SEMESTER-IV
LDRP-Institute of Technology and Research, Gandhinagar
MBA ProgrammeAffiliated to Gujarat Technological University
Ahmedabad
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POLICIES AND NORMS OF SRILANKA WITH TAXATION POLICY FOR INDIA
History of India Sri Lanka Trade RelationsEconomic relations between India and Sri Lanka have an extended history dating
back to centuries. The formal economic relations within the post freelance era
began in 1968 with the fitting of the Indo-Lanka Joint Committee on Economic
Cooperation (ILJCEC) that aimed toward increasing economic cooperation in
trade, industry, agriculture and tourism. This joint committee was later reworked
into a Joint Commission for Economics, Trade and Technical Cooperation
(JCETT) consisting of two layers, the Commission of Ministers of Foreign Affairs
and a sub-committee consisting of senior officers.
An additional sub-committee was added in 1992 to hide Culture, Education, and
Social Activities, whereas a third sub-committee was added in 1993 named Sub-
Committee on Science and Technology. The sub-committee on economic affairs
was renamed because the sub-committee on Trade, Finance and Investment.
The JCEET was a helpful instrument for the officers of the two countries to fulfill
and discuss trade and economic problems.
Legal SystemSri Lanka, like South Africa, Zimbabwe, Mauritius and also the Philippines,
encompasses a mixed legal system. It consists of the weather of two foreign laws
- the Roman Dutch law and also the English Law and different systems of law
that exist in Sri Lanka notably the Kandyan law, Muslim law, Tesawalamai law,
Buddhist law and Hindu law. In Sri Lanka, principles adopted from England apply
in relation to bills of exchange, sale of products, partnership, companies,
insolvency, banks and banking, maritime matters, insurance, criminal law,
procedure and proof.
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Currency and BankingIn Sri Lanka, the unit of currency is that the Rupee (Rs.). Sri Lanka, accepting
Article VIII of the Articles of Agreement of the IMF removed all restrictions on
current external transactions. The Sri Lankan rupee is absolutely convertible and
might be freely utilized in respect of all current international transactions. Sri
Lanka has taken a significant success within the liberalization of foreign
exchange transactions by permitting business banks to work out the exchange
rate freely.
The exchange rate of the Sri Lankan rupee fluctuates against the currencies of
its trading partners. THE CENTRAL BANK OF SRI LANKA and the financial Law
Act, No. 58 of 1949, commenced operations on twenty eighth August 1950. It’s
liable for the administration and regulation of the financial and banking system in
Sri Lanka. It acts as Government’s fiscal agent, banker and money adviser. Its
operate are to issue currency, examine and supervise the banking
establishments and to advance credit to business banks and different specialized
cash lending establishments in times of economic crisis.
Sri Lanka encompasses an absolutely developed business banking system
consisting regarding twenty six business banks. Two of the massive business
banks, that have an intensive network of branches in all components of Sri
Lanka, are public sector banks. There are four personal native banks. All foreign
business banks in Sri Lanka have operational services in Colombo that is that the
business centre of Sri Lanka.
Foreign currency banking unit’s pirate as subsidiaries of economic banks, stick
with it transactions in foreign currency with non-resident enterprises like those
established within the Free Trade Zones in Sri Lanka.
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Economy and Business ClimateSri Lanka encompasses a liberal economic policy. In 1978, Sri Lanka adopted an
open market economy framework inserting stress on an outward wanting and
liberal economic policy regime with the target of building a coherent stable
macro-economic and money framework to market economic growth, diversify the
economy, cut back unemployment & inflation & at an equivalent time making a
social safety internet through well targeted welfare programs to boost the
common living conditions of the folks. With the transition to an open market
policy framework, inserting stress on economic liberalization, Sri Lanka began
establishing market oriented policies & took keen interest in introducing provide
aspect economic policies. A number of the foremost policies implemented during
this direction.
IMPORT AND EXPORT OF SRILANKA
Import Policies of Sri LankaDespite an economy open to foreign investment, the pace of reform in Sri Lanka
has been uneven. The Trade, Tariff,& Investment Policy Division of the Ministry
of Finance & designing are charged with the formulation & implementation of
policies in these areas. Additionally, the Trade & Tariff cluster of the National Council of Economic Development (NCED) conjointly examines trade & tariff
problems & sends recommendations to the Ministry of Finance & designing. The
NCED consists of twenty-two clusters representing each personal & public sector
officers that examine varied sectors of the economy.
Export PolicyLiberalized policy based on export-led growth was introduced in 1977 in order to
have better resource allocation based on comparative advantage and to take
advantage of the diffusion of technology and learning. The export sector now
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receives the highest priority in foreign trade policy in order to have a healthy
balance of payments position and for general economic expansion.
Recently, exports of traditional agricultural products such as tea, rubber and
coconut had limited capacity for trade expansion with a tendency to decline
markedly in value and sometimes in volume as well. For this reason, export
duties have been reduced on tea and coconut in order to assist producers. There
are duty reductions for all marine products which would have been subject to 5
per cent duty, but now have been exempted. Similarly, flexible floor price
schemes are abolished.
The Government has pursued a policy of export diversification with notable
success to enhance the share of export value earned by the three traditional
crops and increase the industrial exports. Industrial Exports on Garments have
increased their share 28% to 33% of total exports during the past period.
Import ProcedureSri Lanka had been primarily an agricultural & self-dependent sovereign nation in
the ancient past. Due to historical, political &economical changes it has ceasedto
be a self-dependent nation. Today it is mainly dependent on trade & the Imports
Division of the Sri Lanka Customs Department plays a vital role in this regard in
the economy.To ensure this task the Imports division consists of three separate
units namely Long Room, "D" branch & Postal Appraising unit according to the
functions; headed by Director (Imports & Tariff).
Export ProcedureTo facilitate the exporters Sri Lanka Customs Export Procedure has been
simplified to an excellent extent in recent past. Rules & laws are relaxed & duty
exemptions & concessionary duty rates are given to exporters as an
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encouragement. Export promotional schemes are implemented with collaboration
with different state agencies as a section of state endeavor to develop Sri Lanka
as a rustic with an export oriented economy. Additionally Sri Lanka Customs
pays an excellent attention in all export connected activities to safeguard national
wealth like archeological treasure & fauna & flora by implementing connected
laws.
The Following Documents should be always there in Import-Export process
Delivery order
Bill of Lading
Invoice as per exchange involved
Exchange documents
Packing list
Certificate of origin
Import control license (if applicable)
Certificate of registration & translation for used motor vehicles
Load port survey certificate for food items
S.L.S.I/Quarantine certificate. If applicable)
Catalogues/literature.( If necessary)
Prohibited Narcotics
Pornography
Anti-religion materials
Indian and Pakistani currency
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Restricted Pets – import required obtainable from nearest Embassy or Mission
Weaponry and ammunition with permission only. Contact the
nearestembassy for more details.
Cultural artifacts
Plants, animalsany part thereof and foodstuff. For more details please
contact nearest Embassy
Medicines,for personal use only, in original packaging and accompanied
by the prescription and doctor’s note.
Currency – any local or foreign currency exceeding equivalent of US
$15,000 needs to be declared, local currency (Sri Lanka Rupee) up to
5,000.
The above Prohibition and Restriction will be applicable to Export policy as well
as the import policy of Sri Lanka.
Forms of Business Enterprise in Sri LankaForeign investors could establish a business presence in Sri Lanka, through any
of the subsequent forms:
Sole Proprietorship
Partnership
Private & Public firms
People’s Company
Limited & Unlimited firms
Offshore firms
Foreign Branches
Liaison Offices
Joint Ventures
Co-operatives
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Taxation Policy of Sri LankaThe extent of the tax liability to Sri Lankan & non-nationals on profits & income
depends on the residence standing of the individual, company & body of persons
in Sri Lanka. Residents are taxed on worldwide income whereas non-residents
are taxed on Sri Lankan supply income solely. The most income tax rate in Sri
Lanka is 35 per centum. Expatriate staff fancy a concessionary rate of 15 per
centum throughout their deemed non-residency amount. Further, the Department
of Inland Revenue is liable for the economical administration of the following:
1. Direct Taxation Income Tax
The tax is levied on the Income of any person arising in or derived from Sri
Lanka. A resident is taxable on world income. Any other person is taxable
only on income arising or derived in Sri Lanka.
Nature of Company Taxable Income Income Tax RateQuoted N/A 35%
Venture Capital N/A 20%
Other Companies < 5 Million 15%
Economic Service Charge (ESC)
RequirementAn Economic Service Charge shall be charged, if combination turnover
from trade, business, profession or vocation carried on or exercised in
Sri Lanka whether or not directly or through an agent or over one
agent, exceed Rs. 25 Million (25 M) for that relevant quarter of each
year of assessment.
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RegistrationFollowing document be submitted to the ESC branch of the
Department of Inland Revenue
TIN Certificate
Letter from the Company requesting to Open a ESC file
The rate of ESC is 0.25% to 1% on total turnover or receipts it is
exceeds SRL 7.5Mn or USD 75,000 per quarter.
This can be set off against the income tax payable and can be
carried forward for four years, but no refund is due.
Custom Duties
Sri Lanka Customs could be a key state organization operational at the
frontiers and its main functions focus on revenue assortment and
implementing Customs law and different connected rules and laws. Within
the method the department endeavors to make sure swish movement of
individuals and merchandise across the border. Custom duty is applicable
for the import and export procedures.
Remittance Tax
In addition to paying the Standard corporate income tax, remittances
made by a branch to a foreign head office are subject to a 10% tax.
Others Social Responsibility Levy
SRL is imposed on Companies at 1.5% of the income tax liability
Surcharge on Income Tax
Save the Nation Contribution
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1. Indirect Taxation Goods and Services Tax
Turnover Tax
Business Turnover Tax abolished in Sri Lanka with effect from 1st
January, 2011 and such Trading Businesses are liable for Nation Building
Tax (NBT).
Rates Charged are as follows
All businesses engaged in buying and selling of articles and commodities
other than exempt items are liable to turnover tax. Rates are as follow,
Sale of Gems, sawn timber and precious and semi precious stones,
furniture 5%
Sale of Jewellery 5%
Sale of other articles 1%
Value Added Tax (VAT)
VAT is levied on supply of most goods and services, as well as the most
import of goods. Standard rate is 12% with a reduced rate of 5% applying
to essential items. Certain supplies are zero-rated or exempt. Retail and
wholesale businesses that supply goods are subject to a turnover tax of
1%.
Nations Building Tax (NBT)
The Government has imposed a new levy termed the Nation Building Levy
akin to the National Security Levy which prevailed at the rate of 3% on
turnover. Importers, Manufactures and Providers of services are liable for
NBT. The levy is payable for any quarter where turnover for the quarter
exceeds Rs.1, 00,000.
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National Security Levy
A National Security levy of 2% is levied on all imported capital goods.
Exemptions from this levy will be granted on
Imports utilized in the manufacture of exports, as well as
consumables
Articles brought into the country for temporary use, for repair and
re-export or for show at exhibitions or for repair and reimported.
Items of plant and machinery shipped abroad for repair and
reimported.
Gold imports for sale at Duty Free outlets
All other imported or manufactured articles are subject to a National Security
Levy of 4.5%. Exported articles are not subject to the levy.
Stamp Duty
Stamp Duty shall be charged at rates published in the Gazette on every
specified instrument,
Executed, Drawn or Presented in Sri Lanka
Executed outside Sri Lanka being an instrument which relates to
property situated in Sri Lanka at the time such instrument was
presented in Sri Lanka. Otherwise than in the case where there is
an agreement to the contrary, stamp duty shall be payable as
follows,
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Specified Instrument Stamp Duty who ought to pay1. An Affidavit Rs. 100 Person who draw the
affidavit2. Insurance Policy Rs. 0.50 for every Rs. 1,000 or
part thereofPerson effecting insurance
3. Warrant to act as a notary public
Rs. 1,000 Person who Draws
4. License to carry out Trade, Business,Professional or Vocation other than any trade or business of sale of liquor, for any period specified in such license
Rs. 1,000 or 10% of license fee whichever is less
Person who issuing License
5. Any license issued authorizing the holder to carry on any trade or business for sale of liquor , for any period specified in such license
Rs. 10,000 Person who issuing License
6. On Credit Cards Rs. 10 for every Rs. 1000 or Part thereof
Credit card holder
7. Share Certificates (new, additional issue or transfer)
Rs. 5 for every Rs. 1000 (on market value of shares)
by the transferee or assignee
8. Bond or Mortgage affecting any Property
Rs. 1 for every Rs. 1000 or part thereof
Person, who draw Bond, mortgage
9. Promissory Note Rs. 1 for every Rs. 1000 Or part thereof
Person who draw the P. Note
10.Lease, hire, Rent of any property
Rs. 10 on every part of Rs. 1,000 By the Lessee
11.Receipt or discharge given for any money or other property
Up to and including Rs. 25 Nil Above Rs. 25,000 25/=
Person who draw the Receipt
12.Salaries Salary amount Stamp Duty Rs. 25,000 or above but less than Rs. 25Rs. 39,999 Rs. 40,000 or above but less than Rs. 40Rs. 49,999 Rs. 50,000 orAbove Rs. 50
By Employee
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Indian Taxation PoliciesThe tax regime in India has undergone elaborate reforms over the last couple of
decades in order to enhance rationality, ensure simplicity and improve
compliance. The tax authorities constantly review the system in order to remain
relevant. India has a federal system of Government with clear demarcation of
powers between the Central Government and the State Governments. Like
governance, the tax administration is also based on principle of separation
therefore well-defined and demarcated between Central and State Governments
and local bodies.
The tax on incomes, customs duties, central excise and service tax are levied by
the Central Government. The state Government levies agricultural income tax
(income from plantations only), Value Added Tax (VAT)/ Sales Tax, Stamp Duty,
State Excise, Land Revenue, Luxury Tax and Tax On Professions.
1) Direct Tax Income Tax
Tax Man Women Senior Citizen Senior Citizen
Age ≥ 60 and <
80 Age ≥ 80Rate (In Rupees) (In Rupees) (In Rupees) (In Rupees)
0.00% Up to 1,80,000 Up to 1,90,000 Up to 2,50,000 Up to 5,00,000
10.00%1,80,001 to
5,00,0001,90,001 to
5,00,0002,50,001 to
5,00,000
20.00%5,00,001 to
8,00,0005,00,001 to
8,00,0005,00,001 to
8,00,0005,00,001 to 8,00,000
30.00% Above 8,00,000 Above 8,00,000 Above 8,00,000 Above 8,00,000
Customs duty
Customs Duty is payable on goods imported into India. The normal rate of
Customs Duty is 10%. However, in some cases such as liquor and
tobacco, special rates in excess of 10% are also charged. In addition to
basic Customs Duty, an Additional Duty (as equivalent to CENVAT duty of
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8-12%) and a Special Additional Duty at 4% are also levied on imports.
Further, Anti-Dumping and Safeguard Duty is also levied on import of
certain specified products.
Central Excise
The excise duty is vary from product to product and in manufacturing line, it is
necessary to know the excise duty rate well before the start of production. In
this annual budget, the rates of excise duty have been increased to 12% from
the existing 10%. This rate will be applicable from 01-04-2012.The excise
duty can be different in these points which are as under.
Totally exempt excise duty such as tea and condensed milk.
1% excise duty on the products which have the facility of less
excise duty like articles of jewellery.
3% excise like gold
6% excise on paper, cotton and biscuits etc.
12% excise on motor vehicles
Production base excise duty on aluminum circles and trimmed and
untrimmed circles of copper.
High excise duty on large cars, cigarettes and tobacco products.
Service Tax
On domestic travel in economy class increased from Rs. 100/- to Rs.
150/-, whereas for executive class, it would be 10% of standard rate;
On international travel in economy class increased from Rs. 500/- to
Rs. 750/-
Penalty for delayed payment of Service Tax (U/s. 76) reduced from 2%
per month to 1% per month or Rs. 100/- per day, whichever is higher
however the maximum penalty would be restricted to 50% of the tax
amount involved instead of the 100% till the introduction of this budget;
Penalty for delay in submission of Service Tax Returns hiked from Rs.
2,000/- to Rs. 20,000/-
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2) Indirect Taxes VAT
State level sales tax was replaced by VAT with effect from 1 April 2005
in the majority of Indian states. Under the VAT regime, the VAT paid
on goods purchased from within the state is eligible for VAT credit. The
input VAT credit can be used to offset against the VAT/ Central Sales
Tax due on the sale of goods. This ensures that the cascading effect of
taxes is avoided and that only the value addition is taxed. Currently,
there is no VAT on imports into India and exports are zero-rated. This
means that while exports are not charged with VAT, VAT charged on
inputs purchased and used in the manufacture of export goods or
goods purchased for export, is available to the purchased as a refund.
State VAT is charged at varying rates of 1%, 4%, 5% and 20%. Goods
other than those notified to be covered under the above rates are
charged at a general rate ranging from 12.5% to 15%.
Sales Tax
The sale of movable goods in India is taxable at the central and state
level. The Indian regulatory framework has granted power to state
legislatures to levy tax on goods sold within that state. Such sales are,
therefore, chargeable to VAT at the rates notified under the VAT laws
of the relevant state.
All goods sold in the course of interstate trade are subject to Central Sales Tax (CST). Where goods are bought and sold by registered
dealers for trading or for use as inputs in the manufacture of other goods or specified activities (such as mining or telecommunications
networks), the rate of sales tax is 2%, provided Form C is issued by
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the purchasing dealer. In the absence of a Form C, the applicable rate
would be the rate of VAT on such goods in the originating state.
CST is sought to be phased out before the introduction of Goods and
Services Tax (GST) in India, which is presently expected to be introduced by April 2012. In the interim, CST will continue to co-exist
with state VAT. Inter-state procurement on which CST is charged in the originating state is not eligible for input tax credit in the destination
state.
Professional Tax
In India, the professional tax is imposed at the state level. However,
not all the states impose this tax, the states like – Karnataka, West
Bengal, Andhra Pradesh, Maharashtra, Tamilnadu, Gujarat, and
Madhya Pradesh. Business owners, working individuals, merchants
and people carrying out various occupations comes under the purview
of this tax.
Professional tax is levied by particular Municipal Corporations and
majority of the Indian states impose this duty. It is a source of revenue
for the government. The maximum amount payable per year is Rs.2,
400/- and in line with your salary, there are predetermined slabs. It is
paid by every member of staff employed in private companies. It is
subtracted by the employer each month and sent to the Municipal
Corporation. It is compulsory just like income tax. You will be eligible
for income tax deduction for this payment.
Stamp Duty
Stamp duty indicates a form of tax that is imposed on documents.
Traditionally, a physical stamp tax stamp, needed to be part of the
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document to assert its legal validity.It is vary for each state. For
example, in Tamil Nadu govt. charges 8% of the property value as the
stamp duty. This ensures that the document, which lays your claim to
the property, is legally valid.If you have not paid the stamp duty for
your property, the documents become invalid. It cannot be shows as
the proof for the ownership.
POLICIES & NORMS OF INDIA FOR SRILANKA
Indian Foreign Trade PolicyThe UPA Government has assumed workplace at a difficult time when the whole
world is facing an unprecedented economic slow-down. The year 2009 is
witnessing one in every of the foremost severe world recessions within the post-
war amount. Countries across the planet are affected in varying degrees & all
major economic indicators of business production, trade, capital flows,
unemployment, per capita investment & consumption have taken a success.The
WTO estimates project a grim forecast that global trade is likely to decline by 9%
in volume terms & the IMF estimates project a decline of over 11%.
The recessionary trend has huge social implications. The World Bank estimate
suggests that 53 million more people would fall into the poverty net this year &
over a billion people would go chronically hungry.
Announcing a remote Trade Policy during this economic climate is indeed a
frightening task. We tend to cannot stay oblivious to declining demand within the
developed world & we'd like to line in motion ways & policy measures which is
able to catalyze the expansion of exports.
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Although India has steadily opened up its economy, its tariffs continue to be high
when compared with other countries, & its investment norms are still restrictive.
This leads some to see India as a ‘rapid globalize’ while others still see it as a
‘highly protectionist’ economy. Average nonagricultural tariffs have fallen below
15 percent, quantitative restrictions on imports have been eliminated, & foreign
investments norms have been relaxed for a number of sectors.
India however retains its right to protect when need arises. Agricultural tariffs
average between 30-40 percent, anti-dumping measures have been liberally
used to protect trade, & the country is among the few in the world that continue to
ban foreign investment in retail trade. Although this policy has been somewhat
relaxed recently, it remains considerably restrictive.
Recent Trade Policy Developments of India & its Implications on Sri Lanka India is Sri Lanka’s largest trading partner for a considerable period of time &
most likely to retain the status quo in the foreseeable future. Approximately 14%
of Sri Lanka’s international trade was conducted with India in 2010.Indiaranks
number one of Sri Lanka’s source of imports representing a 20% of Sri Lanka’s
total import valued at US $ 2,546 Million in 2010.Indiaenjoys a Pre- dominant
position in the Sri Lankan Market in respect of commodities such as
pharmaceutical, heavy vehicles, Light vehicles, Motor Cycles, Textiles &
consumer products such as cosmetics, onion, potatoes & chilies. India will
continue to enjoy the position of market leader in respect of those commodities in
the Sri Lankan Market on account of competitive price, liberal Trade Regime of
Sri Lanka & the geographical proximity. China will have the capacity to be the
closest competitor in the Sri Lankan Market & the time will tell us who will be the
winner.
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Though India is a growing market with increasing appetite for imported products,
Sri Lanka is yet to explore its full potentials to cater to the growing Indian market
despite the country having an advantage of Market Access through Indo –Sri
Lanka Free Trade Agreement (ISFTA).Sri Lanka’s exports to India still remained
at a low value of US $ 466 Million representing only 5% of our total exports. The
balance of trade is excessively & consistently in favor for India at the rate of 1; 5
in 2010 in terms of value of trade between the two trading partners. In respect of
Indian direct investment in Sri Lanka, India has invested in strategically vital
economic sectors such as retail distribution of petroleum products, expansion of
harbor in Kankasanthurei, construction of Sampur coal power energy project,
exploration of oil & gas in the Northern Cost (MannarBasin) &
telecommunication. India is also becoming & important Tourists Originating
destination for Sri Lanka .India is also involved in manufacturing Sectors such as
rubber tires & cement. In the service Sector India has considerable investment in
Hotel & Tourism & Information Technology. Sri Lanka serves as a transshipment
hub for ever growing Indian export cargo through the Port of Colombo. The
Indian Navigation Sector is also served at the Colombo dockyard facility.
India’s Sri Lanka PolicyThe success of India’s Sri Lanka policy is measured by the quality of bilateral
relations it has brought about & the extent to which it has furthered India’s
interests. The assessment of these separate, albeit interwoven indicators,
reveals mixed results. India’s relationship with Sri Lanka has considerably
strengthened, while instability in & surrounding Sri Lanka remains a significant
threat to India’s strategic interests.
1. We will examine the positive effects of India’s policy, namely the particular
nature of economic engagement that has led to a strengthening of
relations.
2. Then we will turn to the more dubious effects surrounding India’s role, or
lack thereof, in the Sri Lankan conflict vise a versa defense relations with
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Sri Lanka, its posture towards the LTTE, political sentiment in Tamil Nadu,
& maritime dilemmas.
India&Sri Lanka’s economic interactions include the strategic energy sector.
Indian companies are serving Sri Lanka’s energy market & exploring the Island’s
off-shore oil resources. Lanka Indian Oil Corporation (Lanka IOC) has a 30 per
cent market share in Sri Lanka’s retail petrol market, operating 151 retail outlets
on the island. Lanka IOC is building & operating storage facilities at the
Trincomalee Tank farm, which as stated earlier, is of critical importance in the
maritime strategic environment. India also has a significant stake in exploration of
oil resources off Sri Lanka’s coast. India’s Oil & Natural Gas Corporation (ONCG)
has been promised one of the five drilling blocks in the Mannar basin.17 The
Mannar basin, thought to contain the equivalent of one billion barrels of oil, has
three remaining blocks up for auction (besides the one promised to India, the
second of the five has been granted to China).
Regional & Bilateral Trade Agreements between India &Sri LankaIndia has recently signed trade agreements with its neighbors & is seeking new
ones with the East Asian countries & the United States. Its regional & bilateral
trade agreements or variants of them are at different stages of development:
India-Sri Lanka Free Trade Agreement,
Trade Agreements with Bangladesh, Bhutan, Sri Lanka, Maldives, China,
&South Korea.
India-Nepal Trade Treaty,
Comprehensive Economic Cooperation Agreement (CECA) with
Singapore.
Framework Agreements with the Association of Southeast Asian Nations
(ASEAN), Thailand and Chile.
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Preferential Trade Agreements with Afghanistan, Chile, &Mercosur (the latter is a
trading zone between Brazil, Argentina, Uruguay, & Paraguay).
Characteristics of Indo-Sri Lanka Informal TradingThe analysis is based on the results of the survey carried out in Chennai,
Tiruchirapalli, Thiruvananthapuram, Tuticorin, Mumbai &Rameshwaram during
May to October 2001.This section focuses on the key features of the transacting
environment of informal & formal trading as revealed by the survey. As
mentioned earlier, the fact that informal trade continues unabated implies that
there is an institutional mechanism that enables such trade to take place. The
survey instrument was designed to elicit information on the profile of informal
traders in terms of nature of trading activity & commodities traded.
The transacting environment of informal trading has also been analyzed in terms
of entry characteristics, nature of contracts, information channels, aspects of risk
in informal trading & its financing, role of ethnic networks & aspects of transaction
costs. The transacting environment of formal trading is analyzed in terms of
transaction costs incurred both in terms of time & money. In the light of
comparisons drawn between formal & informal trader’s factors influencing
informal trade flows are identified from the survey. The last sub-section presents
a comparative statistical analysis of formal & informal traders in terms of a set of
variables. The format for analysis is the same as that in Pohit&Taneja (2000) with
suitable modifications. The changes that have been incorporated in the present
study are specifically mentioned.
Traditionally, the main objective of the Indian International Trade Policy has been
to shield its market from foreign competition. Up until the 1980s, India was not
interested in exporting its goods & services abroad & not ready to open its
economy to foreign investments. The aim of its economic policy was to make
sure the country’s independent development. At the end of the 1980s, India was
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one in every of the foremost closed economies within the world. Its bilateral trade
policy, heavily skewed toward the previous communist countries, was filled of gr&
statements about technology transfer, mutually advantageous relations &
partnership for development to very little purpose. The thought of a Free Trade
Zone was abhorrent. Therefore, India was left out of the Asian economic
boom.With the Soviet Union’s collapse & the first Gulf War, as well as the
implementation of the International Monetary Fund’s 1991 StructuralAdjustment
Program, India launched a new policy of privatization, deregulation &
globalization of its economy, & a multifaceted trade policy.
The nature of India's official & unofficial trade with Sri Lanka follows a different
pattern. Unofficial trade estimates between the two countries are out there just
for the year 1991, & are carried out both by air & sea. Whereas there is hardly
any passenger traffic by ship between India & Sri Lanka, a number of regular
boats ply between the two countries purely for contraband purposes. India's
official trade with Sri Lanka is similar to that of Bangladesh on one count, but
India has had a trade surplus with Colombo. However, unofficial trade accounts
with Sri Lanka are more or less balanced.
ECONOMIC POLICY OF INDIA IN SRILANKA
India-Sri Lanka trade Perspective & Implications Economic relations between India & Sri Lanka that date back to pre-
colonial times began to pickup within the 1990s with the liberalization of
the Indian economy.
The year 1998 saw most important boost in economic relations when the
two countries signed a bilateral Indo-Lanka Free Trade Agreement (ILFTA) that began implementation in March 2000.
Among different factors, up to date political forces led to the signing of the
Agreement.
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The ILFTA was formulated based mostly on the “negative list” approach;
each country extending concessions/preferences to all commodities
except those indicated in its negative list.
The two countries agreed for preferential treatment on 5112 tariff lines &
an 8-year time table was devised for phasing out tariffs.
NTBs (Indian state taxes) were also to be removed gradually.
Asymmetry between the two countries was accommodated by special &
differential treatment (SDT).
Larger negative list (Srilanka agriculture sector fully protected).
The immediate duty-free list (319 items) & 50% preferential duty list (889
items) were considerably smaller than those offered by India (1351 items
& 2799 items respectively), while the Sri Lankan negative list (1180 items)
was considerably larger than India’s (196 items).
Relaxed Rules of Origin (ROO) 35% (25% if Indian imports used).
Longer tariff phase out period (8 yrs for Srilanka & 3 yrs for India).
Negative list reduction based on Srilanka’s comfort level.
Revenue compensation excluded, but Srilanka insisted that high revenue
import items will not be subject to tariff preferences (M duties = 2% of
GDP revenue).
Recent Trends in Indo-Lanka Economic Relations Trade In the period immediately preceding the Agreement (1995-2000), average
annual exports from Srilanka to India were US$ 39mn & annual average
imports were US$ 509mn.
India was an important source of imports even prior to the Agreement by
2000; India was already the second largest source of imports to Srilanka
after Japan.
But India wasn’t a significant export market before the ILFTA it was the
14th rank in export destinations in 2000.
Srilanka’s trade with India changed dramatically following the
implementation of the FTA in 2000.
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India fully implemented the Agreement by March 2003, & Srilanka did so
by October 2008 longer time frame for the latter given economic
asymmetries between the two countries.
Rapid Growth in Overall Trade By 2005, Sri Lanka’s exports to India reached a peak of US$ 566.4, a
tenfold increase compared to 2000, & stood at US$ 418.3 million in 2008.
India was the 5th largest destination for Sri Lanka’s exports in 2008.
Imports too have grown at a rapid rate following the implementation of the
FTA. Imports from India which amounted to US$ 600.1 million in 2000
reached US$ 3443 billion in 2008, a growth by 5.7 fold.
A combination view of trade between India & Sri Lanka since the FTA
came into being therefore suggests a really positive picture with overall
trade growing near to six fold & exports from Sri Lanka growing tenfold.
Furthermore, the increased diversity & greater value addition in exports
from Sri Lanka is a positive development.
Trade Barriers in Sri Lanka for IndiaIn addition to tariffs, a range of taxes introduced in the past many years have
effectively increased SriLanka’s tax rates on a range of imported items to
between 60 percent & 100 percent of the cost, insurance, & freight (CIF) value of
the product. The government has imposed these charges on imports primarily to
raise revenue, to defray the costs of specific government services, or to promote
local producers. Most of these charges were revised upwards effective
November 2007, & again in November 2008. In addition, the government
imposed a new Nation Building Tax of 1 percent on imports that came into effect
on January 1, 2009; it will be in effect for two years.
The frequent changes (mostly upward) in these rates have added unpredictability
to foreign exporters’ & local importers’ cost calculations. Affected products from
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the United States include fruits, processed/packaged food, & personal care
products.An imputed profit margin of 10 percent is added onto the import price. In
some cases, like on biscuits, chocolates & soap, the tax is charged not on the
import price but on 65 percent of the maximum retail price (November 8, 2007). A
Ports & Airports Development Levy of 3 percent on imports (increased from 2.5
percent in January 2007; this tax will be increased from 3 percent to 5 percent
from January 1, 2009). When calculating the VAT, an imputed profit margin of 10
percent (increased from 7 percent on January 1, 2007) is added on to the import
price. Locally manufactured products are also subject to VAT but not the imputed
profit margin. (The VAT rates of 5 percent & 15 percent are to be replaced with a
VAT b& of 12 percent with effect from January 1, 2009.) Excise fees on some
products such as aerated water, liquor, beer, motor vehicles, & cigarettes.
The list of products subject to these fees was expanded in 2007 to include
certain household electrical items. When calculating the excise fee, an imputed
profit margin of 15 percent (increased from 10 percent on October 11, 2007 &
from 7 percent on January 1, 2007) is added on to the import price. Locally
manufactured products are also subject to excise fees. A Social Responsibility
Levy, a surcharge of 1.5 percent assessed on the import duty to fund the
National Action Plan for Children. This tax was increased from 1 percent as of
November 8, 2007.
Investment Barriers While Sri Lanka welcomes foreign investment, there are restrictions in an
exceedingly wide range of sectors. Foreign investment isn’t permitted within the
following areas:
Nonblank money lending
Pawn brokering
Retail trade with a capital investment of less than $1 million (with one
notable exception: the BOI Permits retail & wholesale trading by reputable
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international brand names & franchises with an initial investment of not
less than $150,000)
Coastal fishing
Education of students under 14 years of age for local examinations; &
Local degree-awarding university education (institutions awarding
overseas degrees are permitted)
Investment within the following sectors is restricted & subject to screening &
approval on a case-by-case basis when foreign equity exceeds 40 percent:
Shipping & travel agencies
Freight forwarding
Higher education
Mass communications
Deep sea fishing
timber-based industries using local timber
Mining & primary processing of nonrenewable national resources; &
growing & primary processing of tea, rubber, coconut, rice, cocoa, sugar,
& spices.
Foreign investment equity restrictions & government laws conjointly apply to air
transportation, coastal shipping, lotteries, large-scale mechanized gem mining, &
"sensitive" industries like military hardware, illegal narcotics, & currency.
Trade Barriers in India for Sri LankaSince independence in 1947, India & Sri Lanka, two neighboring countries in
South Asia, have concluded three major treaties: The Sirimavo-Shastri Pact
(1964), the Indo-Srilanka Peace Accord & the Indo-Srilanka Free Trade
Agreement (ISFTA, 1998). whereas the primary two were political treaties in
character, the third one was an economic accord signed on December 28, 1998.
Although ISFTA was supposed to come into effect on March 1, 1999, actually it
came into operation one year later, on March 1, 2000.
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While ISFTA was aimed to form a free-trade zone between India & Srilanka by
removing trade barriers, complete removal of tariffs on trade couldn’t occur
immediately when the accord came into effect. Both countries, therefore, agreed
to remove tariffs within a 3 year time frame. When the signing of the agreement,
Colombo had 8 years to allow tariff-free access of Indian commodities to its
market. However, the agreement didn’t cover all tradable commodities for tariff
reduction certain product lines were marked out in order to protect internal
production & safeguard domestic markets. Thus, both countries identified certain
commodities for the "negative list".
While Sri Lanka exports have been experiencing an impressive increase, imports
from India have too, increasing by 49%. Moreover, the import-export ratio has
improved from 16.1 in 1998 to 5.1 in 2002. It has been estimated that Sri Lankan
exports to India accounted for 3.6% of overall Srilanka exports in 2002 in
comparison to 1998 when Sri Lankan exports to India accounted for 1% of
overall exports. Consequently, there has been a repositioning of Sri Lanka as the
fifth largest import supplier to India in 2002 compared to a rank of 20 th in the mid
1990s. This means that the proportion of preferential exports amounted to
IRs10.9 billion, 68% of total exports to India. Further, preferential exports have
grown at 62% in 2002 compared to 54% in 2001. Thus, the answer to the first
question is that the Sri Lankan export outcome of 2002 was indeed a result of
ISFTA.
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CONCLUSION
The India Sri Lanka formal business relations was started in 1968 by establishing
a committee indo-lank joint committee & after that was become more deeper by
subcommittee in 1992 & 1993.The Sri Lanka follow mix legal system including
roman Dutch law & English law. The Sri Lanka currency rupee is rs. & the central
bank of Sri Lanka started in 1949.
In 1978, Sri Lanka adopted free economic & financial framework as well as
economical framework for the growth of the country. To follow the import process
of the go Sri Lanka we have to go by three separate unites namely LONG ROOM, “D” BRANCH & POSTAL APPRAISAL.
The forms of business organization in Sri Lanka are same as in India like sole
proprietorship & partnership & limited & private limited companies.
In The Sri Lanka in direct taxation added two new concepts are social
responsibility charge & save nation charge & in indirect tax there is new one is
national security levy & maximum income tax rate to resident or non-resident is
35%.since 1977 Lanka exports mainly textiles, food & beverages, wood products,
rubber & plastics, & other consumer goods.Approximately 14% of Sri Lanka’s
international trade was conducted with India in 2010.
India has recently signed trade agreements with its neighbors & is seeking new
ones with the East Asian countries its regional & bilateral trade agreements or
variants of them are at different stages of development. Economic relations
between India & Sri Lanka, which date back to pre-colonial times, began to
pickup in the 1990s with the liberalization of the Indian economy. In indo-Lanka
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International trade we want all the same documents which we want in other
international trade like bill of lying & delivery report or document & all.
India fully implemented the Agreement by March 2003, & SL did so by October
2008 longer time frame for the latter given economic asymmetries between the
two countries. The mail barriers of the indo-Lanka trade are the taxation aspect
which is increased by the Lanka to up the income of the government. The main
investment barriers Lanka are they restricted many of areas to outsiders.
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