ECONOMYNEXT – Sri Lanka should use small parcel exemptions (de minimis) for smaller online orders and collect taxes for bigger orders through online platforms in line with international practice, Advocata Institute, a Colombo-based think tank said, after Customs started checking each parcel by HS code.
In most countries small imports (usually about 150 dollars) are not charged import duties, though VAT is charged under a rule called de-minimis or too small to matter. The US has a high limit of 800 dollars per shipment.
Charging taxes on HS Code for thousands of small parcels coming from foreign online sales platforms is not practical, and goes against modern cross-border trading that is working well in other countries, Advocata Institute, said.
Sri Lanka Customs had followed an informal method of clearing small parcels by weight, as e-commerce platforms got popular.
Many countries have established levels called de minimis (800 dollars in the US, 135 pounds in UK, and 150 Euro in France for example), a threshold where import duties are exempt.
Both the US and France have a zero threshold for VAT on imports, meaning VAT has to be paid regardless of the value of the item but there are no border taxes.
However, the practice was changed recently, leading to a massive backlog and stopping cheap shipping options for platforms like AliExpress.
“Every parcel’s contents must be individually declared by HS Code to customs,” Advocata said.
“At current volumes, this is impossible. The result translates into severe backlogs, consumer frustration, and growing pressure on customs officers. SMEs are also suffering as they often source critical inputs from these platforms.”
Meanwhile other reports said protectionist small businesses who had oppressed local customers for years under cover of CESS, PAL and import duties were behind the move.
The counter allegations was that rival small businesses were importing commercial volumes of goods to re-sell without VAT and duty.
Sri Lanka in any case has a complex and excessively high border tax system (import duty, CESS, PAL) to give profits to various domestic producers with political connections, especially essential goods and foods, critics say.
Sri Lanka also charges taxes on credit card payments for online purchases as a protectionist tool, which has been deemed a multiple currency practice by the International Monetary Fund.
The unusually high import protectionism in Sri Lanka has led to corruption and an extraordinary situation where importers are ‘smuggling’ food to feed the people.
Meanwhile Advocata said the core problem lies with the legislative framework.
“Sri Lanka lacks the legislation to enable e-commerce platforms to act as tax intermediaries,” Advocata said.
“In contrast, countries such as Singapore and Australia have modernised their tax codes to allow foreign vendors to collect and remit taxes upfront before goods even leave their warehouse.
Advocata said Sri Laka should adopt a Vendor Collection Model, where platforms collect and remit taxes at the point of sale.
This model offered several advantages:
● Efficiency: removes the need for HS code classification at customs.
● Fairness: exempts low-value goods through a clear de minimis threshold (e.g. USD 75).
● Accountability: only high-volume platforms (e.g. >10,000 parcels/month) must comply.
● Compliance: platforms register locally or appoint a tax representative.
“Allowing e-commerce platforms to operate and expand is ultimately about protecting consumer choice, ensuring trade integrity, and state revenue,” Advocata said.
“As these platforms widen access to goods, they empower consumers with greater choice, driven by the economics of the long tail.
“This expands variety, coupled with increased competitive pressure, delivers tangible benefits to consumers including lower prices, faster innovation, and greater convenience. Inaction risks undermining these gains.” (Colombo/July08/2025)
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