ECONOMYNEXT – The President of Sri Lanka’s top trade partner has said he will consider value added tax as a ‘tariff’ in his plan to impose reciprocal import duties in the latest in a series of moves that threaten to undo the global trade architecture.
The US was Sri Lanka’s largest export destinations accounting for 2,909 billion dollars in 2024, just ahead of the EU at 2,739 billion dollars.
“On Trade, I have decided, for purposes of Fairness, that I will charge a RECIPROCAL Tariff meaning, whatever Countries charge the United States of America, we will charge them – No more, no less!,” he said in an x.com post.
“It is fair to all, no other Country can complain and, in some cases, if a Country feels that the United States would be getting too high a Tariff, all they have to do is reduce or terminate their Tariff against us.
However, in a new twist, Trump said value added tax, a neutral sales tax which countries charge on all goods, whether local or foreign would also be considered a tariff.
“For purposes of this United States Policy, we will consider Countries that use the VAT System, which is far more punitive than a Tariff, to be similar to that of a Tariff,” Trump said.
Most countries charge VAT at 20 percent.
Many countries charge VAT at 20 percent. Sri Lanka has an 18 percent tax. East Asian nations which do not have aggressive central banks and avoid economic crises have VAT in the range of 14 percent or less.
The US had broadly lower import tariffs ranging around 5 percent while many countries that export to the US including Sri Lanka have high import duties.
The bulk of US taxes come from payroll and direct income taxes.
Sri Lanka also has other taxes called cess and special commodity levy.
“This System will immediately bring Fairness and Prosperity back into the previously complex and unfair System of Trade,” Trump said.
“America has helped many Countries throughout the years, at great financial cost. It is now time that these Countries remember this, and treat us fairly – A LEVEL PLAYING FIELD FOR AMERICAN WORKERS.”
RELATED Sri Lanka top trade partner threatens reciprocal tariffs on all countries that tax US products
The threat to impose reciprocal tariffs could potentially expand free trade if other countries also reduce their taxes against the US, but the inclusion of value added tax threatens to unravel the global trade architecture.
Under a VAT system, exporters are taxed at zero, allowing them to recoup value added tax on inputs, which may be what is irking Trump.
However in the US there is no value added tax to recoup in the first place, making Trump’s claim bizarre.
Trump said he will also consider non-tariff barriers.
The full x.com post is reproduced below:
On Trade, I have decided, for purposes of Fairness, that I will charge a RECIPROCAL Tariff meaning, whatever Countries charge the United States of America, we will charge them – No more, no less!
For purposes of this United States Policy, we will consider Countries that use the VAT System, which is far more punitive than a Tariff, to be similar to that of a Tariff.
Sending merchandise, product, or anything by any other name through another Country, for purposes of unfairly harming America, will not be accepted.
In addition, we will make provision for subsidies provided by Countries in order to take Economic advantage of the United States.
Likewise, provisions will be made for Nonmonetary Tariffs and Trade Barriers that some Countries charge in order to keep our product out of their domain or, if they do not even let U.S. businesses operate.
We are able to accurately determine the cost of these Nonmonetary Trade Barriers.
It is fair to all, no other Country can complain and, in some cases, if a Country feels that the United States would be getting too high a Tariff, all they have to do is reduce or terminate their Tariff against us.
There are no Tariffs if you manufacture or build your product in the United States. For many years, the U.S. has been treated unfairly by other Countries, both friend and foe.
This System will immediately bring Fairness and Prosperity back into the previously complex and unfair System of Trade. America has helped many Countries throughout the years, at great financial cost. It is now time that these Countries remember this, and treat us fairly – A LEVEL PLAYING FIELD FOR AMERICAN WORKERS.
I have instructed my Secretary of State, Secretary of Commerce, Secretary of the Treasury, and United States Trade Representative (USTR) to do all work necessary to deliver RECIPROCITY to our System of Trade! (Colombo/Feb20/2025)
