Sri Lanka’s cabinet has decided to retain the Special Commodity Levy (SCL) Act, reversing an earlier decision to abolish it, in order to protect local farmers and maintain stability in food prices. The government’s decision, announced in an official statement, follows the recognition that removing the SCL would undermine efforts to shield farmers and could negatively impact food costs.
Initially, on March 25, 2024, the cabinet had proposed abolishing the SCL Act and replacing it with a value-added tax (VAT). The SCL Act covers 63 items, including essential food products, and aims to shield local agriculture from external competition. However, due to concerns over its effect on farmers and food affordability, the government reversed the decision.
The SCL Act has the benefit of preventing “tax-on-tax” scenarios, where VAT would be charged on top of other import duties. However, the SCL levies are often applied at high rates on basic foodstuffs, such as rice and maize, making essential nutrients more expensive for low-income families, particularly affecting the nutritional intake of children.
Critics argue that the taxes, imposed under a protectionist policy promoting self-sufficiency, often harm the very population they aim to protect, creating a difficult dilemma between supporting local farmers and ensuring affordable food for vulnerable groups. Taxes on rice and potatoes, for example, reach close to 50 percent.
Despite international pressures under the IMF agreement, which calls for the elimination of the SCL in favor of VAT to reduce corruption and legal concerns, the Sri Lankan government has opted to continue the tax. This decision aligns with President Anura Kumara Dissanayake’s cabinet proposal to extend the current tax rates beyond 2025.
The cabinet’s action underscores the complexity of balancing fiscal policies with socio-economic concerns and highlights the ongoing debate over taxation and economic sovereignty.