• Immediate removal of SCL on refined coconut oil proposed to support local refineries
• VAT on crude coconut oil has crippled local refining, leading to factory closures
• Price surges and foreign exchange outflow linked to current tax policies
• Employment losses in coconut oil sector highlight need for urgent policy change

A proposal will be submitted to take immediate steps to remove the application of the Special Commodity Levy (SCL) on refined coconut oil in a bid to save the local coconut refining industry, the Ministry of Trade reveals.  

Speaking to The Sunday Morning Business, Ministry of Trade Secretary A.M.P.M.B. Atapattu stated that when the SCL was imposed on a commodity, other indirect taxes such as the Valued-Added Tax (VAT) did not apply for said commodity, which had, as a result, created an uneven playing field in the market.

Therefore, the Government has decided to remove the SCL from 1 January 2025 onwards. However, Atapattu revealed that proposals would be made to remove the SCL immediately in respect of certain products such as refined coconut oil.      

Elaborating further, he stated that following the imposition of VAT on crude coconut oil, all local coconut oil refineries except one had been forced to cease operations because it was cheaper to import refined coconut oil rather than importing the crude product and refining it locally.

Atapattu further stated: “Because of the imposition of VAT on local value addition, all factories that previously imported crude oil and refined it have closed down, except for one. They have now started to import the finished product itself. As a result, the price is rising unnecessarily, and similarly, an unnecessary amount of foreign exchange is flowing out of the country.” 

He stated that previously there had been a strong coconut oil refining industry that operated by importing crude oil and refining it locally. However, due to the imposition of VAT on their value addition since the beginning of this year, that business model is no longer financially viable.

Atapattu pointed out that the breakdown of this industry had resulted in the surge of coconut oil prices locally as well as a greater outflow of foreign exchange from the country. Moreover, it had also resulted in the loss of employment for many workers.  

In March, the Cabinet of Ministers gave approval to instruct the Legal Draftsman to prepare a draft bill to suspend the Special Commodity Levy Act No.48 of 2007 from 1 January 2025 onwards as the Government had identified the need to suspend the legislation due to the various challenges encountered during its implementation.

Under the Special Commodity Levy Act, a tax is imposed on a total of 64 commodities categorised under 210 HS Codes to facilitate the importation of these goods.