Dr Sarath Obeysekera

Many economists in Sri Lanka have debated for years. In an open economy, foreign exchange can leave the country not only through legitimate imports but also through over-invoicing, transfer pricing, unnecessary imports, and disguised capital flight.

However, the challenge is to control outflows without discouraging genuine business activity.

Some possible measures are:

1. Strengthen Customs Valuation

Many countries use international reference databases to compare declared import prices with prevailing world prices.

If a container of low-value consumer goods is declared at twice the normal international price, Customs should automatically flag it for investigation.

2. Joint Monitoring by Central Bank, Customs and Inland Revenue

Import payments above a threshold (say USD 50,000) could be cross-checked against:

• Customs declaration value
• Bank telegraphic transfer value
• Supplier invoices
• Tax records of the importer

Any major discrepancy should trigger an audit.

3. Prioritise Essential Imports

During foreign exchange shortages, countries often classify imports into:

• Essential (fuel, medicine, food, industrial raw materials)
• Productive (machinery, export-related inputs)
• Non-essential (luxury and easily substitutable goods)

Higher duties or temporary restrictions can be imposed on non-essential imports.

4. Country-of-Origin Verification

Some low-cost products are imported through intermediary trading companies in third countries, increasing invoice values.

Direct sourcing verification could reduce artificial markups.

5. Digital Trade Monitoring

A modern system linking:

• Customs
• Ports
• Banks
• Inland Revenue
• Import and Export Control Department

would make it difficult to over-invoice imports and transfer money abroad under the guise of trade.

6. Encourage Domestic Manufacturing

Rather than banning imports, Sri Lanka should encourage local production of:

• Building materials
• Household items
• Agricultural equipment
• Marine equipment
• Consumer goods

Every locally produced item saves foreign exchange and creates jobs.

7. Address Transfer Pricing

Multinational companies sometimes shift profits abroad through management fees, royalties, and inflated service charges. Strong transfer-pricing regulations can reduce this leakage.

The Balance Required

Sri Lanka’s economy depends on exports, tourism, remittances, and foreign investment. Excessive controls can create black markets and discourage investment. Therefore, the objective should be smart monitoring and risk-based controls, not a return to the rigid import licensing regimes of the 1970s.

Regards

Dr Sarath Obeysekera