Beyond Red Tape: How Digitalization Can Save Sri Lanka’s Economy

Containers stuck at customs inspection yards

In the high-stakes world of trade and logistics, corruption at Sri Lanka’s customs, IRD, ports, and airports is not just an inconvenience—it’s a crisis that’s crippling the nation’s export sector.

Outdated, manual systems have become breeding grounds for corruption, where bribery and inefficiency rule, bleeding exporters dry and stifling economic growth. The country stands at a critical juncture, where the only viable path forward is the digitalisation of customs and trade operations.

Paper-based customs 

These antiquated, paper-based customs and processes are no match for the demands of the modern global economy, where speed, accuracy, and transparency are paramount. Instead, they are plagued by errors, deliberate delays, and a lack of accountability, allowing corrupt practices to thrive unchecked. As global trade standards become stricter, the need for transparent, secure, and efficient customs operations has never been more urgent.

Digitising Sri Lanka’s customs operations offers a clear solution to this corruption crisis. It would drastically reduce clearance times and costs, cut off avenues for bribery, and restore governance within the customs framework. By adopting international best practices and leveraging technology, Sri Lanka can finally break free from the stranglehold of corruption and integrate more effectively into the global digital trade network.

Right now, traders are being held hostage by a system riddled with red tape and graft. Complex licensing, endless documentation, and delays at ports are not just frustrating—they’re expensive. Additional costs, like storage fees and demurrage charges, are passed down to consumers, driving up prices and eroding trust in Sri Lankan exports. Without decisive action to root out corruption and modernise these processes, Sri Lanka’s export sector will continue to suffer, jeopardising the nation’s economic future.

“When customs officers go on strike or adopt a go-slow approach, the repercussions are immediate and widespread. Importers face delays, leading to storage and demurrage charges that quickly accumulate,” said Sean Van Dort, Chairman of the Sri Lanka Shippers’ Council. These additional costs inflate prices and contribute to economic strain. The lack of urgency and accountability among customs officers exacerbates these issues. Without Key Performance Indicators (KPIs) or a robust system to monitor and track performance, inefficiencies persist unchecked.

Deep-rooted issues 

The solution to these deep-rooted issues lies in digital transformation. Implementing a robust digital mechanism to track and manage customs operations can revolutionise the current system. Digital fingerprints and automated systems can ensure that customs officers are held accountable for their time and actions. Despite the potential for significant improvements, resistance to change remains. The lack of digital infrastructure allows corrupt practices to flourish. Manual documentation processes provide opportunities for bribery and corruption, as documents can be manipulated and sold to competitors.

Beyond customs, issues with ports, warehousing, airport bottlenecks, and inefficiencies at the Inland Revenue Department (IRD) highlight the need for modernisation. Old, dilapidated warehouses and inefficient destuffing processes add to the logistical nightmare. Importers often face long waits and additional fees if they do not comply with informal demands for payments. The lack of modern infrastructure and streamlined processes leads to delays and added costs that impact the end consumer.

At the airport, the situation is equally dire. Every export must be cleared for explosives by the air force, a rule dating back to the civil war. Despite the war’s end, this practice continues, creating logistical bottlenecks and increasing costs. The lack of proper inspection facilities means that cargo is often exposed to the elements, leading to damage and loss. The monopoly of Sri Lanka Airlines on ground handling further complicates matters, with reports of pilferage and inefficiencies adding to exporters’ woes.

The inefficiencies extend to the Inland Revenue Department (IRD), which, despite having visibility of customs operations, still requires physical proof for various transactions. This not only adds to the logistical burden but also opens avenues for corruption. Digitalisation can streamline these processes, reducing the need for physical documentation and minimising opportunities for bribery. Another issue that needs to be looked into is the slow issuance of SVAT credit vouchers. This is causing significant delays and cash flow problems for exporters. This sluggishness in processing essential tax credits is yet another example of how inefficiency and red tape are eroding the competitiveness of Sri Lankan exports.

Bureaucratic inertia 

The Board of Investment (BOI), which should be a beacon for attracting foreign investment, is mired in lethargy and a lack of decisive action. Investors face endless delays, and critical decisions are often postponed, leaving projects in limbo and discouraging the much-needed foreign capital. This bureaucratic inertia at the BOI is further compounding the challenges faced by exporters, who rely on a dynamic and responsive investment environment to stay competitive.

Van Dort notes that the call for reform is not new. Past efforts to digitise customs operations have faced resistance from unions and entrenched interests. The frequent transfer of IT personnel, who were crucial to driving change, disrupted continuity and progress. Additionally, creating new units within customs to monitor imports of raw materials for BOI enterprises added another layer of bureaucracy, further complicating the process.

Addressing these issues requires a concerted effort. Implementing digital solutions is crucial to streamline operations, reduce corruption, and improve efficiency. The government must take decisive action to enforce digitalisation, despite resistance. This includes revisiting and enforcing existing laws and ordinances that mandate digital processes, ensuring adherence by all stakeholders.

The recent establishment of a new Internal Customs Unit within Sri Lanka Customs, as announced by the Finance Ministry, is a step in the right direction. The Sri Lanka Shippers’ Council has welcomed this move, expressing hope that the unit will significantly improve transparency and public trust. The Council also calls for extending this system to other departments, reinforcing the need for comprehensive reform across the board.

The time for change is now, and all stakeholders must come together to drive this transformation. Embrace the future, or be left behind. Let’s commit to a digital revolution in customs and logistics, ensuring a prosperous and competitive Sri Lanka for generations to come. The call to action is clear: support digitalisation efforts, advocate for transparency, and work collaboratively to create a thriving trade ecosystem. The future of Sri Lanka’s economy depends on it.