Sri Lanka’s sugar industry finds itself at a bitter crossroads—caught between the pressure of IMF-imposed tax policies and the need to keep a local industry alive. In a media briefing held at the Government Information Department, Minister of Industry and Enterprise Development Sunil Handunnetti laid bare the economic paradox: Sri Lanka is set to export its homegrown, organic-rich cane sugar, while importing white sugar from abroad free of VAT.
The reason? The International Monetary Fund.
Under the current policy, an 18% Value Added Tax (VAT) is levied on sugar produced locally from cane—a stipulation reportedly tied to IMF conditions. At the same time, imported white sugar enters the country without any VAT applied, placing local producers at a steep disadvantage. Imported sugar lands at a base price of Rs. 132 per kilogram, with only a Rs. 50 tax attached. In contrast, cane sugar produced at domestic factories costs around Rs. 236 per kilogram straight from the source.
According to Minister Handunnetti, repeated appeals to the Finance Ministry to reduce the VAT on local sugar have been rejected, citing IMF obligations. “We are not allowed to remove the VAT. The conditions prevent it,” he said.
But instead of letting the industry wither under the weight of unfair competition, the government is pivoting. The new plan: export Sri Lanka’s locally produced cane sugar, which boasts a high organic quality due to the country’s relatively minimal use of fertilizer.
“We’ve started discussions with several countries to market our sugar as high-organic grade,” the Minister explained. “It’s ironic and unfortunate. We are exporting healthy sugar and importing unhealthy sugar—but we’re doing it to keep the factories open, to protect the jobs, and to support the farmers.”
The industry’s value is more than financial. Nearly 200,000 farmers rely on sugarcane cultivation for their livelihoods, and over 5,000 families directly depend on it. The factories are not just processing units—they’re the economic lifeblood of entire rural communities.
However, the challenges are not only economic. Minister Handunnetti warned of growing attempts to sabotage the local sugar industry through what he called misinformation and politically driven propaganda. He pointed to recent social media campaigns that portrayed local sugar factories, particularly the Pelwatte Sugar Company, in a negative light by circulating images of sugar stockpiles.
“When we took over the company eight months ago, there were already 33,000 metric tons of sugar stored. No one talked then. Now some are trying to make an issue out of standard inventory as if it’s a scandal,” he said, dismissing allegations that the sugar was being deliberately withheld from the local market.
He also accused certain groups claiming to represent sugarcane farmers of distorting facts for political gain. “This company isn’t just about sugar. It’s about a fair wage. It’s about sustainability. Some groups are trying to destroy a struggling industry to score political points,” he added.
The government’s move to export organic cane sugar may seem counterintuitive at a time of local inflation and food insecurity. But for the ministry, it’s a last-resort strategy to keep factories operational and people employed until the larger issue—the IMF’s tax conditions—can be addressed.
“Until we can reduce VAT and provide sugar locally at an affordable price, we must take these steps,” Minister Handunnetti said. “Our priority now is survival. Survival of the industry. Survival of the farmer.”
