Responding to requests from the apparel manufacturing industry to ease the tax burden, Sri Lanka has cut its duty on fabric imports by two-thirds.
Minister Mangala Samaraweera reduced the value added tax (VAT) on imported fabric from 15 percent to 5 percent “considering the requests made by the stakeholders in the fabric industry,” according to Ali Hassen, director of information for the ministry of finance and mass media.
The ministry noted the 15 percent rate had been set on Aug. 16. But smaller companies not covered by VAT appealed, saying the tax would have a negative impact on them.
Hassen said the minister made the decision to reduce the VAT on imported fabric to 5 percent “considering the possibility of giving a helping hand to proposed small-scale industrialists under the Enterprise Sri Lanka program.” Enterprise Sri Lanka is a subsidized loan plan introduced by the ministry to help medium and small-scale manufacturers obtain fabric at a lower cost.
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Sri Lanka’s apparel exports grew 4 percent to $2.8 billion for the first half of the year compared to the same period a year ago, according to the Sri Lanka Apparel Export Association. Asian countries have been competing to take a piece of China’s apparel export market share. China’s exports to the United States in particular have fallen off this year as its costs rise, and tariff threats have forced companies to spread out their sourcing to reduce exposure. With apparel a key export market and the county having little textile production, competitiveness on imported fabric prices is critical.
U.S. apparel imports from Sri Lanka were down 12.15% to 28.93 square meter equivalents in July compared to a year earlier. For the year through July, apparel imports from Sri Lanka fell 4.65% to $1.84 billion worth of goods, giving the country a 4.65% market share.
