President Anura Kumara Dissanayake pledged New Customs Laws and Procedure earlier this month during discussions with senior officers, the Customs directorate and officials during deliberations for the Budget 2025.
These discussions came in the wake of critical issues that were highlighted during major congestion of over three months in the Port of Colombo causing critical delays in clearance and release of around 3,000 containers stuck in the Port.
Public and the commercial sectors dissatisfaction with the Customs Department over the indifferent attitude of the latter reached frustrating levels. It also exposed inefficiencies in the clearance system, fraudulent activities and malpractices.
The President in response to the challenges called for the urgent need to adopt new technology to increase efficiency in operations. It was at these discussions that the President spoke of the need for reforms to the archaic Customs Ordinance and the need to enact a new Customs Act.
A revised National Tariff Policy has been a long term subject to ease off the complicated duty and tariff compositions.
This was communicated at many discourses. The President also acknowledged the revenue targets that were achieved by the Sri Lanka Customs in 2024.
It will be worthwhile to note the previous efforts made on the subject of the modernisation of Customs Laws:
1) In 2010, the Ceylon Chamber of commerce launched a drive and requested the Trade for proposals to be made based on the major decision of the Government on ‘Public Sector Management Reforms’.
2) In 2016 September, the joint stakeholders convened a seminar to move forward on the Government policy decision following the Cabinet Committee on Economic Management (CCEM) to reform the Customs Ordinance
3) The planning stage of the National Export Strategy (NES) and the release of the final document in 2018, the reforms envisaged were discussed.
4) A comprehensive document was made together with the Customs Directorate and the Legal Divisions and the draft was published and lengthy discussion and amendments were accepted by all parties excepting for a few details.
National Export Strategy
Many attempts to move forward with the inputs for reform were unsuccessful as some factions in the Department were against its implementation. The existing Customs Ordinance 17 of 1869 with many added amendments is not serving trade facilitation in the modern era.
As regards container clearance delays in the Port, a step in the right direction has been taken.
The Ministry of Transport, Ports and Highways and Civil Aviation under Minister Bimal Ratnayake has set up the “National Steering committee on Efficiency Improvement of Logistics Services” and several meetings have been held. The Minister has issued several short- term corrective measures and long-term policy decisions to facilitate the process.
Almost all sectors and relevant Government representatives attended the meeting to give a ‘hands on’ response to the matters raised. Over 22 agencies were present.
The Chairman of the Sri Lanka Ports Authority and the Ministry Secretary have taken the initiative to put forward a digitised document.
This document has looked into the issues and challenges pointed out by the Import/Export clearing and forwarding agents and the industry stakeholder associations.
Customs officials too were present at the meetings together with the OGA and the licensing/regulatory authorities where important decisions have been taken in this regard. Going forward it will have to be monitored for the plan to work and a repetition of the container congestion fiasco to be avoided. Many future progress plans and facilitations are on the agenda.
Some Associations voiced concern that currently the volume of import cargo is low due to a drop in consumer demand and slowing down of imports from China on account of the Chinese New Year holidays in February. However, this will normalise by April during the forthcoming Sinhala and Tamil New Year as consumption and demand will grow. The inflow of import containers in the near future will then increase to a notable level.
Transshipment volumes at the Port of Colombo declined for the second continuous month in February. Observers analyse that shipping services pulled out of the Colombo Port earlier due to the heavy congestion experienced in the last few months when berthing was disrupted due to the Port storage capacity crunch. These services are yet to return to the Colombo Port which resulted in a loss of earnings to the Port and lost opportunities.
Earlier this year, mainline shipping vessels calling at the Port pulled out some of their services during the critical Port congestion that occurred in the recent past.
The catastrophe was attributed to the fact that the Customs in the latter part of 2024 increased inspections in a last-minute push to meet the Government’s revenue targets and Port operations took a long time to return to normal.
The Customs should adopt more technical and modernised information methods to have a focused equilibrium on trade facilitation vs generating revenue for the State. The over-anxious inclination to generate revenue led to a disturbing trend in trade efficiency eroding the very essence of transparency and accountability at the cost of other agencies and the public suffering impacted the industry and Port efficiency with losses in foreign exchange earnings.
Maritime disruptions
This resulted in a decline to the healthy growth the Port experienced during the first and latter parts of 2024. The Colombo Port benefited immensely from the diversions caused by maritime disruptions on the Red Sea routes.
Transshipment volumes dropped by 9.2 percent year-on-year (YoY) to 478,542 twenty-foot equivalent units (TEUs). This decline is particularly concerning, given the Port’s strong performance in 2024 when it capitalised on the increased traffic from the Red Sea crisis. It is a grave situation, if the Colombo Port is affected by the operations of another State revenue agency.
Organisations have to work hand-in- hand to achieve maximum revenue targets. At a time when the Port of Colombo is experiencing many challenges in the region, decisions have to be made to operate it at the best possible levels to maintain accelerated growth. The core functions of the Port are for main line and transshipment ship operations. The operation of navigation to berthing and quayside and shipside operations and yard work have to be maximised and quick discharge and loading of containers should be envisaged to make a fast turnaround time for ships at berth. These are some of the indices that indicate Port efficiency. Major International shipping lines and feeder ship operators and transshipment ships are on the lookout for these KPI of a Port .
Congestion in the Port should be shifted outside the Port’s functional areas and it should be allowed to operate and concentrate on the core functions of accepting and berthing of ships to the terminals, loading and unloading and discharging.
Transshipment to be handled efficiently, Inter-terminal trucking – ITT to be quick and cost effective. These are factors to be marketed as an efficient Port in the region.
New port development and expansion projects are in the offing. The capacity of the Colombo Port will be increased by 6.8 million TEUs to almost double the capacity in the next two years. The East container Terminal (ECT) and the West Container Terminal (WCT) will come into operation in stages. The current handling capacity of the terminals are 7.78 million TEUs, however, the coming years will be tough with competition emerging from expansion and new hubs in India and Bangladesh. Sri Lanka will go through many economic challenges internally, among other factors, domestic taxes and trade policies and with the abolishing of the SVAT program from next month being mulled, it will affect many export sectors. Uncertainties of global economic growth considering the trade war on global tariff disparities with the advent of the Trump administration on increased tax policies and counter taxes which are bound to affect local exports to the US.
With the limited resources in hand, and some challenging economic factors, policymakers and entrepreneurs will have to marshal up positive strategies to progress ahead.
