A

AGLOBAL / COUNTRY STUDY AND REPORT

ON“POLICIES AND NORMS OF INDIA FOR IMPORT OR EXPORT TO

THE SRILANKA COUNTRY INCLUDING LICENSES OR PERMISSION TAXATIONS”

Submitted To(LDRP Institute of Technology and Research)

IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE AWARD FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

InGujarat Technological University

UNDER THE GUIDANCE OF

Prof. Pooja Sharma(Assistant Professor)

Submitted byIrene D’costa (2002)RohanParimal (2015)Pratik Somaiya (2028)KunjalChahar (2029)

DipaliVaria (2056) [Batch: 2010-12]

MBA SEMESTER-IV

LDRP-Institute of Technology and Research, Gandhinagar

MBA ProgrammeAffiliated to Gujarat Technological University

Ahmedabad

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POLICIES AND NORMS OF SRILANKA WITH TAXATION POLICY FOR INDIA

History of India Sri Lanka Trade RelationsEconomic relations between India and Sri Lanka have an extended history dating

back to centuries. The formal economic relations within the post freelance era

began in 1968 with the fitting of the Indo-Lanka Joint Committee on Economic

Cooperation (ILJCEC) that aimed toward increasing economic cooperation in

trade, industry, agriculture and tourism. This joint committee was later reworked

into a Joint Commission for Economics, Trade and Technical Cooperation

(JCETT) consisting of two layers, the Commission of Ministers of Foreign Affairs

and a sub-committee consisting of senior officers.

An additional sub-committee was added in 1992 to hide Culture, Education, and

Social Activities, whereas a third sub-committee was added in 1993 named Sub-

Committee on Science and Technology. The sub-committee on economic affairs

was renamed because the sub-committee on Trade, Finance and Investment.

The JCEET was a helpful instrument for the officers of the two countries to fulfill

and discuss trade and economic problems.

Legal SystemSri Lanka, like South Africa, Zimbabwe, Mauritius and also the Philippines,

encompasses a mixed legal system. It consists of the weather of two foreign laws

- the Roman Dutch law and also the English Law and different systems of law

that exist in Sri Lanka notably the Kandyan law, Muslim law, Tesawalamai law,

Buddhist law and Hindu law. In Sri Lanka, principles adopted from England apply

in relation to bills of exchange, sale of products, partnership, companies,

insolvency, banks and banking, maritime matters, insurance, criminal law,

procedure and proof.

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Currency and BankingIn Sri Lanka, the unit of currency is that the Rupee (Rs.). Sri Lanka, accepting

Article VIII of the Articles of Agreement of the IMF removed all restrictions on

current external transactions. The Sri Lankan rupee is absolutely convertible and

might be freely utilized in respect of all current international transactions. Sri

Lanka has taken a significant success within the liberalization of foreign

exchange transactions by permitting business banks to work out the exchange

rate freely.

The exchange rate of the Sri Lankan rupee fluctuates against the currencies of

its trading partners. THE CENTRAL BANK OF SRI LANKA and the financial Law

Act, No. 58 of 1949, commenced operations on twenty eighth August 1950. It’s

liable for the administration and regulation of the financial and banking system in

Sri Lanka. It acts as Government’s fiscal agent, banker and money adviser. Its

operate are to issue currency, examine and supervise the banking

establishments and to advance credit to business banks and different specialized

cash lending establishments in times of economic crisis.

Sri Lanka encompasses an absolutely developed business banking system

consisting regarding twenty six business banks. Two of the massive business

banks, that have an intensive network of branches in all components of Sri

Lanka, are public sector banks. There are four personal native banks. All foreign

business banks in Sri Lanka have operational services in Colombo that is that the

business centre of Sri Lanka.

Foreign currency banking unit’s pirate as subsidiaries of economic banks, stick

with it transactions in foreign currency with non-resident enterprises like those

established within the Free Trade Zones in Sri Lanka.

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Economy and Business ClimateSri Lanka encompasses a liberal economic policy. In 1978, Sri Lanka adopted an

open market economy framework inserting stress on an outward wanting and

liberal economic policy regime with the target of building a coherent stable

macro-economic and money framework to market economic growth, diversify the

economy, cut back unemployment & inflation & at an equivalent time making a

social safety internet through well targeted welfare programs to boost the

common living conditions of the folks. With the transition to an open market

policy framework, inserting stress on economic liberalization, Sri Lanka began

establishing market oriented policies & took keen interest in introducing provide

aspect economic policies. A number of the foremost policies implemented during

this direction.

IMPORT AND EXPORT OF SRILANKA

Import Policies of Sri LankaDespite an economy open to foreign investment, the pace of reform in Sri Lanka

has been uneven. The Trade, Tariff,& Investment Policy Division of the Ministry

of Finance & designing are charged with the formulation & implementation of

policies in these areas. Additionally, the Trade & Tariff cluster of the National Council of Economic Development (NCED) conjointly examines trade & tariff

problems & sends recommendations to the Ministry of Finance & designing. The

NCED consists of twenty-two clusters representing each personal & public sector

officers that examine varied sectors of the economy.

Export PolicyLiberalized policy based on export-led growth was introduced in 1977 in order to

have better resource allocation based on comparative advantage and to take

advantage of the diffusion of technology and learning. The export sector now

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receives the highest priority in foreign trade policy in order to have a healthy

balance of payments position and for general economic expansion.

Recently, exports of traditional agricultural products such as tea, rubber and

coconut had limited capacity for trade expansion with a tendency to decline

markedly in value and sometimes in volume as well. For this reason, export

duties have been reduced on tea and coconut in order to assist producers. There

are duty reductions for all marine products which would have been subject to 5

per cent duty, but now have been exempted. Similarly, flexible floor price

schemes are abolished.

The Government has pursued a policy of export diversification with notable

success to enhance the share of export value earned by the three traditional

crops and increase the industrial exports. Industrial Exports on Garments have

increased their share 28% to 33% of total exports during the past period.

Import ProcedureSri Lanka had been primarily an agricultural & self-dependent sovereign nation in

the ancient past. Due to historical, political &economical changes it has ceasedto

be a self-dependent nation. Today it is mainly dependent on trade & the Imports

Division of the Sri Lanka Customs Department plays a vital role in this regard in

the economy.To ensure this task the Imports division consists of three separate

units namely Long Room, "D" branch & Postal Appraising unit according to the

functions; headed by Director (Imports & Tariff).

Export ProcedureTo facilitate the exporters Sri Lanka Customs Export Procedure has been

simplified to an excellent extent in recent past. Rules & laws are relaxed & duty

exemptions & concessionary duty rates are given to exporters as an

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encouragement. Export promotional schemes are implemented with collaboration

with different state agencies as a section of state endeavor to develop Sri Lanka

as a rustic with an export oriented economy. Additionally Sri Lanka Customs

pays an excellent attention in all export connected activities to safeguard national

wealth like archeological treasure & fauna & flora by implementing connected

laws.

The Following Documents should be always there in Import-Export process

Delivery order

Bill of Lading

Invoice as per exchange involved

Exchange documents

Packing list

Certificate of origin

Import control license (if applicable)

Certificate of registration & translation for used motor vehicles

Load port survey certificate for food items

S.L.S.I/Quarantine certificate. If applicable)

Catalogues/literature.( If necessary)

Prohibited Narcotics

Pornography

Anti-religion materials

Indian and Pakistani currency

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Restricted Pets – import required obtainable from nearest Embassy or Mission

Weaponry and ammunition with permission only. Contact the

nearestembassy for more details.

Cultural artifacts

Plants, animalsany part thereof and foodstuff. For more details please

contact nearest Embassy

Medicines,for personal use only, in original packaging and accompanied

by the prescription and doctor’s note.

Currency – any local or foreign currency exceeding equivalent of US

$15,000 needs to be declared, local currency (Sri Lanka Rupee) up to

5,000.

The above Prohibition and Restriction will be applicable to Export policy as well

as the import policy of Sri Lanka.

Forms of Business Enterprise in Sri LankaForeign investors could establish a business presence in Sri Lanka, through any

of the subsequent forms:

Sole Proprietorship

Partnership

Private & Public firms

People’s Company

Limited & Unlimited firms

Offshore firms

Foreign Branches

Liaison Offices

Joint Ventures

Co-operatives

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Taxation Policy of Sri LankaThe extent of the tax liability to Sri Lankan & non-nationals on profits & income

depends on the residence standing of the individual, company & body of persons

in Sri Lanka. Residents are taxed on worldwide income whereas non-residents

are taxed on Sri Lankan supply income solely. The most income tax rate in Sri

Lanka is 35 per centum. Expatriate staff fancy a concessionary rate of 15 per

centum throughout their deemed non-residency amount. Further, the Department

of Inland Revenue is liable for the economical administration of the following:

1. Direct Taxation Income Tax

The tax is levied on the Income of any person arising in or derived from Sri

Lanka. A resident is taxable on world income. Any other person is taxable

only on income arising or derived in Sri Lanka.

Nature of Company Taxable Income Income Tax RateQuoted N/A 35%

Venture Capital N/A 20%

Other Companies < 5 Million 15%

Economic Service Charge (ESC)

RequirementAn Economic Service Charge shall be charged, if combination turnover

from trade, business, profession or vocation carried on or exercised in

Sri Lanka whether or not directly or through an agent or over one

agent, exceed Rs. 25 Million (25 M) for that relevant quarter of each

year of assessment.

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RegistrationFollowing document be submitted to the ESC branch of the

Department of Inland Revenue

TIN Certificate

Letter from the Company requesting to Open a ESC file

The rate of ESC is 0.25% to 1% on total turnover or receipts it is

exceeds SRL 7.5Mn or USD 75,000 per quarter.

This can be set off against the income tax payable and can be

carried forward for four years, but no refund is due.

Custom Duties

Sri Lanka Customs could be a key state organization operational at the

frontiers and its main functions focus on revenue assortment and

implementing Customs law and different connected rules and laws. Within

the method the department endeavors to make sure swish movement of

individuals and merchandise across the border. Custom duty is applicable

for the import and export procedures.

Remittance Tax

In addition to paying the Standard corporate income tax, remittances

made by a branch to a foreign head office are subject to a 10% tax.

Others Social Responsibility Levy

SRL is imposed on Companies at 1.5% of the income tax liability

Surcharge on Income Tax

Save the Nation Contribution

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1. Indirect Taxation Goods and Services Tax

Turnover Tax

Business Turnover Tax abolished in Sri Lanka with effect from 1st

January, 2011 and such Trading Businesses are liable for Nation Building

Tax (NBT).

Rates Charged are as follows

All businesses engaged in buying and selling of articles and commodities

other than exempt items are liable to turnover tax. Rates are as follow,

Sale of Gems, sawn timber and precious and semi precious stones,

furniture 5%

Sale of Jewellery 5%

Sale of other articles 1%

Value Added Tax (VAT)

VAT is levied on supply of most goods and services, as well as the most

import of goods. Standard rate is 12% with a reduced rate of 5% applying

to essential items. Certain supplies are zero-rated or exempt. Retail and

wholesale businesses that supply goods are subject to a turnover tax of

1%.

Nations Building Tax (NBT)

The Government has imposed a new levy termed the Nation Building Levy

akin to the National Security Levy which prevailed at the rate of 3% on

turnover. Importers, Manufactures and Providers of services are liable for

NBT. The levy is payable for any quarter where turnover for the quarter

exceeds Rs.1, 00,000.

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National Security Levy

A National Security levy of 2% is levied on all imported capital goods.

Exemptions from this levy will be granted on

Imports utilized in the manufacture of exports, as well as

consumables

Articles brought into the country for temporary use, for repair and

re-export or for show at exhibitions or for repair and reimported.

Items of plant and machinery shipped abroad for repair and

reimported.

Gold imports for sale at Duty Free outlets

All other imported or manufactured articles are subject to a National Security

Levy of 4.5%. Exported articles are not subject to the levy.

Stamp Duty

Stamp Duty shall be charged at rates published in the Gazette on every

specified instrument,

Executed, Drawn or Presented in Sri Lanka

Executed outside Sri Lanka being an instrument which relates to

property situated in Sri Lanka at the time such instrument was

presented in Sri Lanka. Otherwise than in the case where there is

an agreement to the contrary, stamp duty shall be payable as

follows,

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Specified Instrument Stamp Duty who ought to pay1. An Affidavit Rs. 100 Person who draw the

affidavit2. Insurance Policy Rs. 0.50 for every Rs. 1,000 or

part thereofPerson effecting insurance

3. Warrant to act as a notary public

Rs. 1,000 Person who Draws

4. License to carry out Trade, Business,Professional or Vocation other than any trade or business of sale of liquor, for any  period specified in such license

Rs. 1,000  or 10% of license fee whichever is less

Person who issuing License

5. Any license issued authorizing the holder to carry on any trade or business for sale of liquor , for any period specified in such license

Rs. 10,000 Person who issuing License

6. On Credit Cards Rs. 10 for every Rs. 1000 or Part thereof

Credit card holder

7. Share Certificates (new, additional issue or transfer)

Rs. 5 for every Rs. 1000 (on market value of shares)

by the transferee or assignee

8. Bond or Mortgage affecting any Property

Rs. 1 for every Rs. 1000 or part thereof

Person, who draw Bond, mortgage

9. Promissory Note Rs. 1 for every Rs. 1000 Or  part thereof

Person who draw the P. Note

10.Lease, hire, Rent of any property

Rs. 10 on every part of Rs. 1,000 By the Lessee

11.Receipt or discharge given for any money or other property

Up to and including Rs. 25 Nil Above Rs. 25,000 25/=

Person who draw the Receipt

12.Salaries Salary amount Stamp Duty Rs. 25,000 or above but less than Rs. 25Rs. 39,999 Rs. 40,000 or above but less than Rs. 40Rs. 49,999 Rs. 50,000 orAbove Rs. 50

By Employee

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Indian Taxation PoliciesThe tax regime in India has undergone elaborate reforms over the last couple of

decades in order to enhance rationality, ensure simplicity and improve

compliance. The tax authorities constantly review the system in order to remain

relevant. India has a federal system of Government with clear demarcation of

powers between the Central Government and the State Governments. Like

governance, the tax administration is also based on principle of separation

therefore well-defined and demarcated between Central and State Governments

and local bodies.

The tax on incomes, customs duties, central excise and service tax are levied by

the Central Government. The state Government levies agricultural income tax

(income from plantations only), Value Added Tax (VAT)/ Sales Tax, Stamp Duty,

State Excise, Land Revenue, Luxury Tax and Tax On Professions.

1) Direct Tax Income Tax

Tax Man Women Senior Citizen Senior Citizen

     Age ≥ 60 and <

80 Age ≥ 80Rate (In Rupees) (In Rupees) (In Rupees) (In Rupees)

0.00% Up to 1,80,000 Up to 1,90,000 Up to 2,50,000 Up to 5,00,000

10.00%1,80,001 to

5,00,0001,90,001 to

5,00,0002,50,001 to

5,00,000  

20.00%5,00,001 to

8,00,0005,00,001 to

8,00,0005,00,001 to

8,00,0005,00,001 to 8,00,000

30.00% Above 8,00,000 Above 8,00,000 Above 8,00,000 Above 8,00,000

Customs duty

Customs Duty is payable on goods imported into India. The normal rate of

Customs Duty is 10%. However, in some cases such as liquor and

tobacco, special rates in excess of 10% are also charged. In addition to

basic Customs Duty, an Additional Duty (as equivalent to CENVAT duty of

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8-12%) and a Special Additional Duty at 4% are also levied on imports.

Further, Anti-Dumping and Safeguard Duty is also levied on import of

certain specified products.

Central Excise

The excise duty is vary from product to product and in manufacturing line, it is

necessary to know the excise duty rate well before the start of production. In

this annual budget, the rates of excise duty have been increased to 12% from

the existing 10%. This rate will be applicable from 01-04-2012.The excise

duty can be different in these points which are as under.

Totally exempt excise duty such as tea and condensed milk.

1% excise duty on the products which have the facility of less

excise duty like articles of jewellery.

3% excise like gold

6% excise on paper, cotton and biscuits etc.

12% excise on motor vehicles

Production base excise duty on aluminum circles and trimmed and

untrimmed circles of copper.

High excise duty on large cars, cigarettes and tobacco products.

Service Tax

On domestic travel in economy class increased from Rs. 100/- to Rs.

150/-, whereas for executive class, it would be 10% of standard rate;

On international travel in economy class increased from Rs. 500/- to

Rs. 750/-

Penalty for delayed payment of Service Tax (U/s. 76) reduced from 2%

per month to 1% per month or Rs. 100/- per day, whichever is higher

however the maximum penalty would be restricted to 50% of the tax

amount involved instead of the 100% till the introduction of this budget;

Penalty for delay in submission of Service Tax Returns hiked from Rs.

2,000/- to Rs. 20,000/-

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2) Indirect Taxes VAT

State level sales tax was replaced by VAT with effect from 1 April 2005

in the majority of Indian states. Under the VAT regime, the VAT paid

on goods purchased from within the state is eligible for VAT credit. The

input VAT credit can be used to offset against the VAT/ Central Sales

Tax due on the sale of goods. This ensures that the cascading effect of

taxes is avoided and that only the value addition is taxed. Currently,

there is no VAT on imports into India and exports are zero-rated. This

means that while exports are not charged with VAT, VAT charged on

inputs purchased and used in the manufacture of export goods or

goods purchased for export, is available to the purchased as a refund.

State VAT is charged at varying rates of 1%, 4%, 5% and 20%. Goods

other than those notified to be covered under the above rates are

charged at a general rate ranging from 12.5% to 15%.

Sales Tax

The sale of movable goods in India is taxable at the central and state

level. The Indian regulatory framework has granted power to state

legislatures to levy tax on goods sold within that state. Such sales are,

therefore, chargeable to VAT at the rates notified under the VAT laws

of the relevant state.

All goods sold in the course of interstate trade are subject to Central Sales Tax (CST). Where goods are bought and sold by registered

dealers for trading or for use as inputs in the manufacture of other goods or specified activities (such as mining or telecommunications

networks), the rate of sales tax is 2%, provided Form C is issued by

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the purchasing dealer. In the absence of a Form C, the applicable rate

would be the rate of VAT on such goods in the originating state.

CST is sought to be phased out before the introduction of Goods and

Services Tax (GST) in India, which is presently expected to be introduced by April 2012. In the interim, CST will continue to co-exist

with state VAT. Inter-state procurement on which CST is charged in the originating state is not eligible for input tax credit in the destination

state.

Professional Tax

In India, the professional tax is imposed at the state level. However,

not all the states impose this tax, the states like – Karnataka, West

Bengal, Andhra Pradesh, Maharashtra, Tamilnadu, Gujarat, and

Madhya Pradesh. Business owners, working individuals, merchants

and people carrying out various occupations comes under the purview

of this tax.

Professional tax is levied by particular Municipal Corporations and

majority of the Indian states impose this duty. It is a source of revenue

for the government. The maximum amount payable per year is Rs.2,

400/- and in line with your salary, there are predetermined slabs. It is

paid by every member of staff employed in private companies. It is

subtracted by the employer each month and sent to the Municipal

Corporation. It is compulsory just like income tax. You will be eligible

for income tax deduction for this payment.

Stamp Duty

Stamp duty indicates a form of tax that is imposed on documents.

Traditionally, a physical stamp tax stamp, needed to be part of the

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document to assert its legal validity.It is vary for each state. For

example, in Tamil Nadu govt. charges 8% of the property value as the

stamp duty. This ensures that the document, which lays your claim to

the property, is legally valid.If you have not paid the stamp duty for

your property, the documents become invalid. It cannot be shows as

the proof for the ownership.

POLICIES & NORMS OF INDIA FOR SRILANKA

Indian Foreign Trade PolicyThe UPA Government has assumed workplace at a difficult time when the whole

world is facing an unprecedented economic slow-down. The year 2009 is

witnessing one in every of the foremost severe world recessions within the post-

war amount. Countries across the planet are affected in varying degrees & all

major economic indicators of business production, trade, capital flows,

unemployment, per capita investment & consumption have taken a success.The

WTO estimates project a grim forecast that global trade is likely to decline by 9%

in volume terms & the IMF estimates project a decline of over 11%.

The recessionary trend has huge social implications. The World Bank estimate

suggests that 53 million more people would fall into the poverty net this year &

over a billion people would go chronically hungry.

Announcing a remote Trade Policy during this economic climate is indeed a

frightening task. We tend to cannot stay oblivious to declining demand within the

developed world & we'd like to line in motion ways & policy measures which is

able to catalyze the expansion of exports.

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Although India has steadily opened up its economy, its tariffs continue to be high

when compared with other countries, & its investment norms are still restrictive.

This leads some to see India as a ‘rapid globalize’ while others still see it as a

‘highly protectionist’ economy. Average nonagricultural tariffs have fallen below

15 percent, quantitative restrictions on imports have been eliminated, & foreign

investments norms have been relaxed for a number of sectors.

India however retains its right to protect when need arises. Agricultural tariffs

average between 30-40 percent, anti-dumping measures have been liberally

used to protect trade, & the country is among the few in the world that continue to

ban foreign investment in retail trade. Although this policy has been somewhat

relaxed recently, it remains considerably restrictive.

Recent Trade Policy Developments of India & its Implications on Sri Lanka India is Sri Lanka’s largest trading partner for a considerable period of time &

most likely to retain the status quo in the foreseeable future. Approximately 14%

of Sri Lanka’s international trade was conducted with India in 2010.Indiaranks

number one of Sri Lanka’s source of imports representing a 20% of Sri Lanka’s

total import valued at US $ 2,546 Million in 2010.Indiaenjoys a Pre- dominant

position in the Sri Lankan Market in respect of commodities such as

pharmaceutical, heavy vehicles, Light vehicles, Motor Cycles, Textiles &

consumer products such as cosmetics, onion, potatoes & chilies. India will

continue to enjoy the position of market leader in respect of those commodities in

the Sri Lankan Market on account of competitive price, liberal Trade Regime of

Sri Lanka & the geographical proximity. China will have the capacity to be the

closest competitor in the Sri Lankan Market & the time will tell us who will be the

winner.

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Though India is a growing market with increasing appetite for imported products,

Sri Lanka is yet to explore its full potentials to cater to the growing Indian market

despite the country having an advantage of Market Access through Indo –Sri

Lanka Free Trade Agreement (ISFTA).Sri Lanka’s exports to India still remained

at a low value of US $ 466 Million representing only 5% of our total exports. The

balance of trade is excessively & consistently in favor for India at the rate of 1; 5

in 2010 in terms of value of trade between the two trading partners. In respect of

Indian direct investment in Sri Lanka, India has invested in strategically vital

economic sectors such as retail distribution of petroleum products, expansion of

harbor in Kankasanthurei, construction of Sampur coal power energy project,

exploration of oil & gas in the Northern Cost (MannarBasin) &

telecommunication. India is also becoming & important Tourists Originating

destination for Sri Lanka .India is also involved in manufacturing Sectors such as

rubber tires & cement. In the service Sector India has considerable investment in

Hotel & Tourism & Information Technology. Sri Lanka serves as a transshipment

hub for ever growing Indian export cargo through the Port of Colombo. The

Indian Navigation Sector is also served at the Colombo dockyard facility.

India’s Sri Lanka PolicyThe success of India’s Sri Lanka policy is measured by the quality of bilateral

relations it has brought about & the extent to which it has furthered India’s

interests. The assessment of these separate, albeit interwoven indicators,

reveals mixed results. India’s relationship with Sri Lanka has considerably

strengthened, while instability in & surrounding Sri Lanka remains a significant

threat to India’s strategic interests.

1. We will examine the positive effects of India’s policy, namely the particular

nature of economic engagement that has led to a strengthening of

relations.

2. Then we will turn to the more dubious effects surrounding India’s role, or

lack thereof, in the Sri Lankan conflict vise a versa defense relations with

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Sri Lanka, its posture towards the LTTE, political sentiment in Tamil Nadu,

& maritime dilemmas.

India&Sri Lanka’s economic interactions include the strategic energy sector.

Indian companies are serving Sri Lanka’s energy market & exploring the Island’s

off-shore oil resources. Lanka Indian Oil Corporation (Lanka IOC) has a 30 per

cent market share in Sri Lanka’s retail petrol market, operating 151 retail outlets

on the island. Lanka IOC is building & operating storage facilities at the

Trincomalee Tank farm, which as stated earlier, is of critical importance in the

maritime strategic environment. India also has a significant stake in exploration of

oil resources off Sri Lanka’s coast. India’s Oil & Natural Gas Corporation (ONCG)

has been promised one of the five drilling blocks in the Mannar basin.17 The

Mannar basin, thought to contain the equivalent of one billion barrels of oil, has

three remaining blocks up for auction (besides the one promised to India, the

second of the five has been granted to China).

Regional & Bilateral Trade Agreements between India &Sri LankaIndia has recently signed trade agreements with its neighbors & is seeking new

ones with the East Asian countries & the United States. Its regional & bilateral

trade agreements or variants of them are at different stages of development: 

India-Sri Lanka Free Trade Agreement,

Trade Agreements with Bangladesh, Bhutan, Sri Lanka, Maldives, China,

&South Korea.

India-Nepal Trade Treaty,

Comprehensive Economic Cooperation Agreement (CECA) with

Singapore. 

Framework Agreements with the Association of Southeast Asian Nations

(ASEAN), Thailand and Chile.  

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Preferential Trade Agreements with Afghanistan, Chile, &Mercosur (the latter is a

trading zone between Brazil, Argentina, Uruguay, & Paraguay).

Characteristics of Indo-Sri Lanka Informal TradingThe analysis is based on the results of the survey carried out in Chennai,

Tiruchirapalli, Thiruvananthapuram, Tuticorin, Mumbai &Rameshwaram during

May to October 2001.This section focuses on the key features of the transacting

environment of informal & formal trading as revealed by the survey. As

mentioned earlier, the fact that informal trade continues unabated implies that

there is an institutional mechanism that enables such trade to take place. The

survey instrument was designed to elicit information on the profile of informal

traders in terms of nature of trading activity & commodities traded.

The transacting environment of informal trading has also been analyzed in terms

of entry characteristics, nature of contracts, information channels, aspects of risk

in informal trading & its financing, role of ethnic networks & aspects of transaction

costs. The transacting environment of formal trading is analyzed in terms of

transaction costs incurred both in terms of time & money. In the light of

comparisons drawn between formal & informal trader’s factors influencing

informal trade flows are identified from the survey. The last sub-section presents

a comparative statistical analysis of formal & informal traders in terms of a set of

variables. The format for analysis is the same as that in Pohit&Taneja (2000) with

suitable modifications. The changes that have been incorporated in the present

study are specifically mentioned.

Traditionally, the main objective of the Indian International Trade Policy has been

to shield its market from foreign competition. Up until the 1980s, India was not

interested in exporting its goods & services abroad & not ready to open its

economy to foreign investments. The aim of its economic policy was to make

sure the country’s independent development. At the end of the 1980s, India was

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one in every of the foremost closed economies within the world. Its bilateral trade

policy, heavily skewed toward the previous communist countries, was filled of gr&

statements about technology transfer, mutually advantageous relations &

partnership for development to very little purpose. The thought of a Free Trade

Zone was abhorrent. Therefore, India was left out of the Asian economic

boom.With the Soviet Union’s collapse & the first Gulf War, as well as the

implementation of the International Monetary Fund’s 1991 StructuralAdjustment

Program, India launched a new policy of privatization, deregulation &

globalization of its economy, & a multifaceted trade policy.

The nature of India's official & unofficial trade with Sri Lanka follows a different

pattern. Unofficial trade estimates between the two countries are out there just

for the year 1991, & are carried out both by air & sea. Whereas there is hardly

any passenger traffic by ship between India & Sri Lanka, a number of regular

boats ply between the two countries purely for contraband purposes. India's

official trade with Sri Lanka is similar to that of Bangladesh on one count, but

India has had a trade surplus with Colombo. However, unofficial trade accounts

with Sri Lanka are more or less balanced. 

ECONOMIC POLICY OF INDIA IN SRILANKA

India-Sri Lanka trade Perspective & Implications Economic relations between India & Sri Lanka that date back to pre-

colonial times began to pickup within the 1990s with the liberalization of

the Indian economy.

The year 1998 saw most important boost in economic relations when the

two countries signed a bilateral Indo-Lanka Free Trade Agreement (ILFTA) that began implementation in March 2000.

Among different factors, up to date political forces led to the signing of the

Agreement.

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The ILFTA was formulated based mostly on the “negative list” approach;

each country extending concessions/preferences to all commodities

except those indicated in its negative list.

The two countries agreed for preferential treatment on 5112 tariff lines &

an 8-year time table was devised for phasing out tariffs.

NTBs (Indian state taxes) were also to be removed gradually.

Asymmetry between the two countries was accommodated by special &

differential treatment (SDT).

Larger negative list (Srilanka agriculture sector fully protected).

The immediate duty-free list (319 items) & 50% preferential duty list (889

items) were considerably smaller than those offered by India (1351 items

& 2799 items respectively), while the Sri Lankan negative list (1180 items)

was considerably larger than India’s (196 items).

Relaxed Rules of Origin (ROO) 35% (25% if Indian imports used).

Longer tariff phase out period (8 yrs for Srilanka & 3 yrs for India).

Negative list reduction based on Srilanka’s comfort level.

Revenue compensation excluded, but Srilanka insisted that high revenue

import items will not be subject to tariff preferences (M duties = 2% of

GDP revenue).

Recent Trends in Indo-Lanka Economic Relations Trade In the period immediately preceding the Agreement (1995-2000), average

annual exports from Srilanka to India were US$ 39mn & annual average

imports were US$ 509mn.

India was an important source of imports even prior to the Agreement by

2000; India was already the second largest source of imports to Srilanka

after Japan.

But India wasn’t a significant export market before the ILFTA it was the

14th rank in export destinations in 2000.

Srilanka’s trade with India changed dramatically following the

implementation of the FTA in 2000.

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India fully implemented the Agreement by March 2003, & Srilanka did so

by October 2008 longer time frame for the latter given economic

asymmetries between the two countries.

Rapid Growth in Overall Trade By 2005, Sri Lanka’s exports to India reached a peak of US$ 566.4, a

tenfold increase compared to 2000, & stood at US$ 418.3 million in 2008.

India was the 5th largest destination for Sri Lanka’s exports in 2008.

Imports too have grown at a rapid rate following the implementation of the

FTA. Imports from India which amounted to US$ 600.1 million in 2000

reached US$ 3443 billion in 2008, a growth by 5.7 fold.

A combination view of trade between India & Sri Lanka since the FTA

came into being therefore suggests a really positive picture with overall

trade growing near to six fold & exports from Sri Lanka growing tenfold.

Furthermore, the increased diversity & greater value addition in exports

from Sri Lanka is a positive development.

Trade Barriers in Sri Lanka for IndiaIn addition to tariffs, a range of taxes introduced in the past many years have

effectively increased SriLanka’s tax rates on a range of imported items to

between 60 percent & 100 percent of the cost, insurance, & freight (CIF) value of

the product. The government has imposed these charges on imports primarily to

raise revenue, to defray the costs of specific government services, or to promote

local producers. Most of these charges were revised upwards effective

November 2007, & again in November 2008. In addition, the government

imposed a new Nation Building Tax of 1 percent on imports that came into effect

on January 1, 2009; it will be in effect for two years.

The frequent changes (mostly upward) in these rates have added unpredictability

to foreign exporters’ & local importers’ cost calculations. Affected products from

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the United States include fruits, processed/packaged food, & personal care

products.An imputed profit margin of 10 percent is added onto the import price. In

some cases, like on biscuits, chocolates & soap, the tax is charged not on the

import price but on 65 percent of the maximum retail price (November 8, 2007). A

Ports & Airports Development Levy of 3 percent on imports (increased from 2.5

percent in January 2007; this tax will be increased from 3 percent to 5 percent

from January 1, 2009). When calculating the VAT, an imputed profit margin of 10

percent (increased from 7 percent on January 1, 2007) is added on to the import

price. Locally manufactured products are also subject to VAT but not the imputed

profit margin. (The VAT rates of 5 percent & 15 percent are to be replaced with a

VAT b& of 12 percent with effect from January 1, 2009.) Excise fees on some

products such as aerated water, liquor, beer, motor vehicles, & cigarettes.

The list of products subject to these fees was expanded in 2007 to include

certain household electrical items. When calculating the excise fee, an imputed

profit margin of 15 percent (increased from 10 percent on October 11, 2007 &

from 7 percent on January 1, 2007) is added on to the import price. Locally

manufactured products are also subject to excise fees. A Social Responsibility

Levy, a surcharge of 1.5 percent assessed on the import duty to fund the

National Action Plan for Children. This tax was increased from 1 percent as of

November 8, 2007.

Investment Barriers While Sri Lanka welcomes foreign investment, there are restrictions in an

exceedingly wide range of sectors. Foreign investment isn’t permitted within the

following areas:

Nonblank money lending

Pawn brokering

Retail trade with a capital investment of less than $1 million (with one

notable exception: the BOI Permits retail & wholesale trading by reputable

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international brand names & franchises with an initial investment of not

less than $150,000)

Coastal fishing

Education of students under 14 years of age for local examinations; &

Local degree-awarding university education (institutions awarding

overseas degrees are permitted)

Investment within the following sectors is restricted & subject to screening &

approval on a case-by-case basis when foreign equity exceeds 40 percent:

Shipping & travel agencies

Freight forwarding

Higher education

Mass communications

Deep sea fishing

timber-based industries using local timber

Mining & primary processing of nonrenewable national resources; &

growing & primary processing of tea, rubber, coconut, rice, cocoa, sugar,

& spices.

Foreign investment equity restrictions & government laws conjointly apply to air

transportation, coastal shipping, lotteries, large-scale mechanized gem mining, &

"sensitive" industries like military hardware, illegal narcotics, & currency.

Trade Barriers in India for Sri LankaSince independence in 1947, India & Sri Lanka, two neighboring countries in

South Asia, have concluded three major treaties: The Sirimavo-Shastri Pact

(1964), the Indo-Srilanka Peace Accord & the Indo-Srilanka Free Trade

Agreement (ISFTA, 1998). whereas the primary two were political treaties in

character, the third one was an economic accord signed on December 28, 1998.

Although ISFTA was supposed to come into effect on March 1, 1999, actually it

came into operation one year later, on March 1, 2000. 

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While ISFTA was aimed to form a free-trade zone between India & Srilanka by

removing trade barriers, complete removal of tariffs on trade couldn’t occur

immediately when the accord came into effect. Both countries, therefore, agreed

to remove tariffs within a 3 year time frame. When the signing of the agreement,

Colombo had 8 years to allow tariff-free access of Indian commodities to its

market. However, the agreement didn’t cover all tradable commodities for tariff

reduction certain product lines were marked out in order to protect internal

production & safeguard domestic markets. Thus, both countries identified certain

commodities for the "negative list".

While Sri Lanka exports have been experiencing an impressive increase, imports

from India have too, increasing by 49%. Moreover, the import-export ratio has

improved from 16.1 in 1998 to 5.1 in 2002. It has been estimated that Sri Lankan

exports to India accounted for 3.6% of overall Srilanka exports in 2002 in

comparison to 1998 when Sri Lankan exports to India accounted for 1% of

overall exports. Consequently, there has been a repositioning of Sri Lanka as the

fifth largest import supplier to India in 2002 compared to a rank of 20 th in the mid

1990s. This means that the proportion of preferential exports amounted to

IRs10.9 billion, 68% of total exports to India. Further, preferential exports have

grown at 62% in 2002 compared to 54% in 2001. Thus, the answer to the first

question is that the Sri Lankan export outcome of 2002 was indeed a result of

ISFTA. 

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CONCLUSION

The India Sri Lanka formal business relations was started in 1968 by establishing

a committee indo-lank joint committee & after that was become more deeper by

subcommittee in 1992 & 1993.The Sri Lanka follow mix legal system including

roman Dutch law & English law. The Sri Lanka currency rupee is rs. & the central

bank of Sri Lanka started in 1949.

In 1978, Sri Lanka adopted free economic & financial framework as well as

economical framework for the growth of the country. To follow the import process

of the go Sri Lanka we have to go by three separate unites namely LONG ROOM, “D” BRANCH & POSTAL APPRAISAL.

The forms of business organization in Sri Lanka are same as in India like sole

proprietorship & partnership & limited & private limited companies.

In The Sri Lanka in direct taxation added two new concepts are social

responsibility charge & save nation charge & in indirect tax there is new one is

national security levy & maximum income tax rate to resident or non-resident is

35%.since 1977 Lanka exports mainly textiles, food & beverages, wood products,

rubber & plastics, & other consumer goods.Approximately 14% of Sri Lanka’s

international trade was conducted with India in 2010.

India has recently signed trade agreements with its neighbors & is seeking new

ones with the East Asian countries its regional & bilateral trade agreements or

variants of them are at different stages of development. Economic relations

between India & Sri Lanka, which date back to pre-colonial times, began to

pickup in the 1990s with the liberalization of the Indian economy. In indo-Lanka

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International trade we want all the same documents which we want in other

international trade like bill of lying & delivery report or document & all.

India fully implemented the Agreement by March 2003, & SL did so by October

2008 longer time frame for the latter given economic asymmetries between the

two countries. The mail barriers of the indo-Lanka trade are the taxation aspect

which is increased by the Lanka to up the income of the government. The main

investment barriers Lanka are they restricted many of areas to outsiders.

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