In a landmark split decision case, the Supreme Court recently ruled that the supply of bunker fuel to foreign vessels in Sri Lankan waters is a domestic sale – not an export or- export equivalent international sale, closing a long-contested avenue for concessionary tax treatment and reshaping the legal landscape for the island’s bunkering industry and its future aspiration to be a maritime and an energy hub. Supply of bunker fuel to a foreign vessel within Sri Lankan territorial waters does not constitute as an ‘export’ within the meaning of the Inland Revenue Act No. 38 of 2000, the Inland Revenue Act No. 10 of 2006, or the Value Added Tax Act No. 14 of 2002. The ruling stops bunkering from being classified as Zero-Rated (an export benefit), meaning companies remain locked into the exempt status where they cannot recover their input tax. (GST/VAT and revenue base taxes).
SL not waking up for any shocks
Sitting on these old, outdated IRD Acts, the country seems not waking up for any shocks. Opportunities come and go and the authorities tend to sleep on key sector reforms while having endless meetings. It is up to the professionals to point out how the world works with common sense to change the direction of a nation rather than wait until the business and infrastructure move out to other competing nations. In Sri Lanka, systems mainly run on reactive basis rather than being proactive on reforms with a lethargic attitude and old school thinking, resulting in old laws stopping the country’s progress. Whereas the world is setting its rules to fix modern AI based solutions and new trading environments.
The table below will give the facts to consider. It’s up to our legislators/policy makers to decide if we are to be a true competitive maritime and an energy hub that needs reforms and investments at some point of time or just delay until another opportunity is completely lost. This is among many other reforms in the maritime and logistics industry that has fallen over deaf ears for decades.
All shipping hubs except Sri Lanka, consider the international bunker sales as an export/ deemed export or are re-exports, while India which is not considered a hub is considering it as an export but has a GST component in place and working toward a claimable regime
Supply of bunker fuel
The supply of bunker fuel to ships bound for international waters is treated as an export in almost all maritime countries and all shipping hubs for tax and customs purposes. This classification allows suppliers to benefit from zero-rating, meaning they are not subject to standard VAT or GST etc. The purpose is to increase foreign trade, investments and transportation through these countries to get greater multiplier effects to the economy that these services bring. Infrastructure, new job creation and local enterprises can adapt new technologies and develop ancillary services. All shipping hubs except Sri Lanka, consider the international bunker sales as an export/ deemed export or are re-exports, while India which is not considered a hub is considering it as an export but has a GST component in place and working toward a claimable regime.
I hope this article will open the eyes and call for fast actions at the upcoming Budget to correct yet another anomaly that keeps the logistics sector contributing to the GDP below 2.5%. If one opens the eyes and looks at our neighbour India with massive free market-oriented reforms, and infrastructure expansion, attracting USD billions of investments to the logistics industry with all global brands moving in fast, one can see the opportunities lost.