ECONOMYNEXT – Sri Lanka’s frequent tax changes, including import taxes, discretionary tax holidays, state enterprises and public procurement amid concerns around the integrity of the judiciary itself, a corruption diagnosis by the International Monetary Fund has found.
There were conflicts of interest in the central bank relating to debt auctions and the management of the Employees Provident Fund.
Meanwhile a Commission set up to combat Corruption was also not working.
Delays in resolving court cases and property rights was driving corruption vulnerabilities
“Multi-year waiting times for the resolution of contract disputes prevent reliance on courts
for effective and fair resolution of disputes and encourage disputants to find ways, not always legal, to speed up adjudication,” the report said.
“Widespread confusion over the allocation of property rights and the lack of progress in digitizing property records generates extensive long-term legal disputes and similarly
promotes resort to opaque means to influence the resolution of disputes.
“Concerns about the integrity of the judiciary have grown over time, given the strong incentives of private parties to use illicit payments as a way to solve legal problems that have little chance of being resolved in the near term, and have focused attention on the need to strengthen
the independence and competency across the legal sector.”
Public procurement process, including at state enterprises was a key vulnerability.
“The lack of a robust legal framework and poor processes utilised in Public financial management (PFM) create corruption vulnerabilities due to limitations in the coverage of the budget, the lack of transparency in the process used for managing commitments, and for poor investment planning and management,” the report said.
“The acceptance of unsolicited capital investment proposals in processes that lack transparency and competition have contributed to a large and growing portfolio of “problem” projects and raised corruption concerns.”
State enterprises also have persistent problems which are not addressed.
“The lack of oversight and transparency around the operation of state enterprises enhances exposure to corruption vulnerabilities, especially regarding procurement and other forms of contracting, and capital investments,” the report said.
“Weaknesses in internal audit and control processes generate additional governance challenges and place an excessive burden on the Auditor-General to identify corruption risks.
“The absence of effective mechanisms to follow up on audit findings and observations contributes to the persistence of problematic procedural and managerial practices while restricting accountability for past actions.”
Ministers can immediately change taxes without first going through parliament and there are also taxes to limit competition especially in building materials, in addition investment relief.
In Sri Lanka import taxes under an Export Development Board run law as well as the special commodity levy are changed by midnight gazette while the population is sleeping and rubber stamped by the parliament later.
“Substantial corruption vulnerabilities are created through the granting of high-value and long-lasting concessions for investments determined to be of strategic importance in a process that lacks clarity and transparency,” the report said.
“In a similar fashion, corruption risks stem from the Special Commodity Levy, which provides for excessive levels of ministerial discretion in granting tax changes relating to specific commodities with immediate effect
“Concerns about the use of government authority relating to tax policy highlight limited government attention to protecting competition, including the lack of a competition policy agency on the one hand and extensive government control of markets in critical sectors, including agriculture and construction materials.”
Corruption in tax agencies is present but officials are rarely if even sanctioned.
“Exposure to corruption in customs and tax administration is substantial, given the absence of effective systems for performance monitoring and detecting and sanctioning of officials for improper behaviour,” the report said.
The report said internal affairs divisions could be set up to combat the problem.