The Government’s proposal to remove the Special Commodity Levy (SCL) imposed on imported coconut oil and palm oil will damage the domestic coconut oil industry, local producers claim.
The Government has noted that the policy, scheduled to be implemented from April 2026, where the SCL on imported oil will be replaced with the general tax structure, including the Value-Added Tax (VAT) and the Social Security Contribution Levy (SSCL), intends to create a level playing field for local producers.
However, All Ceylon Traditional Coconut Oil Manufacturers’ Association Chief Convenor Buddhika De Silva, whose association represents small- and medium-scale manufacturers, charged that the proposal was “made to protect five big-time importers of palm oil”.
“This will simply safeguard these importers of palm oil; only they have been issued a licence to import palm oil – general importers are not allowed,” he said, stating that the SCL of Rs. 275 would be reduced to about Rs. 160-170 with the new tax system.
In contrast, he noted that the tax on coconut oil imports would rise by about Rs. 15-20. Accordingly, he contends that while the price of coconut oil imports will increase slightly, palm oil imports will face reduced prices in the market.
De Silva further alleged that this move would “enhance the importation of palm oil,” adding: “These five companies that have obtained the licence will benefit. Domestic coconut oil manufacturers will not be able to compete with palm oil because its cost is very low. This move will destroy Sri Lanka’s coconut oil manufacturers.”
“The international value for palm oil is low because demand is reducing, especially since India has restricted imports, noting that it was not healthy. Sri Lanka, on the other hand, is promoting the importation of palm oil.”
Further, he warned that cheaper palm oil would lead to adulteration, with traders mixing palm oil with coconut oil and selling it as coconut oil.
However, Coconut Development Authority Chairman Shantha Ranathunga, speaking to The Sunday Morning, noted that this policy shift was expected to protect and encourage domestic coconut oil producers, alongside ensuring that local produce became more competitive against exports.
Currently, locally produced coconut oil and palm oil are subjected to VAT and the SSCL, while imported coconut oil and palm oil are subjected to the SCL at Rs. 150 per kilogramme and Rs. 275 per kilogramme, respectively. Meanwhile, locally produced oils are charged 18% VAT and 2.5% SSCL, rendering them more expensive and less competitive.
“When a Special Commodity Levy is imposed, VAT or the SSCL cannot be imposed on top of that if the product is sold without any value-addition. For instance, imported refined coconut oil is currently charged an SCL of Rs. 150, meaning VAT and the SSCL can’t be imposed on this.
“However, both VAT and the SSCL are imposed on domestic coconut oil producers. As a result, the price of locally produced coconut oil is higher. This proposal intends to eliminate this imbalance.”
He noted that for palm oil, which is only sold industrially, the removal of the SCL meant that it would now become subject to Customs Import Duty, the SSCL, VAT, and the Ports and Airports Development Levy.
Ranathunga shared that discussions had been held with domestic coconut oil industry stakeholders before this policy shift, noting that in the long term, this was expected to stabilise the domestic coconut oil market and enhance the competitiveness of locally produced oil.