Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

SRI LANKA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of December 31, 2006)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: March 15, 1994.
Exchange Measures
Restrictions and/or multiple currency practicesThe staff report for the 2006 Article IV Consultation with Sri Lanka states that as of November 2, 2006, Sri Lanka maintained an exchange restriction inconsistent with Article VIII, Section 2(a) of the Fund’s Articles by requiring importers to deposit with commercial banks margins of 50% of the total invoice value with respect to the import of certain goods (and 100% with respect to certain vehicles). In particular, these measures restrict current payments due in connection with letters of credit (which are “normal short-term banking and credit facilities” under Article XXX(d)). (Country Report No. 06/466)
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)Yes.
Other security restrictionsPursuant to the relevant UN Security Council resolutions, banks and other financial institutions have been instructed to freeze all capital and assets of individuals, entities, and organizations associated with terrorism, and prior approval is required to maintain corresponding accounts with banks and other financial institutions that do not have a physical presence in any country, also referred to as “shell banks.”
References to legal instruments and hyperlinksn.a.
Exchange Arrangement
CurrencyThe currency of Sri Lanka is the Sri Lanka rupee.
Exchange rate structureUnitary.
Classification
Managed floating with no predetermined path for the exchange rateThe Central Bank of Sri Lanka (CBSL) computes the weighted average interbank rate on a daily basis and intervenes in the foreign exchange market to reduce exchange rate volatility.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketForward sales and purchases of foreign exchange by ADs are permitted up to a period of 720 days for repayments of foreign loans and 360 days in payments and receipts in foreign exchange for trade in goods and services. ADs provide a forward exchange market in which rates for current transactions are determined freely.
References to legal instruments and hyperlinksn.a.
Arrangements for Payments and Receipts
Prescription of currency requirementsPayments to and receipts from member countries of the ACU with respect to current transactions and settlements are effected in dollars. For settlements with all other countries, payments for imports may be made in any foreign currency or in rupees, provided the supplier maintains a nonresident rupee account in Sri Lanka. Other payments may be made either in the currency of the country to which the payment is due or by crediting rupees to a nonresident rupee account with the prior approval of the CBSL.
Controls on the use of domestic currency
For current transactions and paymentsRupees may be converted into any currency for making payments and transfers for current international transactions.
For capital transactions
Transactions in capital and money market instrumentsIncome and sales proceeds from permitted investments may be converted to any convertible currency.
Transactions in derivatives and other instrumentsEffective December 1, 2006, these transactions are permitted in domestic currency.
Credit operationsRupee conversion is permitted for foreign credit facilities extended to the government and to the private sector, with CBSL approval.
Use of foreign exchange among residentsTransactions among residents must be conducted in rupees.
Payments arrangements
Regional arrangementsSri Lanka is a member of the ACU.
Clearing agreementsYes.
Administration of controlExchange control is administered by the CBSL’s Department of Exchange Control. All remittances of foreign exchange in Sri Lanka must be made through authorized commercial banks in accordance with procedures prescribed by the Controller of Exchange (COE). Remittances may also be made through post offices under permits issued by the COE. The Board of Investment (BOI) handles applications relating to foreign investments in Sri Lanka when special concessions are sought.



General permission has been granted for investment by nonresidents in companies whose equity capital is in rupees, subject to certain exclusions and limitations, provided such investments are made through Share Investment External Rupee Accounts (SIERAs).
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)
On external tradeCommercial banks and limited liability companies approved by the COE may import gold on a consignment account basis, subject to terms and conditions imposed by the COE. However, there are no restrictions for trading gold on Documents against Payment (DP) and Documents against Acceptance (DA) terms.
Controls on exports and imports of banknotes
On exports
Domestic currencySri Lankan nationals may take out of Sri Lanka up to SL Rs 5,000.
Foreign currencyIndividuals may take out foreign currency for travel purposes but are required to declare it to customs if the amount exceeds $10,000 or its equivalent. Unspent rupee balances from foreign exchange sold by foreign passport holders may be reconverted into foreign currency notes only at commercial banks, against original encashment documents issued by ADs or money changers, and may be taken out.
On imports
Domestic currencySri Lankan nationals may bring into Sri Lanka up to SL Rs 5,000.
Foreign currencyTravelers must declare at entry foreign exchange holdings exceeding $10,000 or its equivalent.
References to legal instruments and hyperlinksn.a.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyResidents may open and operate resident foreign currency accounts with a minimum balance equivalent to $500 in designated currencies, provided the funds do not relate to any transactions. These accounts may be maintained even if the balance falls below $500 or its equivalent. Resident foreigners may maintain foreign currency accounts with domestic commercial banks in any of 13 designated currencies without prior exchange control approval. These accounts must be operated by the domestic unit of the bank and not by its offshore unit. The accounts may be current, savings, or fixed deposit accounts, but withdrawal of funds by check is not permitted. Credits to these accounts are limited to inward remittances and to amounts in rupees authorized by the COE for remittance abroad. Debits to these accounts are limited to outward remittances and to payments after converting to rupees. In addition, merchandise exporters are permitted to open foreign currency accounts utilizing their export proceeds. Shipping and airline agents may maintain foreign currency accounts in domestic branches of foreign banks on behalf of their foreign principals only for the purpose of collecting freight paid in foreign currency by exporters.



Indirect exporters are permitted to open and maintain indirect exporters foreign currency accounts. Effective November 16, 2006, professional services providers may open and maintain foreign currency accounts titled Foreign Currency Account for Professional Services Providers (FCAPS) with any ADs. Credits to these accounts should be confined to inward remittance received in convertible foreign currency through an AD on account of providing services to residents outside Sri Lanka and payment received in foreign exchange by bank draft or bank transfer as payments for professional services rendered to firms or companies that earn foreign exchange. Debits in foreign exchange to these accounts are permitted for current international transactions and payments to another FCAPS on account of professional services provided.



Effective December 5, 2006, suppliers of material inputs to companies that earn foreign exchange, including BOI companies, are permitted to open and maintain foreign currency accounts titled Foreign Currency Account for Suppliers of Material Inputs (FCASI). Credits to FCASIs must be confined to payment received in foreign exchange by way of bank draft or bank transfer for material inputs supplied to any company. Debits in foreign exchange are permitted for current international transactions that meet the cost of material inputs purchased from companies.
Held abroadExcept in the case of exporters, prior approval is required to open these accounts.
Approval requiredYes.
Accounts in domestic currency held abroadApproval is required.
Accounts in domestic currency convertible into foreign currencyYes.
References to legal instruments and hyperlinksn.a.
Nonresident Accounts
Foreign exchange accounts permittedSri Lankans employed abroad and nonnationals originally from Sri Lanka who are employed and reside abroad may maintain nonresident foreign currency (NRFC) accounts in designated foreign currencies. Credits to these accounts are limited to remittances from employment earnings abroad, foreign exchange earnings received in foreign currency and brought into the country by the above-mentioned individuals, approved investment income, and interest payments on the accounts. Balances on NRFC accounts may be invested in enterprises approved by the BOI, with full exemption from exchange control. Dividends and profits earned and sale proceeds from such investments received in foreign currency may be credited to NRFC accounts without prior approval of the COE.
Domestic currency accountsThese accounts may be held by (1) nonnationals residing outside Sri Lanka, (2) firms and companies registered outside Sri Lanka, (3) Sri Lankan nationals residing outside Sri Lanka, (4) emigrants, and (5) foreign banks. For categories (1), (2), and (3), credits from inward remittances and debits for local disbursements or outward remittances for current transactions may be effected freely through these accounts; however, local credits to these accounts require prior approval. Interest may be paid on these domestic currency accounts. Accounts held by emigrants (category 4) are designated as nonresident blocked accounts only when instructions to that effect are received from the COE. Debits to such accounts for local disbursements may be freely effected without prior approval. Interest on blocked funds is permitted for outward remittances net of taxes. However, local credits to these accounts and debits for outward remittances involving capital funds above a ceiling of SL Rs 1 million a family (SL Rs 750,000 a person) require prior approval. Foreign banks (category 5) may open and operate nonresident accounts with local commercial banks without prior approval of the COE. Nonresidents, including diplomatic missions, and resident foreign passport holders may maintain rupee accounts on an interest-bearing basis.
Convertible into foreign currencyThese accounts are convertible, but prior approval is required.
Approval requiredYes.
Blocked accountsThese accounts are used to hold funds, usually those of nonresidents and emigrants who have not been accepted for transfer abroad. ADs may debit these accounts for local disbursements and credit them with pensions and income tax refunds.
References to legal instruments and hyperlinksn.a.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for imports
Minimum financing requirementsADs may remit foreign exchange abroad or credit nonresident accounts against applications for the opening of an LC, DP terms, or DA terms on submission of proof of a valid import license, where applicable. These requirements do not apply if the value of a consignment does not exceed the equivalent of $3,000 (c.i.f.) with respect to raw materials and spare parts for the use of a particular industry or for personal use.
Advance payment requirementsAdvance payments for imports are limited to $10,000 a consignment. ADs are permitted to sell foreign currency in advance up to $15,000 to registered gem dealers to carry with them when traveling to Madagascar and Myanmar for the purpose of purchasing rough gemstones.
Advance import depositsA 100% cash margin applies to LCs opened for imports of certain classes of motor vehicles. Effective October 18, 2006, a 50% margin deposit requirement is imposed by the CBSL against the LCs used for the importation of selected non-essential consumer goods.
Documentation requirements for release of foreign exchange for importsImports may be effected against DP and DA terms and LCs.
Preshipment inspectionInspection is required for certain consumer goods.
Letters of creditYes.
Import licenses and other nontariff measuresAbout 425 items at the six-digit level of the harmonized system code are subject to import controls, most for reasons of public health, public morals, environmental protection, preservation of antiques, or national security.



Paddy is subject to licensing to protect domestic producers against low prices. Some categories of used motor vehicle bodies and parts, cigarette paper, and cashew nuts in shells are subject to licensing requirements. A total of 22 items are exempted from import duties, subject to the approval of the secretary of the treasury.
Import taxes and/or tariffsThe tariff structure consists of the following rates: zero, 2.5%, 6%, 15%, and 28%. The customs duty on the importation of selected heavy-duty vehicles is 6%. Effective January 31, 2006, the customs duty on importation of wheat flour was increased to 15% from 2.5% or SL Rs 12.50 a kilogram (whichever is higher), and the customs duty on importation of rice was increased to SL Rs 20 a kilogram from SL Rs 9 a kilogram. Effective February 28, 2006, the customs duty for importation of wheat grain was increased to 6% from 2.5%, and construction machinery became exempt from customs duty. Certain items such as palm oil, electrical fans, and electrical parts were placed at a higher tariff to protect domestic producers. Effective April 1, 2006, a duty waiver up to 25% of levies is granted on the importation of motor cars of less than 1,500 cc for compliant taxpayers. The period specified for the issue of refunds to exporters is 15 days. Effective August 4, 2006, the customs duty on importation of big onions was increased to SL Rs 20 from SL Rs 10 a kilogram. Effective September 16, 2006, a cess of SL Rs 10 a kilogram is imposed on the importation of big onions. A cess is imposed on selected imported items including motor vehicles and lubricant oil. The tea export cess was increased to SL Rs 4 from SL Rs 2.50 a kilogram, effective April 18, 2006. All categories of imported paper are in the zero tariff band to reduce the cost of printing. Duty concessions are granted for the importation of new machinery for advanced technology applications. Import duty on tires used for three-wheeled vehicles is 15%. The import duty on musical instruments is 15%.



Effective November 17, 2006, as a revenue measure, the Port and Aviation Levy (PAL) was increased to 3% from 2.5%. The PAL applicable to exports is 0.25%, providing an incentive for exporters. The excise tax, which had been confined to cigarettes, petroleum products, aerated water, and motor vehicles, covers some consumer durables such as air conditioners, refrigerators, washing machines, televisions, TV antennas, and electrical items. A withholding tax of SL Rs 5,000 applies on each motor vehicle, imported or newly registered, other than three-wheelers, trucks, and public transport buses.



To discourage substandard vehicles from being imported to Sri Lanka, an import inspection certification system is in place.



A few items are subjected to a tax with the objective of generating funds for research and development of the respective industries and ensuring sufficient availability of raw materials for local industries. There are taxes on tea, coconut, rubber, and cinnamon exports.



A VAT of 20% applies on selected luxury items. Imports of computers and computer accessories and rice milling machinery are exempt from VAT. Effective January 1, 2006, the importation of milk processing machinery; construction machinery and equipment, including crushing machinery; unprocessed timber logs; and high-technology machinery for the handloom industry are exempt from VAT. Also effective that date, the markup on the c.i.f. value for charging VAT at customs points was increased to 7% from 5%. It was further increased to 10% effective November 17, 2006.
State import monopolyNo.
References to legal instruments and hyperlinksn.a.
Exports and Export Proceeds
Repatriation requirementsExporters are free either to repatriate export proceeds and have such proceeds credited to any rupee account or to an exporters’ foreign currency account with the domestic banking unit of a bank in Sri Lanka or to retain export proceeds abroad in any commercial bank, provided monies in such accounts are not used for acquisition of property or other capital assets outside Sri Lanka. Special arrangements apply to exports carried out under trade and payments agreements and to exports to a member country of the ACU.
Financing requirementsNo.
Documentation requirementsA scheme called Quality Assurance of Exports for Minor Crops is operated on a compulsory basis for cashew kernels and on a voluntary basis for other minor export crops (e.g., pepper, cinnamon, cardamom, nutmeg, and cloves).
Export licenses
Without quotasLicenses are required for exports of ivory and ivory products, handicraft items of ebony, timber (logs or in plank form), vintage motor vehicles, and metal waste and scrap metals (e.g., copper, nickel, aluminum, lead, tin, and zinc).
Export taxes
Other export taxesExport taxes are levied on exports of cinnamon, coconut, rubber, and tea.
References to legal instruments and hyperlinksn.a.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersIndicative limits and bona fide tests are applied to all these transactions.
Trade-related paymentsRemittances of premiums for general insurance are permitted, subject to the country’s insurance regulations. Remittances of premiums for reinsurance may be effected through ADs without prior approval, subject to documentary requirements.
Indicative limits/bona fide testReasonable amounts of commissions are allowed for export orders secured through agents abroad, provided export proceeds have been repatriated to Sri Lanka.
Investment-related paymentsProfit remittances of nonresident partners and remittances of dividends to nonresident shareholders of companies whose financial assets are in rupees may be effected through commercial banks without prior approval. However, relevant documentation is required to remit interim profits or dividends, or final profits or dividends.
Indicative limits/bona fide testYes.
Payments for travel
Indicative limits/bona fide testYes.
Personal payments
Indicative limits/bona fide testYes.
Foreign workers’ wagesExpatriate employees of approved enterprises may remit their entire savings after meeting expenses and paying taxes and levies.
Indicative limits/bona fide testYes.
Credit card use abroadCredit card holders are permitted to make payments abroad for services of a personal nature, including travel, accommodation, medical, living, and educational expenses, and payment for purchase of goods abroad for personal use, subject to a limit of $3,000 or its equivalent a case.
Indicative limits/bona fide testYes.
Other payments
Indicative limits/bona fide testYes.
References to legal instruments and hyperlinksn.a.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsFunds retained abroad with COE permission and export proceeds permitted to be retained abroad may not be used for acquiring property or other capital assets outside Sri Lanka.
References to legal instruments and hyperlinksn.a.
Capital Transactions
Controls on capital transactionsYes.
Repatriation requirementsNo.
Controls on capital and money market instrumentsExcept for the local purchase by nonresidents of shares or other securities of a participating nature, all capital market securities and money market instruments are controlled.
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsNonresidents may invest in shares of up to 100% of the equity capital of existing listed and unlisted public companies without prior approval, subject to certain exclusions and limitations, in terms of the general permission granted. Funds must be channeled through a SIERA.
Sale or issue locally by nonresidentsYes.
Purchase abroad by residentsInvestments under an employee share option plan are permitted, subject to approval from the MOF.
Sale or issue abroad by residentsPrior approval is required.
Bonds or other debt securities
Purchase locally by nonresidentsNonresidents may invest in Sri Lanka development bonds. Nonresident Sri Lankans may invest in any real or financial asset through special accounts (rupee accounts for nonresident Sri Lankan investment). Effective November 1, 2006, the rupee-denominated Government Treasury Bond Market (GTBM) was opened to foreign investors. Foreign country funds, regional funds, or mutual funds approved by the Securities and Exchange Commission of Sri Lanka, corporate bodies incorporated outside Sri Lanka, and citizens of foreign states are permitted to purchase and hold rupee-denominated treasury bonds (T bonds) with a minimum maturity of two years not exceeding 5% of the total value of T bonds outstanding at any given point of time. ADs are permitted to open and operate a special rupee account titled Treasury Bond Investment External Rupee Account for this purpose in the names of the above categories of foreign investors.



The following categories of persons are permitted to invest in the Sri Lanka Nation Building Bonds denominated in dollars, pounds sterling, and euros with a tenure of five years: (1) Sri Lankan nonresidents, (2) Sri Lankans who have taken up overseas employment or set up business abroad, (3) citizens of Sri Lanka with dual citizenship, (4) Sri Lankan professionals living in Sri Lanka or abroad who earn foreign exchange, and (5) a bank acting in a fiduciary capacity on behalf of an investor.
Sale or issue locally by nonresidentsThese transactions are not permitted.
Purchase abroad by residentsThese transactions are not permitted.
Sale or issue abroad by residentsPrior approval is required.
On money market instrumentsThese transactions are not permitted.
On collective investment securities
Purchase locally by nonresidentsThese transactions are permitted only in the case of unit trusts, in which not more than 20% of the depository property may be invested in government securities.
Sale or issue locally by nonresidentsThese transactions are not permitted.
Purchase abroad by residentsThese transactions are not permitted.
Sale or issue abroad by residentsThese transactions are not permitted.
Controls on derivatives and other instrumentsEffective January 1, 2006, ADs are permitted to contract basic financial derivative products: interest rate swaps, interest rate options, forward rate agreements, non-rupee options, cross-currency swaps not involving rupees, and commodity-linked derivatives that include industrial products and precious metals. Effective December 1, 2006, ADs are permitted to contract options and cross-currency swaps also in domestic currency. Controls apply on all other derivative transactions.
Controls on credit operationsBorrowers are required to settle credit granted to finance export orders within a period of 90 or 120 days from the date of shipment. The 120-day limit is usually granted, but the decision to extend the limit is left to commercial banks.
Commercial credits
By residents to nonresidentsExport credits are permitted, provided they are effected through a licensed bank.
To residents from nonresidentsOverseas suppliers may extend credit to importers only if the interest rate is reasonable.
Financial credits
By residents to nonresidentsAll licensed banks may extend rupee credit facilities to nonresident-controlled companies incorporated in Sri Lanka.
To residents from nonresidentsAll financial credits require prior approval, based on a review of the terms and conditions. Approval is normally granted only for long-term loans with favorable interest rates, and preference is given to loans that will be repaid in foreign exchange.
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsBanks may issue performance bonds and bid bonds without limit on behalf of nonresident persons for exports and other service contracts, subject to the conditions stipulated in the tender, quotation, or contract and, in the latter case, proof of the award of contract.



Letters of guarantee valued up to the equivalent of $500,000 are permitted; those exceeding this limit require prior CBSL approval.
To residents from nonresidentsYes.
Controls on direct investment
Outward direct investmentInvestments abroad by residents are permitted only with the permission of the MOF, depending on the payback period and other criteria. Priority is given to investments that promote domestic exports.
Inward direct investmentForeign investment is permitted on the basis of the type of business.



Excluded areas of investment for nonresidents include money lending, pawnbroking, retail trading with capital of less than $1 million or its equivalent, and coastal fishing. The restricted sectors, in which foreign investment is restricted to 40%, include production of goods for export under international quota restrictions; growing and primary processing of cocoa, coconuts, rice, rubber, spices, sugar, and tea; mining and primary processing of nonrenewable natural resources; timber processing industries using local timber; deep-sea fishing; mass communications; freight; travel; shipping agencies; and education. Investment is permitted only up to the limit approved by the government or the relevant authorities in air transportation; coastal shipping; manufacture of arms, ammunition, explosives, military vehicles and equipment, aircraft, and other military hardware; manufacture of poisons, narcotics, alcoholic beverages, dangerous drugs, and toxic, hazardous, or carcinogenic materials; large-scale mining of gems; and lotteries.
Controls on liquidation of direct investmentProceeds from the sale or liquidation of approved investments, along with any associated capital appreciation, may be remitted in full. Expatriates leaving Sri Lanka to take up residence in the country of their permanent domicile are permitted to transfer all assets representing their retirement funds and savings. Foreign nationals who have operated small businesses in Sri Lanka are allowed to transfer the capital they originally brought into the country plus a reasonable amount of savings, subject to certain limits.



ADs may grant foreign exchange allocations to emigrants on presentation of appropriate documentation.
Controls on real estate transactionsReal estate transactions are subject to exchange control restrictions.
Purchase abroad by residentsThese transactions require prior approval.
Purchase locally by nonresidentsPurchases for residential purposes are allowed only if funded by inward remittances.
Sale locally by nonresidentsThese transactions are permitted, but the repatriation of sale proceeds is allowed only up to the amount of inward remittances of foreign currency.
Controls on personal capital transactions
LoansThese transactions are not permitted.
Gifts, endowments, inheritances, and legacies
By residents to nonresidentsGifts by residents to nonresidents are not permitted. Transfers of assets through inheritances are subject to a limit of SL Rs 350,000 or its equivalent.
Settlements of debts abroad by immigrantsYes.
Transfer of assetsRemittances of foreign currency for life insurance premiums are not permitted.
Transfer abroad by emigrantsAt the time of departure, emigrants may be granted foreign exchange to pay for the cost of transportation to the country of migration via the usual, direct route. Foreign exchange equivalent of up to $2,000 a person may also be purchased at the time of departure. Personal effects of reasonable amounts, plus jewelry valued at up to SL Rs 150,000 for each married woman, SL Rs 60,000 an unmarried woman, SL Rs 30,000 each female emigrant less than 12 years of age, and SL Rs 37,500 each man may be exported. Emigrants are also permitted to effect capital transfers of up to SL Rs 750,000 a person, and up to a maximum limit of SL Rs 1 million a family unit.
Transfer into the country by immigrantsYes.
Transfer of gambling and prize earningsYes.
References to legal instruments and hyperlinksn.a.
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutionsBanks are required to report their daily foreign exchange position. Reporting requirements with respect to fund transfers through electronic fund transfer cards are in effect.
Borrowing abroadYes.
Maintenance of accounts abroadYes.
Lending to nonresidents (financial or commercial credits)Offshore bank branches may extend foreign currency loans to nonresident individuals and resident companies approved by the BOI. Domestic bank branches may extend loans in foreign currency to Sri Lankan expatriate workers who are employed abroad to be used for any domestic purpose against repayment in foreign currency from an NRFC account.
Lending locally in foreign exchangeCommercial banks may grant foreign currency loans from their domestic currency banking units to exporters who are in a position to pay their loans in foreign exchange earnings. Development banks are also permitted to extend foreign currency loans to exporters based on their foreign credit lines.
Purchase of locally issued securities denominated in foreign exchangeYes.
Differential treatment of deposit accounts in foreign exchange
Reserve requirementsYes.
Liquid asset requirementsYes.
Interest rate controlsYes.
Credit controlsYes.
Differential treatment of deposit accounts held by nonresidents
Reserve requirementsThe statutory reserve requirement ratio on rupee deposits is 10%, and the ratio on foreign currency deposits is zero.
Liquid asset requirementsYes.
Interest rate controlsYes.
Credit controlsYes.
Investment regulations
Abroad by banksYes.
In banks by nonresidentsThere is no limit on foreign ownership of domestically incorporated commercial banks.
Open foreign exchange position limitsThe maximum positive daily net open foreign exchange position of commercial banks is 15% of a bank’s own capital funds and reserves.
Provisions specific to institutional investors
Insurance companies
Limits (max.) on securities issued by nonresidentsYes.
Limits (max.) on investment portfolio held abroadYes.
Limits (min.) on investment portfolio held locallyYes.
Currency-matching regulations on assets/liabilities compositionYes.
Pension fundsn.a.
Investment firms and collective investment fundsn.a.
References to legal instruments and hyperlinksn.a.
Changes during 2006
Exchange measuresOctober 18. Sri Lanka imposed deposit requirements, giving rise to an exchange restriction.
Arrangements for payments and receiptsDecember 1. Transactions in derivatives and other instruments were permitted in domestic currency.
Resident accountsNovember 16. ADs were permitted to open and maintain FCAPSs in the domestic banks for resident professional services providers to receive payments in foreign currency on account of services rendered to nonresident and/or local firms or companies that earn foreign exchange.



December 5. ADs were permitted to open and maintain FCASIs in the domestic banks for companies engaged in supplying material inputs to companies that are earning foreign exchange in order to receive payments in foreign currency.
Imports and import paymentsJanuary 1. The importation of milk processing machinery; construction machinery and equipment, including crushing machinery; unprocessed timber logs; and high-technology machinery for the handloom industry were exempted from VAT.



January 1. The markup on the c.i.f. value for charging VAT at customs points was increased to 7% from 5%.



January 31. The customs duty on importation of wheat flour was increased to 15% from 2.5% or SL Rs 12.50 a kilogram (whichever is higher). The customs duty on importation of rice was increased to SL Rs 20 a kilogram from SL Rs 9 a kilogram.



February 28. Construction machinery became exempt from customs duty.



February 28. The customs duty for importation of wheat grain was increased to 6% from 2.5%.



April 1. A duty waiver up to 25% of levies was granted on importation of motor cars of less than 1,500 cc for compliant taxpayers.



April 18. The tea export cess was increased to SL Rs 4 from SL Rs 2.50 a kilogram.



August 4. The customs duty on importation of big onions was increased to SL Rs 20 from SL Rs 10 a kilogram.



September 16. A cess of SL RS 10 a kilogram was imposed on the importation of big onions.



October 18. A 50% margin deposit requirement was imposed by the CBSL against the LCs used for the importation of selected nonessential consumer goods.



November 17. The markup on the c.i.f. value for charging VAT at customs points was increased to 10% from 7%.



November 17. As a revenue measure, the PAL was increased to 3.0% from 2.5%.
Capital transactions
Controls on capital and money market instrumentsNovember 1. The rupee-denominated GTBM was opened to foreign investors. Foreign investors were permitted to purchase treasury bonds with minimum maturity of two years and total investment limited to 5% of the value of treasury bonds outstanding at any given point in time.
Controls on derivatives and other instrumentsJanuary 1. ADs were permitted to contract basic financial derivative products; interest rate swaps, interest rate options, forward rate agreements, non-rupee options, cross-currency swaps not involving rupees, and commodity-linked derivatives limited to selected industrial products and precious metals.



December 1. Permission to ADs to contract options and cross-currency swaps was extended to include domestic currency.

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