Sri Lanka Weighs Local Gold Refinery Option as IMF Constraints Block Tax Relief for Jewellery Sector

Sri Lanka is exploring the possibility of establishing a local gold refinery as an alternative solution for the country's jewellery industry, after International Monetary Fund regulations have made it difficult for authorities to ease import taxes on the precious metal in the near term.

IMF Programme Ties Government's Hands on Tax Relief

The jewellery sector in Sri Lanka has long been pressing the government for relief on gold import duties, arguing that high taxes are severely undermining their competitiveness both domestically and in export markets. However, with Sri Lanka currently bound by the conditions of its IMF bailout programme, any significant reduction in import levies remains off the table for now, as such moves could conflict with the country's revenue targets agreed upon with the Fund.

This has prompted policymakers to look at structural alternatives that could reduce the industry's dependence on costly imported gold without directly altering the existing tax framework.

Local Refinery Seen as a Long-Term Fix

Among the options being considered, the establishment of a domestic gold refinery has emerged as a potentially viable pathway. A local refinery would allow Sri Lanka to process raw or semi-processed gold within the country, potentially lowering costs for jewellers and reducing the burden created by import-related charges.

Such a facility could also support Sri Lanka's broader ambitions to grow its gems and jewellery export sector, which has historically been a contributor to foreign exchange earnings but has struggled in recent years amid economic turbulence and rising input costs.

Industry Under Pressure

Sri Lankan jewellers have repeatedly highlighted the challenges they face due to the current import tax structure on gold. Key concerns raised by the industry include:

• High import duties making locally manufactured jewellery more expensive than competitors in regional markets
• Loss of business to informal or grey market channels where gold enters the country without proper documentation
• Difficulty attracting tourist buyers due to uncompetitive pricing compared to regional jewellery hubs
• Reduced export potential as Sri Lankan jewellery becomes harder to price competitively on the global stage

Balancing Reform with Fiscal Discipline

The government faces a delicate balancing act — responding to legitimate industry demands while honouring its commitments under the IMF extended fund facility, which requires Sri Lanka to maintain strict fiscal discipline as part of its ongoing economic recovery.

Officials appear to be signalling that while direct tax relief may not be immediately possible, exploring supply-side solutions such as a gold refinery could serve as a meaningful interim measure to support the sector without breaching IMF-mandated revenue benchmarks.

Further consultations between government authorities, industry stakeholders, and relevant regulatory bodies are expected as the proposal for a local gold refinery is examined in greater detail.