A GLOBAL / COUNTRY STUDY AND REPORT ON POLICIES AND NORMS OF INDIA FOR IMPORT OR EXPORT TO THE SRILANKA COUNTRY

INCLUDING LICENSES OR PERMISSION TAXATIONS Submitted To (LDRP Institute of Technology and Research) IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE AWARD FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION In Gujarat Technological University UNDER THE GUIDANCE OF Prof. Pooja Sharma (Assistant Professor) Submitted by
Irene Dcosta (2002) RohanParimal (2015) Pratik Somaiya (2028) KunjalChahar (2029) DipaliVaria (2056) [Batch: 2010-12] MBA SEMESTER-IV LDRP-Institute of Technology and Research, Gandhinagar

MBA Programme Affiliated to Gujarat Technological University Ahmedabad 1

POLICIES AND NORMS OF SRILANKA WITH TAXATION POLICY FOR INDIA

History of India Sri Lanka Trade Relations

Economic relations between India and Sri Lanka have an extended history dating back to centuries. The formal economic relations within the post freelance era began in 1968 with the fitting of the Indo-Lanka Joint Committee on Economic Cooperation (ILJCEC) that aimed toward increasing economic cooperation in trade, industry, agriculture and tourism. This joint committee was later reworked into a Joint Commission for Economics, Trade and Technical Cooperation (JCETT) consisting of two layers, the Commission of Ministers of Foreign Affairs and a sub-committee consisting of senior officers.

An additional sub-committee was added in 1992 to hide Culture, Education, and Social Activities, whereas a third sub-committee was added in 1993 named SubCommittee on Science and Technology. The sub-committee on economic affairs was renamed because the sub-committee on Trade, Finance and Investment. The JCEET was a helpful instrument for the officers of the two countries to fulfill and discuss trade and economic problems.

Legal System
Sri Lanka, like South Africa, Zimbabwe, Mauritius and also the Philippines, encompasses a mixed legal system. It consists of the weather of two foreign laws - the Roman Dutch law and also the English Law and different systems of law that exist in Sri Lanka notably the Kandyan law, Muslim law, Tesawalamai law, Buddhist law and Hindu law. In Sri Lanka, principles adopted from England apply in relation to bills of exchange, sale of products, partnership, companies, insolvency, banks and banking, maritime matters, insurance, criminal law, procedure and proof.

Currency and Banking

In Sri Lanka, the unit of currency is that the Rupee (Rs.). Sri Lanka, accepting Article VIII of the Articles of Agreement of the IMF removed all restrictions on current external transactions. The Sri Lankan rupee is absolutely convertible and might be freely utilized in respect of all current international transactions. Sri Lanka has taken a significant success within the liberalization of foreign exchange transactions by permitting business banks to work out the exchange rate freely.

The exchange rate of the Sri Lankan rupee fluctuates against the currencies of its trading partners. THE CENTRAL BANK OF SRI LANKA and the financial Law Act, No. 58 of 1949, commenced operations on twenty eighth August 1950. Its liable for the administration and regulation of the financial and banking system in Sri Lanka. It acts as Governments fiscal agent, banker and money adviser. Its operate are to issue currency, examine and supervise the banking

establishments and to advance credit to business banks and different specialized cash lending establishments in times of economic crisis.

Sri Lanka encompasses an absolutely developed business banking system consisting regarding twenty six business banks. Two of the massive business banks, that have an intensive network of branches in all components of Sri Lanka, are public sector banks. There are four personal native banks. All foreign business banks in Sri Lanka have operational services in Colombo that is that the business centre of Sri Lanka.

Foreign currency banking units pirate as subsidiaries of economic banks, stick with it transactions in foreign currency with non-resident enterprises like those established within the Free Trade Zones in Sri Lanka.

Economy and Business Climate

Sri Lanka encompasses a liberal economic policy. In 1978, Sri Lanka adopted an open market economy framework inserting stress on an outward wanting and liberal economic policy regime with the target of building a coherent stable macro-economic and money framework to market economic growth, diversify the economy, cut back unemployment & inflation & at an equivalent time making a social safety internet through well targeted welfare programs to boost the common living conditions of the folks. With the transition to an open market policy framework, inserting stress on economic liberalization, Sri Lanka began establishing market oriented policies & took keen interest in introducing provide aspect economic policies. A number of the foremost policies implemented during this direction.

IMPORT AND EXPORT OF SRILANKA

Import Policies of Sri Lanka

Despite an economy open to foreign investment, the pace of reform in Sri Lanka has been uneven. The Trade, Tariff,& Investment Policy Division of the Ministry of Finance & designing are charged with the formulation & implementation of policies in these areas. Additionally, the Trade & Tariff cluster of the National Council of Economic Development (NCED) conjointly examines trade & tariff problems & sends recommendations to the Ministry of Finance & designing. The NCED consists of twenty-two clusters representing each personal & public sector officers that examine varied sectors of the economy.

Export Policy
Liberalized policy based on export-led growth was introduced in 1977 in order to have better resource allocation based on comparative advantage and to take advantage of the diffusion of technology and learning. The export sector now 4

receives the highest priority in foreign trade policy in order to have a healthy balance of payments position and for general economic expansion.

Recently, exports of traditional agricultural products such as tea, rubber and coconut had limited capacity for trade expansion with a tendency to decline markedly in value and sometimes in volume as well. For this reason, export duties have been reduced on tea and coconut in order to assist producers. There are duty reductions for all marine products which would have been subject to 5 per cent duty, but now have been exempted. Similarly, flexible floor price schemes are abolished.

The Government has pursued a policy of export diversification with notable success to enhance the share of export value earned by the three traditional crops and increase the industrial exports. Industrial Exports on Garments have increased their share 28% to 33% of total exports during the past period.

Import Procedure
Sri Lanka had been primarily an agricultural & self-dependent sovereign nation in the ancient past. Due to historical, political &economical changes it has ceasedto be a self-dependent nation. Today it is mainly dependent on trade & the Imports Division of the Sri Lanka Customs Department plays a vital role in this regard in the economy.To ensure this task the Imports division consists of three separate units namely Long Room, "D" branch & Postal Appraising unit according to the functions; headed by Director (Imports & Tariff).

Export Procedure
To facilitate the exporters Sri Lanka Customs Export Procedure has been simplified to an excellent extent in recent past. Rules & laws are relaxed & duty exemptions & concessionary duty rates are given to exporters as an

encouragement. Export promotional schemes are implemented with collaboration with different state agencies as a section of state endeavor to develop Sri Lanka as a rustic with an export oriented economy. Additionally Sri Lanka Customs pays an excellent attention in all export connected activities to safeguard national wealth like archeological treasure & fauna & flora by implementing connected laws.

The Following Documents should be always there in ImportExport process

Delivery order Bill of Lading Invoice as per exchange involved Exchange documents Packing list Certificate of origin Import control license (if applicable) Certificate of registration & translation for used motor vehicles Load port survey certificate for food items S.L.S.I/Quarantine certificate. If applicable) Catalogues/literature.( If necessary)

Prohibited Narcotics Pornography Anti-religion materials Indian and Pakistani currency

Restricted Pets import required obtainable from nearest Embassy or Mission Weaponry and ammunition with permission only. Contact the

nearestembassy for more details. Cultural artifacts Plants, animalsany part thereof and foodstuff. For more details please contact nearest Embassy Medicines,for personal use only, in original packaging and accompanied by the prescription and doctors note. Currency any local or foreign currency exceeding equivalent of US $15,000 needs to be declared, local currency (Sri Lanka Rupee) up to 5,000. The above Prohibition and Restriction will be applicable to Export policy as well as the import policy of Sri Lanka.

Forms of Business Enterprise in Sri Lanka

Foreign investors could establish a business presence in Sri Lanka, through any of the subsequent forms: Sole Proprietorship Partnership Private & Public firms Peoples Company Limited & Unlimited firms Offshore firms Foreign Branches Liaison Offices Joint Ventures Co-operatives

Taxation Policy of Sri Lanka

The extent of the tax liability to Sri Lankan & non-nationals on profits & income depends on the residence standing of the individual, company & body of persons in Sri Lanka. Residents are taxed on worldwide income whereas non-residents are taxed on Sri Lankan supply income solely. The most income tax rate in Sri Lanka is 35 per centum. Expatriate staff fancy a concessionary rate of 15 per centum throughout their deemed non-residency amount. Further, the Department of Inland Revenue is liable for the economical administration of the following:

1. Direct Taxation Income Tax The tax is levied on the Income of any person arising in or derived from Sri Lanka. A resident is taxable on world income. Any other person is taxable only on income arising or derived in Sri Lanka.

Nature of Company Quoted Venture Capital Other Companies

Taxable Income N/A N/A < 5 Million

Income Tax Rate 35% 20% 15%

Economic Service Charge (ESC) Requirement An Economic Service Charge shall be charged, if combination turnover from trade, business, profession or vocation carried on or exercised in Sri Lanka whether or not directly or through an agent or over one agent, exceed Rs. 25 Million (25 M) for that relevant quarter of each year of assessment.

Registration Following document be submitted to the ESC branch of the Department of Inland Revenue TIN Certificate Letter from the Company requesting to Open a ESC file

The rate of ESC is 0.25% to 1% on total turnover or receipts it is exceeds SRL 7.5Mn or USD 75,000 per quarter.

This can be set off against the income tax payable and can be carried forward for four years, but no refund is due.

Custom Duties Sri Lanka Customs could be a key state organization operational at the frontiers and its main functions focus on revenue assortment and implementing Customs law and different connected rules and laws. Within the method the department endeavors to make sure swish movement of individuals and merchandise across the border. Custom duty is applicable for the import and export procedures.

Remittance Tax In addition to paying the Standard corporate income tax, remittances made by a branch to a foreign head office are subject to a 10% tax.

Others Social Responsibility Levy SRL is imposed on Companies at 1.5% of the income tax liability Surcharge on Income Tax Save the Nation Contribution

1. Indirect Taxation Goods and Services Tax Turnover Tax Business Turnover Tax abolished in Sri Lanka with effect from 1st January, 2011 and such Trading Businesses are liable for Nation Building Tax (NBT). Rates Charged are as follows All businesses engaged in buying and selling of articles and commodities other than exempt items are liable to turnover tax. Rates are as follow, Sale of Gems, sawn timber and precious and semi precious stones, furniture 5% Sale of Jewellery 5% Sale of other articles 1%

Value Added Tax (VAT) VAT is levied on supply of most goods and services, as well as the most import of goods. Standard rate is 12% with a reduced rate of 5% applying to essential items. Certain supplies are zero-rated or exempt. Retail and wholesale businesses that supply goods are subject to a turnover tax of 1%.

Nations Building Tax (NBT) The Government has imposed a new levy termed the Nation Building Levy akin to the National Security Levy which prevailed at the rate of 3% on turnover. Importers, Manufactures and Providers of services are liable for NBT. The levy is payable for any quarter where turnover for the quarter exceeds Rs.1, 00,000.

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 National Security Levy A National Security levy of 2% is levied on all imported capital goods. Exemptions from this levy will be granted on Imports utilized in the manufacture of exports, as well as consumables Articles brought into the country for temporary use, for repair and re-export or for show at exhibitions or for repair and reimported. Items of plant and machinery shipped abroad for repair and reimported. Gold imports for sale at Duty Free outlets

All other imported or manufactured articles are subject to a National Security Levy of 4.5%. Exported articles are not subject to the levy.

Stamp Duty Stamp Duty shall be charged at rates published in the Gazette on every specified instrument, Executed, Drawn or Presented in Sri Lanka Executed outside Sri Lanka being an instrument which relates to property situated in Sri Lanka at the time such instrument was presented in Sri Lanka. Otherwise than in the case where there is an agreement to the contrary, stamp duty shall be payable as follows,

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Specified Instrument 1. An Affidavit 2. 3. 4.

5.

6.

who ought to pay Person who draw the affidavit Insurance Policy Rs. 0.50 for every Rs. 1,000 or Person effecting part thereof insurance Warrant to act as a notary Rs. 1,000 Person who Draws public License to carry out Trade, Rs. 1,000 or 10% of license fee Person who issuing Business, whichever is less License Professional or Vocation other than any trade or business of sale of liquor, for any period specified in such license Any license issued Rs. 10,000 Person who issuing authorizing the holder to License carry on any trade or business for sale of liquor , for any period specified in such license On Credit Cards Rs. 10 for every Rs. 1000 or Part Credit card holder thereof Rs. 5 for every Rs. 1000 (on by the transferee or market value of shares) assignee Person, who draw Bond, mortgage Person who draw the P. Note By the Lessee Person who draw the Receipt By Employee

Stamp Duty Rs. 100

7. Share Certificates (new, additional issue or transfer) 8. Bond or Mortgage affecting any Property 9. Promissory Note

Rs. 1 for every Rs. 1000 or part thereof Rs. 1 for every Rs. 1000 Or part thereof 10. Lease, hire, Rent of any Rs. 10 on every part of Rs. 1,000 property 11. Receipt or discharge given Up to and including for any money or other Rs. 25 Nil property Above Rs. 25,000 25/= 12. Salaries Salary amount Stamp Duty Rs. 25,000 or above but less than Rs. 25 Rs. 39,999 Rs. 40,000 or above but less than Rs. 40 Rs. 49,999 Rs. 50,000 or Above Rs. 50

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Indian Taxation Policies

The tax regime in India has undergone elaborate reforms over the last couple of decades in order to enhance rationality, ensure simplicity and improve compliance. The tax authorities constantly review the system in order to remain relevant. India has a federal system of Government with clear demarcation of powers between the Central Government and the State Governments. Like governance, the tax administration is also based on principle of separation therefore well-defined and demarcated between Central and State Governments and local bodies.

The tax on incomes, customs duties, central excise and service tax are levied by the Central Government. The state Government levies agricultural income tax (income from plantations only), Value Added Tax (VAT)/ Sales Tax, Stamp Duty, State Excise, Land Revenue, Luxury Tax and Tax On Professions.

1) Direct Tax
Income Tax Tax Man Women Senior Citizen Age 60 and < 80 (In Rupees) Up to 2,50,000 2,50,001 to 5,00,000 5,00,001 to 8,00,000 Above 8,00,000 Senior Citizen Age 80 (In Rupees) Up to 5,00,000

Rate 0.00% 10.00% 20.00% 30.00%

(In Rupees) (In Rupees) Up to 1,80,000 Up to 1,90,000 1,80,001 to 1,90,001 to 5,00,000 5,00,000 5,00,001 to 5,00,001 to 8,00,000 8,00,000 Above 8,00,000 Above 8,00,000

5,00,001 to 8,00,000 Above 8,00,000

Customs duty Customs Duty is payable on goods imported into India. The normal rate of Customs Duty is 10%. However, in some cases such as liquor and tobacco, special rates in excess of 10% are also charged. In addition to

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basic Customs Duty, an Additional Duty (as equivalent to CENVAT duty of 8-12%) and a Special Additional Duty at 4% are also levied on imports. Further, Anti-Dumping and Safeguard Duty is also levied on import of certain specified products.

Central Excise
The excise duty is vary from product to product and in manufacturing line, it is necessary to know the excise duty rate well before the start of production. In this annual budget, the rates of excise duty have been increased to 12% from the existing 10%. This rate will be applicable from 01-04-2012.The excise

duty can be different in these points which are as under. Totally exempt excise duty such as tea and condensed milk. 1% excise duty on the products which have the facility of less excise duty like articles of jewellery. 3% excise like gold 6% excise on paper, cotton and biscuits etc. 12% excise on motor vehicles Production base excise duty on aluminum circles and trimmed and untrimmed circles of copper. High excise duty on large cars, cigarettes and tobacco products.

Service Tax On domestic travel in economy class increased from Rs. 100/- to Rs. 150/-, whereas for executive class, it would be 10% of standard rate; On international travel in economy class increased from Rs. 500/- to Rs. 750/Penalty for delayed payment of Service Tax (U/s. 76) reduced from 2% per month to 1% per month or Rs. 100/- per day, whichever is higher however the maximum penalty would be restricted to 50% of the tax amount involved instead of the 100% till the introduction of this budget; 14

Penalty for delay in submission of Service Tax Returns hiked from Rs. 2,000/- to Rs. 20,000/-

2) Indirect Taxes
VAT State level sales tax was replaced by VAT with effect from 1 April 2005 in the majority of Indian states. Under the VAT regime, the VAT paid on goods purchased from within the state is eligible for VAT credit. The input VAT credit can be used to offset against the VAT/ Central Sales Tax due on the sale of goods. This ensures that the cascading effect of taxes is avoided and that only the value addition is taxed. Currently, there is no VAT on imports into India and exports are zero-rated. This means that while exports are not charged with VAT, VAT charged on inputs purchased and used in the manufacture of export goods or goods purchased for export, is available to the purchased as a refund.

State VAT is charged at varying rates of 1%, 4%, 5% and 20%. Goods other than those notified to be covered under the above rates are charged at a general rate ranging from 12.5% to 15%.

Sales Tax The sale of movable goods in India is taxable at the central and state level. The Indian regulatory framework has granted power to state legislatures to levy tax on goods sold within that state. Such sales are, therefore, chargeable to VAT at the rates notified under the VAT laws of the relevant state.

All goods sold in the course of interstate trade are subject to Central Sales Tax (CST). Where goods are bought and sold by registered 15

dealers for trading or for use as inputs in the manufacture of other goods or specified activities (such as mining or telecommunications networks), the rate of sales tax is 2%, provided Form C is issued by the purchasing dealer. In the absence of a Form C, the applicable rate would be the rate of VAT on such goods in the originating state.

CST is sought to be phased out before the introduction of Goods and Services Tax (GST) in India, which is presently expected to be introduced by April 2012. In the interim, CST will continue to co-exist with state VAT. Inter-state procurement on which CST is charged in the originating state is not eligible for input tax credit in the destination state. Professional Tax In India, the professional tax is imposed at the state level. However, not all the states impose this tax, the states like Karnataka, West Bengal, Andhra Pradesh, Maharashtra, Tamilnadu, Gujarat, and Madhya Pradesh. Business owners, working individuals, merchants and people carrying out various occupations comes under the purview of this tax.

Professional tax is levied by particular Municipal Corporations and majority of the Indian states impose this duty. It is a source of revenue for the government. The maximum amount payable per year is Rs.2, 400/- and in line with your salary, there are predetermined slabs. It is paid by every member of staff employed in private companies. It is subtracted by the employer each month and sent to the Municipal Corporation. It is compulsory just like income tax. You will be eligible for income tax deduction for this payment.

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 Stamp Duty Stamp duty indicates a form of tax that is imposed on documents. Traditionally, a physical stamp tax stamp, needed to be part of the document to assert its legal validity.It is vary for each state. For example, in Tamil Nadu govt. charges 8% of the property value as the stamp duty. This ensures that the document, which lays your claim to the property, is legally valid.If you have not paid the stamp duty for your property, the documents become invalid. It cannot be shows as the proof for the ownership.

POLICIES & NORMS OF INDIA FOR SRILANKA Indian Foreign Trade Policy
The UPA Government has assumed workplace at a difficult time when the whole world is facing an unprecedented economic slow-down. The year 2009 is witnessing one in every of the foremost severe world recessions within the postwar amount. Countries across the planet are affected in varying degrees & all major economic indicators of business production, trade, capital flows, unemployment, per capita investment & consumption have taken a success.The WTO estimates project a grim forecast that global trade is likely to decline by 9% in volume terms & the IMF estimates project a decline of over 11%.

The recessionary trend has huge social implications. The World Bank estimate suggests that 53 million more people would fall into the poverty net this year & over a billion people would go chronically hungry.

Announcing a remote Trade Policy during this economic climate is indeed a frightening task. We tend to cannot stay oblivious to declining demand within the developed world & we'd like to line in motion ways & policy measures which is able to catalyze the expansion of exports. 17

Although India has steadily opened up its economy, its tariffs continue to be high when compared with other countries, & its investment norms are still restrictive. This leads some to see India as a rapid globalize while others still see it as a highly protectionist economy. Average nonagricultural tariffs have fallen below 15 percent, quantitative restrictions on imports have been eliminated, & foreign investments norms have been relaxed for a number of sectors.

India however retains its right to protect when need arises. Agricultural tariffs average between 30-40 percent, anti-dumping measures have been liberally used to protect trade, & the country is among the few in the world that continue to ban foreign investment in retail trade. Although this policy has been somewhat relaxed recently, it remains considerably restrictive.

Recent Trade Policy Developments of India & its Implications on Sri Lanka
India is Sri Lankas largest trading partner for a considerable period of time & most likely to retain the status quo in the foreseeable future. Approximately 14% of Sri Lankas international trade was conducted with India in 2010.Indiaranks number one of Sri Lankas source of imports representing a 20% of Sri Lankas total import valued at US $ 2,546 Million in 2010.Indiaenjoys a Pre- dominant position in the Sri Lankan Market in respect of commodities such as pharmaceutical, heavy vehicles, Light vehicles, Motor Cycles, Textiles & consumer products such as cosmetics, onion, potatoes & chilies. India will continue to enjoy the position of market leader in respect of those commodities in the Sri Lankan Market on account of competitive price, liberal Trade Regime of Sri Lanka & the geographical proximity. China will have the capacity to be the closest competitor in the Sri Lankan Market & the time will tell us who will be the winner.

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Though India is a growing market with increasing appetite for imported products, Sri Lanka is yet to explore its full potentials to cater to the growing Indian market despite the country having an advantage of Market Access through Indo Sri Lanka Free Trade Agreement (ISFTA).Sri Lankas exports to India still remained at a low value of US $ 466 Million representing only 5% of our total exports. The balance of trade is excessively & consistently in favor for India at the rate of 1; 5 in 2010 in terms of value of trade between the two trading partners. In respect of Indian direct investment in Sri Lanka, India has invested in strategically vital economic sectors such as retail distribution of petroleum products, expansion of harbor in Kankasanthurei, construction of Sampur coal power energy project, exploration of oil & gas in the Northern Cost (MannarBasin) &

telecommunication. India is also becoming & important Tourists Originating destination for Sri Lanka .India is also involved in manufacturing Sectors such as rubber tires & cement. In the service Sector India has considerable investment in Hotel & Tourism & Information Technology. Sri Lanka serves as a transshipment hub for ever growing Indian export cargo through the Port of Colombo. The Indian Navigation Sector is also served at the Colombo dockyard facility.

Indias Sri Lanka Policy

The success of Indias Sri Lanka policy is measured by the quality of bilateral relations it has brought about & the extent to which it has furthered Indias interests. The assessment of these separate, albeit interwoven indicators, reveals mixed results. Indias relationship with Sri Lanka has considerably strengthened, while instability in & surrounding Sri Lanka remains a significant threat to Indias strategic interests. 1. We will examine the positive effects of Indias policy, namely the particular nature of economic engagement that has led to a strengthening of relations. 2. Then we will turn to the more dubious effects surrounding Indias role, or lack thereof, in the Sri Lankan conflict vise a versa defense relations with

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Sri Lanka, its posture towards the LTTE, political sentiment in Tamil Nadu, & maritime dilemmas.

India&Sri Lankas economic interactions include the strategic energy sector. Indian companies are serving Sri Lankas energy market & exploring the Islands off-shore oil resources. Lanka Indian Oil Corporation (Lanka IOC) has a 30 per cent market share in Sri Lankas retail petrol market, operating 151 retail outlets on the island. Lanka IOC is building & operating storage facilities at the Trincomalee Tank farm, which as stated earlier, is of critical importance in the maritime strategic environment. India also has a significant stake in exploration of oil resources off Sri Lankas coast. Indias Oil & Natural Gas Corporation (ONCG) has been promised one of the five drilling blocks in the Mannar basin.17 The Mannar basin, thought to contain the equivalent of one billion barrels of oil, has three remaining blocks up for auction (besides the one promised to India, the second of the five has been granted to China).

Regional & Bilateral Trade Agreements between India & Sri Lanka
India has recently signed trade agreements with its neighbors & is seeking new ones with the East Asian countries & the United States. Its regional & bilateral trade agreements or variants of them are at different stages of development:

India-Sri Lanka Free Trade Agreement, Trade Agreements with Bangladesh, Bhutan, Sri Lanka, Maldives, China, &South Korea.

India-Nepal Trade Treaty, Comprehensive Singapore. Economic Cooperation Agreement (CECA) with

Framework Agreements with the Association of Southeast Asian Nations (ASEAN), Thailand and Chile.

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Preferential Trade Agreements with Afghanistan, Chile, &Mercosur (the latter is a trading zone between Brazil, Argentina, Uruguay, & Paraguay).

Characteristics of Indo-Sri Lanka Informal Trading

The analysis is based on the results of the survey carried out in Chennai, Tiruchirapalli, Thiruvananthapuram, Tuticorin, Mumbai &Rameshwaram during May to October 2001.This section focuses on the key features of the transacting environment of informal & formal trading as revealed by the survey. As mentioned earlier, the fact that informal trade continues unabated implies that there is an institutional mechanism that enables such trade to take place. The survey instrument was designed to elicit information on the profile of informal traders in terms of nature of trading activity & commodities traded.

The transacting environment of informal trading has also been analyzed in terms of entry characteristics, nature of contracts, information channels, aspects of risk in informal trading & its financing, role of ethnic networks & aspects of transaction costs. The transacting environment of formal trading is analyzed in terms of transaction costs incurred both in terms of time & money. In the light of comparisons drawn between formal & informal traders factors influencing informal trade flows are identified from the survey. The last sub-section presents a comparative statistical analysis of formal & informal traders in terms of a set of variables. The format for analysis is the same as that in Pohit&Taneja (2000) with suitable modifications. The changes that have been incorporated in the present study are specifically mentioned.

Traditionally, the main objective of the Indian International Trade Policy has been to shield its market from foreign competition. Up until the 1980s, India was not interested in exporting its goods & services abroad & not ready to open its economy to foreign investments. The aim of its economic policy was to make sure the countrys independent development. At the end of the 1980s, India was 21

one in every of the foremost closed economies within the world. Its bilateral trade policy, heavily skewed toward the previous communist countries, was filled of gr& statements about technology transfer, mutually advantageous relations & partnership for development to very little purpose. The thought of a Free Trade Zone was abhorrent. Therefore, India was left out of the Asian economic boom.With the Soviet Unions collapse & the first Gulf War, as well as the implementation of the International Monetary Funds 1991 StructuralAdjustment Program, India launched a new policy of privatization, deregulation & globalization of its economy, & a multifaceted trade policy.

The nature of India's official & unofficial trade with Sri Lanka follows a different pattern. Unofficial trade estimates between the two countries are out there just for the year 1991, & are carried out both by air & sea. Whereas there is hardly any passenger traffic by ship between India & Sri Lanka, a number of regular boats ply between the two countries purely for contraband purposes. India's official trade with Sri Lanka is similar to that of Bangladesh on one count, but India has had a trade surplus with Colombo. However, unofficial trade accounts with Sri Lanka are more or less balanced.

ECONOMIC POLICY OF INDIA IN SRILANKA India-Sri Lanka trade Perspective & Implications
Economic relations between India & Sri Lanka that date back to precolonial times began to pickup within the 1990s with the liberalization of the Indian economy. The year 1998 saw most important boost in economic relations when the two countries signed a bilateral Indo-Lanka Free Trade Agreement (ILFTA) that began implementation in March 2000. Among different factors, up to date political forces led to the signing of the Agreement.

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The ILFTA was formulated based mostly on the negative list approach; each country extending concessions/preferences to all commodities except those indicated in its negative list.

The two countries agreed for preferential treatment on 5112 tariff lines & an 8-year time table was devised for phasing out tariffs. NTBs (Indian state taxes) were also to be removed gradually. Asymmetry between the two countries was accommodated by special & differential treatment (SDT). Larger negative list (Srilanka agriculture sector fully protected). The immediate duty-free list (319 items) & 50% preferential duty list (889 items) were considerably smaller than those offered by India (1351 items & 2799 items respectively), while the Sri Lankan negative list (1180 items) was considerably larger than Indias (196 items).

Relaxed Rules of Origin (ROO) 35% (25% if Indian imports used). Longer tariff phase out period (8 yrs for Srilanka & 3 yrs for India). Negative list reduction based on Srilankas comfort level. Revenue compensation excluded, but Srilanka insisted that high revenue import items will not be subject to tariff preferences (M duties = 2% of GDP revenue).

Recent Trends in Indo-Lanka Economic Relations Trade

In the period immediately preceding the Agreement (1995-2000), average annual exports from Srilanka to India were US$ 39mn & annual average imports were US$ 509mn. India was an important source of imports even prior to the Agreement by 2000; India was already the second largest source of imports to Srilanka after Japan. But India wasnt a significant export market before the ILFTA it was the 14th rank in export destinations in 2000. Srilankas trade with India changed dramatically following the

implementation of the FTA in 2000. 23

India fully implemented the Agreement by March 2003, & Srilanka did so by October 2008 longer time frame for the latter given economic asymmetries between the two countries.

Rapid Growth in Overall Trade

By 2005, Sri Lankas exports to India reached a peak of US$ 566.4, a tenfold increase compared to 2000, & stood at US$ 418.3 million in 2008. India was the 5th largest destination for Sri Lankas exports in 2008. Imports too have grown at a rapid rate following the implementation of the FTA. Imports from India which amounted to US$ 600.1 million in 2000 reached US$ 3443 billion in 2008, a growth by 5.7 fold. A combination view of trade between India & Sri Lanka since the FTA came into being therefore suggests a really positive picture with overall trade growing near to six fold & exports from Sri Lanka growing tenfold. Furthermore, the increased diversity & greater value addition in exports from Sri Lanka is a positive development.

Trade Barriers in Sri Lanka for India

In addition to tariffs, a range of taxes introduced in the past many years have effectively increased SriLankas tax rates on a range of imported items to between 60 percent & 100 percent of the cost, insurance, & freight (CIF) value of the product. The government has imposed these charges on imports primarily to raise revenue, to defray the costs of specific government services, or to promote local producers. Most of these charges were revised upwards effective November 2007, & again in November 2008. In addition, the government imposed a new Nation Building Tax of 1 percent on imports that came into effect on January 1, 2009; it will be in effect for two years.

The frequent changes (mostly upward) in these rates have added unpredictability to foreign exporters & local importers cost calculations. Affected products from 24

the United States include fruits, processed/packaged food, & personal care products.An imputed profit margin of 10 percent is added onto the import price. In some cases, like on biscuits, chocolates & soap, the tax is charged not on the import price but on 65 percent of the maximum retail price (November 8, 2007). A Ports & Airports Development Levy of 3 percent on imports (increased from 2.5 percent in January 2007; this tax will be increased from 3 percent to 5 percent from January 1, 2009). When calculating the VAT, an imputed profit margin of 10 percent (increased from 7 percent on January 1, 2007) is added on to the import price. Locally manufactured products are also subject to VAT but not the imputed profit margin. (The VAT rates of 5 percent & 15 percent are to be replaced with a VAT b& of 12 percent with effect from January 1, 2009.) Excise fees on some products such as aerated water, liquor, beer, motor vehicles, & cigarettes.

The list of products subject to these fees was expanded in 2007 to include certain household electrical items. When calculating the excise fee, an imputed profit margin of 15 percent (increased from 10 percent on October 11, 2007 & from 7 percent on January 1, 2007) is added on to the import price. Locally manufactured products are also subject to excise fees. A Social Responsibility Levy, a surcharge of 1.5 percent assessed on the import duty to fund the National Action Plan for Children. This tax was increased from 1 percent as of November 8, 2007.

Investment Barriers
While Sri Lanka welcomes foreign investment, there are restrictions in an exceedingly wide range of sectors. Foreign investment isnt permitted within the following areas: Nonblank money lending Pawn brokering Retail trade with a capital investment of less than $1 million (with one notable exception: the BOI Permits retail & wholesale trading by reputable 25

international brand names & franchises with an initial investment of not less than $150,000) Coastal fishing Education of students under 14 years of age for local examinations; & Local degree-awarding university education (institutions awarding

overseas degrees are permitted) Investment within the following sectors is restricted & subject to screening & approval on a case-by-case basis when foreign equity exceeds 40 percent: Shipping & travel agencies Freight forwarding Higher education Mass communications Deep sea fishing timber-based industries using local timber Mining & primary processing of nonrenewable national resources; & growing & primary processing of tea, rubber, coconut, rice, cocoa, sugar, & spices. Foreign investment equity restrictions & government laws conjointly apply to air transportation, coastal shipping, lotteries, large-scale mechanized gem mining, & "sensitive" industries like military hardware, illegal narcotics, & currency.

Trade Barriers in India for Sri Lanka

Since independence in 1947, India & Sri Lanka, two neighboring countries in South Asia, have concluded three major treaties: The Sirimavo-Shastri Pact (1964), the Indo-Srilanka Peace Accord & the Indo-Srilanka Free Trade Agreement (ISFTA, 1998). whereas the primary two were political treaties in character, the third one was an economic accord signed on December 28, 1998. Although ISFTA was supposed to come into effect on March 1, 1999, actually it came into operation one year later, on March 1, 2000.

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While ISFTA was aimed to form a free-trade zone between India & Srilanka by removing trade barriers, complete removal of tariffs on trade couldnt occur immediately when the accord came into effect. Both countries, therefore, agreed to remove tariffs within a 3 year time frame. When the signing of the agreement, Colombo had 8 years to allow tariff-free access of Indian commodities to its market. However, the agreement didnt cover all tradable commodities for tariff reduction certain product lines were marked out in order to protect internal production & safeguard domestic markets. Thus, both countries identified certain commodities for the "negative list".

While Sri Lanka exports have been experiencing an impressive increase, imports from India have too, increasing by 49%. Moreover, the import-export ratio has improved from 16.1 in 1998 to 5.1 in 2002. It has been estimated that Sri Lankan exports to India accounted for 3.6% of overall Srilanka exports in 2002 in comparison to 1998 when Sri Lankan exports to India accounted for 1% of overall exports. Consequently, there has been a repositioning of Sri Lanka as the fifth largest import supplier to India in 2002 compared to a rank of 20th in the mid 1990s. This means that the proportion of preferential exports amounted to IRs10.9 billion, 68% of total exports to India. Further, preferential exports have grown at 62% in 2002 compared to 54% in 2001. Thus, the answer to the first question is that the Sri Lankan export outcome of 2002 was indeed a result of ISFTA.

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CONCLUSION
The India Sri Lanka formal business relations was started in 1968 by establishing a committee indo-lank joint committee & after that was become more deeper by subcommittee in 1992 & 1993.The Sri Lanka follow mix legal system including roman Dutch law & English law. The Sri Lanka currency rupee is rs. & the central bank of Sri Lanka started in 1949.

In 1978, Sri Lanka adopted free economic & financial framework as well as economical framework for the growth of the country. To follow the import process of the go Sri Lanka we have to go by three separate unites namely LONG ROOM, D BRANCH & POSTAL APPRAISAL.

The forms of business organization in Sri Lanka are same as in India like sole proprietorship & partnership & limited & private limited companies.

In The Sri Lanka in direct taxation added two new concepts are social responsibility charge & save nation charge & in indirect tax there is new one is national security levy & maximum income tax rate to resident or non-resident is 35%.since 1977 Lanka exports mainly textiles, food & beverages, wood products, rubber & plastics, & other consumer goods.Approximately 14% of Sri Lankas international trade was conducted with India in 2010.

India has recently signed trade agreements with its neighbors & is seeking new ones with the East Asian countries its regional & bilateral trade agreements or variants of them are at different stages of development. Economic relations between India & Sri Lanka, which date back to pre-colonial times, began to pickup in the 1990s with the liberalization of the Indian economy. In indo-Lanka

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International trade we want all the same documents which we want in other international trade like bill of lying & delivery report or document & all.

India fully implemented the Agreement by March 2003, & SL did so by October 2008 longer time frame for the latter given economic asymmetries between the two countries. The mail barriers of the indo-Lanka trade are the taxation aspect which is increased by the Lanka to up the income of the government. The main investment barriers Lanka are they restricted many of areas to outsiders.

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