Sri Lanka’s ban on palm oil imports, which began in 2021 due to environmental concerns, along with high taxes on locally made edible oils, is now causing serious problems for the economy, said senior professor of economics and policy analyst, S.P. Premaratna.
He said the impact goes beyond cooking oil shortages — key industries such as food, tourism, and manufacturing are also feeling the pressure, making it harder for the country to recover from its recent economic crisis. Several factors drive the strong demand for palm oil. Its low cost and high yield make it an economical choice for both consumers and industries. Palm oil is widely used in the food industry for frying, baking, and in processed products like snacks and sweets. Beyond food, it is a key ingredient in cosmetics, detergents, and biofuels, making it valuable across various sectors.
Additionally, palm oil’s long shelf life and stability at room temperature make it easy to store and ideal for warmer climates, further boosting its popularity.
The licensing requirement introduced in April 2021 under Gazette No. 2222/31 effectively blocked the import of Crude Palm Olein, a critical input for domestic edible oil refining. In tandem, the Value-Added Tax (VAT) of 18% and the Social Security Contribution Levy (SSCL) of 2.5% were imposed on locally refined oils starting January 2024 and October 2022, respectively.
“These changes have crippled Sri Lanka’s domestic oil refining sector. Once a thriving local industry, it is now idling due to price distortions that make imported finished oils cheaper than domestically processed alternatives,” Prof. Premaratna said .
Palm oil — one of the world’s most affordable and versatile edible oils — had been a staple in Sri Lanka’s food processing industries, ranging from cooking oil to confectionery and bakery production. Prior to 2021, local businesses imported Crude Palm Olein, refined it domestically, and distributed it for both consumption and industrial use.
Due to current import licensing restrictions and the effective ban on palm oil, Sri Lanka now depends heavily on importing refined coconut oil, which is much more expensive. Industry estimates show that the global price difference between crude palm olein (World Bank: 981 USD/ tonne in April 2025) and refined coconut oil (2483 USD/ tonnes in April 2025) has increased to around USD 1,500 per metric ton. This leads to a foreign exchange loss of about USD 15–20 million every month — or USD 150–200 million per year.
“Some may wonder why we don’t just meet the demand by producing more coconut oil locally. The answer is that the current capacity of Sri Lanka’s coconut oil industry is very limited — it can meet less than 20% of the total demand,” he said.
According to the Coconut Development Authority (CDA), Sri Lanka’s annual coconut oil requirement is approximately 240,000 metric tons.Of this, only about 40,000 metric tons are produced locally, accounting for roughly 16.7% of the total demand .
The shift from crude palm olein to refined coconut oil has also affected Government revenue from Customs duties. Crude palm olein carries an import duty of Rs. 255 per kilogram, while refined coconut oil is taxed at only Rs. 150 per kilogram. This means the government loses Rs. 105 for every kilogram of substitution. With Sri Lanka importing around 15,000 to 20,000 metric tons of edible oil each month, the estimated monthly loss in customs revenue ranges from Rs. 1.5 to 2.1 billion. Over a year, this adds up to a significant loss of Rs. 19 to 25 billion.When trying to fix budget shortfalls, policymakers must also consider the revenue losses caused by such poorly thought-out decisions.
As Sri Lanka struggles with rising food prices, low foreign reserves, and growing fiscal deficits, it is crucial to adopt a balanced and practical policy on edible oil imports and local production. The longer the current situation continues, the greater the economic damage—from lost government revenue and unused factory capacity to job losses and increased hardship for consumers. Policymakers must realise that a poor decision can end up costing far more than any short-term gains from higher taxes.
