Petroleum minister battles Sri Lanka’s secretly hatched prerogative tax

ECONOMYNEXT – Sri Lanka’s petroleum minister said talks have begun with the finance ministry to reduce a prerogative tax imposed by the Treasury without consulting his ministry, pushing a state-run distributor into losses.

Sri Lanka’s finance ministry raised a tax on diesel to Rs13/litre by midnight gazette, but did not allow a retail price increase for distributors.

"After I protested, the finance minister convened a meeting, and now we are looking into as to how to resolve this problem," Petroleum Minister Chandima Weerakkody told members of Sri Lanka’s Foreign Correspondent’s Association.

"Consultation before taking decisions is very important. But at least after the decision, now the consultation process is going on."

Sri Lanka’s native rulers regularly hatch taxes in secret and slam them on the people by midnight gazette without prior approval from the cabinet of ministers or the parliament, throwing to the wastebasket the basic democratic principle of ‘taxation by consent’.

The practice has been resorted to by Sri Lanka’s native rulers using a taxation machinery inherited from former colonial masters, especially after the 1970s to help special interest groups exploit consumers with high import duties and to raise revenue after increasing spending.

Weerakkody said state-run Ceylon Petroleum Corporation may run a monthly loss of Rs2.0 billion if taxes continue at the same level, compared to a Rs46.5 billion profit in the first half of the year.

He said high taxes had already generated losses from petrol sales, but now profits from diesel sales were also disappearing.

Sri Lanka’s continued reliance on the draconian midnight gazette comes despite activists going to court and preventing value-added tax being imposed without parliamentary consent. Sri Lanka’s parliament docilely rubber-stamps the midnight gazette on most occasions.

Weerakkody said he would prefer for the tax to be reduced rather than a retail price increase.





"I am a politician, I would not ask for a retail price increase," he said.

Weerakkody said he had already submitted a price formula to the cabinet, but it was yet to be implemented.

Publicly traded Lanka IOC, a unit of Indian Oil Corporation, plunged about 10 percent on August 26 when investors who first heard about the tax started to dump the stock. The stock is trading at a little over Rs37 a share.

Liberty advocates say ending prerogative taxation by midnight gazette would be a key step to restore freedom to Sri Lankan citizens. In free countries, prerogative taxation is outlawed by constitution.

Britain’s parliament outlawed taxation by the King’s prerogative as far back as the 17th century in its Bill of Rights in 1688 which says, ‘That levying Money for or to the Use of the Crowne by pretence of Prerogative without Grant of Parlyament for longer time or in other manner then the same is or shall be granted is Illegall. (Colombo/Sept19/2016)

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