Sri Lanka on Wednesday slapped a 15 per cent tax on gold to curb surging imports that have impacted the trade deficit and put pressure on the exchange rate, officials said.
The finance ministry said the tax was reintroduced after a five-year hiatus as authorities detected a rapid spike in imports in recent months.
“We believe that a lot of duty free gold (imported to Sri Lanka) is smuggled out to neighbouring countries where there are high customs duties,” a finance ministry official told AFP.
He said nearly 8,000 kilos (17,600 pounds) of gold had been brought into Sri Lanka in the first three months of this year—almost equivalent to all imports of the precious metal in 2016.
Last year, more than 15,000 kilos was brought in.
The steep increase had not translated to a boon in jewellery manufacturing—sparking suspicions it was being spirited to neighbouring India, the world’s largest consumer of gold.
Sri Lanka’s central bank warned in February that the sharp spike in gold imports was worsening the island nation’s yawning trade deficit.
The outflow of foreign exchange required to import gold at these volumes was also hurting Sri Lanka’s foreign reserves, and in turn depressing the currency.
The Sri Lankan rupee—one of the weakest currencies in Asia—has lost nearly two per cent of its value against the US dollar so far this year. It depreciated 2.3 per cent against the dollar in 2017.