Sri Lanka’s economy is growing, but weak retail demand, high inflation, costly working capital and demographic change are limiting the domestic fashion sector’s ability to convert recovery into sales, Advocata Institute Chief Executive Officer Dhananath Fernando said.
Delivering the keynote on Sri Lanka apparel sector outlook ahead of the National Budget at Fashion Forward 26, the annual flagship forum of the Sri Lanka Apparel Brands Association (SLABA), Fernando said the recovery was not being felt evenly across sectors.
While the economy is growing, the sectors in the industry are not expanding at the same pace, indicating both untapped potential and structural barriers that need to be addressed.
A major long-term challenge is demographics. Local brands can no longer rely on population growth to drive sales volumes, as a significant demographic shift will reshape consumer demand in the years ahead.
For export-oriented apparel businesses, tariffs, sourcing costs and trade-policy uncertainty are also likely to remain key concerns.
Fernando does not expect major tax revisions in the National Budget, given that tax collection and fiscal consolidation are working. While tax thresholds and rates may be discussed, nothing has been finalised, based on his conversations with policymakers.
He argued that the industry’s longer-term challenge extends beyond government policy to demographic and labour-market changes. Preparing for these shifts, rather than relying on near-term policy relief, will have a broader and more lasting impact.
Surge Global joined SLABA Fashion Forward 26 this year as platinum sponsor to outline its push to connect Sri Lanka’s fragmented retail and e-commerce ecosystem through payments, software, delivery and manufacturing technology.
Surge Global Founder and Short Circuit Group Managing Director Bhanuka Harischandra said Sri Lanka’s retail sector is approaching an e-commerce inflection point, with digital payments expanding faster than the wider economy.
He outlined Surge’s interconnected technologies to digitise retail, e-commerce and manufacturing pipelines. Its payments platform, Payable, already serves about 40,000 merchants, while Surge Cloud ERP is designed to bring accounting, inventory, warehousing and customer data into a single system.
From 1 November, businesses will be able to connect AI tools such as Claude or ChatGPT to the platform’s data for faster decision-making. Surge also plans to introduce Visa Click to Pay for simpler online checkout, while Surge Dispatch aims to enable 30-minute delivery by January 2027. The company is developing Surged.ad, a creator-commerce platform to formalise brand-creator collaborations.
Harischandra also highlighted Needle Eye, a Surge Robotics project using cameras fitted to sewing machines to detect stitching defects in real time. He presented it as an example of how connected data and automation can improve efficiency across the retail and manufacturing value chain.
He noted that retail is becoming increasingly competitive, with the battleground shifting from physical presence to online channels. Businesses will need to move quickly as the market becomes more dynamic.
Tax and customs compliance
A panel discussion on Key Regulatory Developments: Tax and Import Compliance for Apparel Businesses featured Inland Revenue Department (IRD) Senior Deputy Commissioner Nihal Wijewardana and Sri Lanka Customs Additional Director General Sudantha Silva.
Wijewardana said the IRD’s priority was to educate taxpayers and bring them into the system through voluntary compliance and self-assessment. Businesses can also submit sector-specific concerns and policy proposals to the Department.
Silva said Customs was moving from a gatekeeper role towards trade facilitation under the WTO Trade Facilitation Agreement, while national security and revenue collection remained to cross-border trade.’Sri Lanka Customs is working to ease business through trade-facilitation measures across all sectors, not only apparel,’ he said.
VAT and working capital
Wijewardana identified VAT as a major compliance and cash-flow risk. Output VAT must be paid before input VAT is recovered, and late or incorrect filings can result in input-tax claims being disallowed.
He advised businesses to review their accountants, file returns before deadlines and submit input-tax details on time. An interest waiver covering 2018 to 2024/25 is available if outstanding returns and payments are settled by 2 December 2026.
The 18% VAT rate continues to create working-capital pressure, particularly for smaller exporters. Wijewardana said the IRD’s risk-based refund scheme was operating as intended, and that he did not expect a major VAT-rate revision soon given Sri Lanka’s fiscal position.
Import valuation
Silva said import valuations must follow the WTO Valuation Agreement, with Customs required to accept the transaction price subject to adjustments for commissions, royalties, licence fees and other costs not reflected in the invoice.
He warned that attempts to understate declared values, including splitting transport costs, could be treated as fraud. Importers should retain valuation documentation and engage directly with Customs’ Valuation Division where required.
Fair taxation
Wijewardana clarified that there is no income-tax liability on the importation of goods, as income tax applies to business transacted in Sri Lanka. However, VAT and the Social Security Contribution Levy (SSCL) apply to imports, while imported services are addressed through the digital services tax.
A circular has also made the Taxpayer Identification Number (TIN) mandatory for specified transactions, including property purchases, construction, motor-vehicle transactions, certain transfers, bank-account opening and credit-card issuance.
Customs facilitation
Silva said 76 companies have been recognised as Tier 1 Authorised Economic Operators under Customs’ AEO program. Eligible businesses receive faster clearance, with around 99% of shipments released without examination.
He also highlighted the duty-suspension scheme for export-oriented businesses, which allows eligible raw materials and packing materials to be imported without immediate duty payment. Fabric imports are excluded, and a Ministry of Industries recommendation is required.
E-commerce and digitalisation
Customs plans to deploy ASYCUDA Express for e-commerce clearance and ASYCUDA Post for postal parcels, while paperless clearance launched on 1 October. However, only about 25% of the 700 to 1,000 daily declarations can currently be processed without paper.
All electronic documents must be digitally signed, and businesses should work with licensed customs agents who have digital signatures once digital submission becomes mandatory.
Wijewardana said the IRD postponed the prescribed tax-invoice format several times because businesses and government institutions held printed invoice stock. The e-invoicing system must be integrated with taxpayer and IRD systems, with no fixed deadline set.
Going global
A panel discussion on From Sri Lanka to the World: Building Globally Competitive and Sustainable Brands featured EKKO Chairman and Creative Director Lalantha Watudura and amanté Sri Lanka Executive Director and Business Head Padmal Silva.
Free trade agreements, supply-chain access and market adaptability are central to taking a Sri Lankan brand overseas.
Watudura said EKKO was created with international markets in mind from the outset. The brand later expanded from menswear into womenswear and entered the US market.
‘Building your brand and taking it to a global market is basically building your brand equity,’ he said.
Padmal Silva said amanté sought to reduce its dependence on the US and European markets. India was selected due to its size, growing demand and the opportunities created by the India-Sri Lanka trade agreement, supported by the company’s manufacturing presence in Chennai and Bengaluru.
He said entering a large, competitive market required extensive local adaptation. Amanté conducted around 1,000 fittings across India to develop products suited to local body shapes and preferences, while also adjusting colour palettes and design offerings.
‘Adaptability and understanding the customer, taking that feedback and adjusting your offering is key to success,’ Padmal Silva said.
Watudura agreed, saying entrepreneurs must enter new markets with an open mind rather than expecting consumers to adapt to the brand. Brands also need authenticity, consistency and a clear point of difference.
Distribution and pricing
Padmal Silva said a multi-channel distribution model was essential in a market as large as India. While boutiques help build brand image, multi-brand outlets and e-commerce are needed to reach a wider customer base.
Watudura said pricing and product positioning were equally important. EKKO positioned itself between premium international brands and lower-priced alternatives, offering quality at a more accessible price point.
Trade policy volatility
Watudura described the current global trade environment as among the most volatile he had seen in his career, with shifting tariff policies creating uncertainty for exporters and brands.
Padmal Silva said the changing landscape made it more important for brands to have the right product, clear positioning and sufficient time to build visibility. He estimated that a new brand entering a competitive online market would need 12 to 18 months to become established.
Advice for Sri Lankan brands
Padmal Silva said Sri Lankan brands should look beyond the domestic market, given the limitations of local purchasing power. However, global expansion requires strong brand architecture, compliant materials, product testing and a clearly communicated brand purpose.
‘If you are planning to go global, go back and check your goals,’ he said. ‘Are your materials compliant? Have they been tested? What is your brand purpose? That is the only way to survive in a global market.’
Watudura said global brands needed consistency, reliability and traceability, along with continued investment in material testing, durability and product longevity.
He also urged exporters to make greater use of the Department of Commerce’s overseas commercial representation network, which operates through Sri Lanka’s missions in 28 countries, to identify buyers and market opportunities.
Emerging-market consumers
Speaking on What’s Next: The Forces Reshaping Fashion in Emerging Markets, The Knowledge Company Partner Madhulika Tiwari said consumers are buying less but buying better, seeking quality, durability, versatility and responsible production rather than simply the lowest price.
Fashion brands in Sri Lanka must compete on value rather than price, as consumers become more selective amid tighter budgets and global uncertainty.
She said AI and social media are changing how consumers discover and validate products. Brands must be visible, comparable and credible across digital platforms, creator content, reviews and marketplaces, or risk being excluded from consumers’ consideration sets.
Tiwari said relevance is now as important as reach. Global trends cannot simply be copied; brands need to interpret them through local culture, identity, occasions and consumer needs. Sri Lankan brands should combine international design sensibilities with local fabrics, prints, silhouettes and cultural codes.
Customer experience is now part of the product. A seamless journey, from discovery and purchase to delivery, returns and after-sales service, is essential to building trust and repeat purchases.
For Sri Lankan brands, the priority is to identify an unmet consumer need, develop a clear brand proposition and test products before scaling. Brands should build around strong products, use customer feedback to refine assortments and avoid expanding before demand is proven.
She also urged brands to embed sustainability across the value chain, from sourcing and production to traceability and after-sales repair or reuse. Sustainability is shifting from a marketing message to a credibility requirement for both regulators and consumers.
Digitalisation should support the entire business, from product development and supply chains to customer engagement and after-sales service. Capturing and using data early allows smaller brands to understand demand, fix problems and scale with greater confidence.
Her core advice was to stay close to the customer, concentrate on product and value, listen to feedback, build proof of demand and only then scale, at home first, before taking a well-defined brand to international markets.
Fashion Forward 26 brought together Sri Lanka’s domestic fashion and apparel community, including manufacturers, industry leaders, entrepreneurs and students, for data-driven analysis, expert panel discussions and networking.