An Echelon Media Company
Wednesday February 28th, 2024

Sri Lanka sugar scam from midnight gazette, parliament committee calls for probe

PUBLIC FINANCE: The committee on public finance had previously called for an investigative report from the Treasury on the sugar tax.

ECONOMYNEXT – A committee on public finance at Sri Lanka’s parliament has called for a probe on alleged huge profits made from sudden changes in trade taxes changed at midnight while the public is sleeping.

Legislators have claimed that large profits have been made through a scheme involving tax changes in combination with import licenses that stopped competitors from clearing sugar after the tax was cut.

Chairman of the Committee on Public Finance Anura Priyadarshana Yapa, had instructed the Ministry of Finance officials submit an impartial and investigative report to the Parliament on the sugar tax revision, the assembly’s media office said.

There have been calls to abolish the so-called ‘tyranny’ of the midnight gazette, which leaves room for corruption.

The sudden tax changes, which are later informed to the parliament to rubber stamp in a ‘shoot-first ask questions later’ also violates the ‘taxation by consent’ principle on which parliaments are set up, analysts have said.

Related: Sri Lanka’s fiscal tyranny by midnight gazette, retrospective taxes must end

The room for corruption or losses expands when tax changes are large.

In Sri Lanka taxes are changed at midnight without prior notice involving severe ‘regime uncertainty’ or policy instability for businesses, which can result in either large losses or profits and discourages the holding of stocks for security by ordinary businesses.

A tax cut can result in large losses for wholesalers, traders, importers or supermarkets with stocks. A tax hike can bring profits, but usually supermarkets will sell at prices already marked in packets.

However a privileged set of businessmen, through licensing scheme are allowed to operated bonded warehouses, without running tax risks, where goods are landed without taxes and are not cleared.

The taxes are usually raised to give unjust profits to ‘domestic’ producers or import substitutors in a process known as ‘tax arbitrage.’

Janatha Vimukthi Peramuna legislator Anura Kumara Dissanayake told parliament last month that a sugar import tax was first jacked up from 33 rupee a kilogram to 50 rupees on May 23, 2020 saying it was used for illegal alcohol production.

In Sri Lanka ethanol imports have been banned taxes hiked, in a regime uncertainty, to give profits to domestic producers either owned by the state or close to the establishment, critics say.

Dissanayake said at the time the administration claimed that the tax was raised to boost domestic sugar production and discourage the production of moonshine and also save ‘foreign exchange’. He said turmeric imports have been banned.

However moonshine is popular due to high taxes on ethanol and finished products which makes legal alcohol prohibitively expensive.

The high taxes have also encouraged some licensed distilleries to sell untaxed alcohol through a network of off-license retail shops (known as bars), and a promote a lucrative trade in smuggled alcohol, critics say.

Dissanayake said on October 13, the government suddenly cut taxes in sugar to 25 cents a kilogram.

“While taxes of many goods were raised, and imports of many goods were restricted, the sugar tax was removed from 50 to 25 cents,” he said. “In other words it was almost completely removed.”

He said then a statement was sent by the government that the retail price of sugar would be 85 rupees.

Related: Sri Lanka slashes onion, lentil, tinned fish, and sugar import tax to 25 cents a kilo

Dissanayake said the Consumer Affairs Authority had done a survey to find out how much sugar was with the importers cleared by paying the tax at 50 rupees.

“At the time there was 90,000 metric tonnes of sugar imported by paying tax,” he said.

“Now the government is saying to sell at 85 rupees. So there was a big confusion there. At Sathosa there was sugar at 85 rupees for one kilogram. Trade Minister Bandula Gunewardene had said that one kilo was enough for a house for one month.”

Then October 27, there was a meeting with importers, Treasury Secretary and the Chairman of Sathosa, he said. This crisis was explained.

Then a decision was made to re-impose the tax again to 40 rupees. The trade minister had told the following day out that the tax should remain at least for a month, according to the procedure. Dissanayake said.

“So it could not be changed until November 13,” Dissanayake said. “The Trade Ministry then decided to start a license scheme under the Import and Export Control Act to clear sugar from ports.”

Under the licensing scheme sugar was not allowed to be cleared from the port at 25 cents until November 22.

The government said the 40 rupee tax would be hit again from November 13.

“But the tax was not raised. After November 22, sugar was cleared at 25 cents from November 22.”

He said on October 13 Sathosa had bought 700 metric tonnes of sugar at 127.49 rupee a kilogram.

“Then it was sold at 85 rupees.”

On October 14, another 700 metric tonnes was bought at 121.50 rupees. Then it was sold at 85 rupees.

On October 20, 750 metric tonnes were bought at 92 rupees. He said it was bought from a business connected to the Shangri-La hotel building

On October 27, 600 metric tonnes was bought at 110 rupees by Sathosa.

“Now taxes were reduce and it was ordered to sell sugar at 85 rupees. To sell at 85 rupees, sugar had to bought at least 80 rupees.

“The government is saying the controlled price is 85 rupees, but Sathosa is buying at 121.50 rupees.

Dissanayake claimed that a ship carrying sugar had not arrived in the country for 30 years. But on November 02, a sugar ship can come with 26,000 metric tonnes.

Dissanayake said up to December 10, 37,000 metric tonnes had been brought at 25 cents a kilo.

He said on December 12, a sugar ship with 22,500 metric tonnes was scheduled to arrive consigned to a company called Wilmar.

Dissanayke said around 73,000 metric tonnes of sugar was due on a 25 cent tax.

Dissanayake said with the 50 rupee tax, sugar was at 135 rupee a kilogram. He said around 90,000 metric tonnes were imported at 25 cents.

“Either the government should get the tax, or the benefit should go to the people,” Dissanayake said.

“There is no sugar at 85 rupees, and no taxes for the government.”

He said about 90,000 metric tonnes had been imported or was in transit. Annually Sri Lanka imported about 650,000 metric tonnes of sugar, he said. But since the tax cut in October around 200,000 metric tonnes were either imported, or on order, he claimed.

Dissanayake said if 90,000 tonnes had been imported the revenue loss would be around 4.5 billion rupees. If 200,000 was imported the revenue loss would be 10 billion rupees.

“There is no sugar at 85 rupees,” he said. “There is revenue to the government. So certain businessmen are pocketing the money through indirect paths.”

‘Import substitution’ operators also do the same thing, analysts say. Price are kept artifically high through import duties and they pocket the tax. Economists call the process ‘tax arbitrage.’

Such countries also become export uncompetitive as not just the protected items, but goods higher up the value chain which use the protected item as inputs also become noncompetitive. (Colombo/Jan08/2020)

Leave a Comment

Your email address will not be published. Required fields are marked *

Leave a Comment

Leave a Comment

Cancel reply

Your email address will not be published. Required fields are marked *

Sri Lanka confident of “smoother” IMF second review: State Minister

ECONOMYNEXT – Sri Lanka’s second review for the International Monetary Fund (IMF) loan would be smoother than the first as the government has implemented many reforms required for the economic recovery, State Finance Minister Shehan Semasinghe said.

An IMF mission will visit Sri Lanka on March 7 and will engage in the review of second tranche of the $3 billion IMF loan for two weeks, he said.

“The second review will commence on the 7th of March, and we are very confident that will be a smoother review than the first review,” Semasinghe told reporters at a media briefing in Colombo on Wednesday (28).

He said the the first review was difficult because of hard policy decisions taken by the government in the initial stages.

The global lender completed the first review of the 48-month Extended Fund Facility (EFF) on December 12 before disbursing $337 million to support the island nation’s economic policies and reforms.

The IMF after the first review said Sri Lanka’s performance under the program was satisfactory while “all but one performance criteria and all but one indicative targets were met at end-June”.

Sri Lanka implemented most structural benchmarks due by end-October 2023, though some with delay. (Colombo/Feb 28/2024)

Continue Reading

Sri Lanka’s religious leaders need to cultivate harmony: Prez

ECONOMYNEXT – The responsibility of cultivating harmony rests significantly on the shoulders of religious leaders, Sri Lanka’s President Ranil Wickremesinghe has said.

“While politicians often pursue power, religious leaders strive to maintain their positions, frequently resorting to the perilous avenues of racism and bigotry. This unfortunate trend has plagued our country since the 1930s, yielding disastrous outcomes,” Wickremesinghe was quoted by his media division as saying at the ‘Religions to Reconcile’ national inter-religious symposium, organized by the National Peace Council of Sri Lanka, held today (28) at the Bandaranaike International Conference Hall (BMICH).

“Our nation has endured the bitter consequences of racism and religious extremism, culminating in a devastating conflict.

“With the military conflict resolved, Sri Lanka’s political challenges are now receiving attention, necessitating a renewed focus on coexistence,” Wickremesinghe said, adding that steps are being taken to resolve land disputes, address the issue of missing persons, release certain individuals, and initiate a delimitation of powers.

The President’s speech:

Having acknowledged the intrinsic connection between religion and reconciliation, our nation has endured the bitter consequences of racism and religious extremism, culminating in a devastating conflict. Following the cessation of hostilities, our main objective has been to foster coexistence among all communities.

The responsibility of cultivating harmony rests significantly on the shoulders of religious leaders. It is imperative that we remain mindful of our intentions. While politicians often pursue power, religious leaders strive to maintain their positions, frequently resorting to the perilous avenues of racism and bigotry. This unfortunate trend has plagued our country since the 1930s, yielding disastrous outcomes that require no further explanation.

Take Singapore, for example, where the absence of racism and bigotry has contributed to its rapid development despite its diverse linguistic landscape. With the military conflict resolved, Sri Lanka’s political challenges are now receiving attention, necessitating a renewed focus on coexistence, a topic also being deliberated in Parliament.

Mr. Karu Jayasuriya, served as the Chairman of the Sectoral Oversight Committee on Religious Affairs and Co-Existence when he was serving as the Speaker. This committee was established in response to conflicts involving Muslims in March 2018, as well as incidents in Galle in 2017 and Beruwela in 2014. Various proposals were put forth by these committees to address these issues, and consensus was reached on their implementation. It’s crucial that we uphold this agreement and continue working collaboratively to resolve these challenges.

Towards the close of last year, numerous Buddhist monks and Tamil leaders presented the Himalaya Declaration, a document we are currently adhering to. As we move forward, the final phase entails fostering synergy, particularly through discussions with Tamil political parties and MPs, aimed at addressing lingering issues. Steps have been initiated to resolve the matter of missing persons, with further updates forthcoming in the near future. Additionally, arrangements have been made for the release of certain individuals held in connection with these matters.

The primary concern at present revolves around the fate of the missing persons. To address this issue, we’ve presented and successfully passed a bill in Parliament to establish the Truth and Reconciliation Commission (TRC). Numerous reports from Disappearance Commissions have been reviewed, and one report authored by Judge A.H.M.D.Nawaz was selected.

Following the approval of the draft for the Truth and Reconciliation Commission, South African President Cyril Ramaphosa pledged his support for these initiatives. Similar assistance is being extended by other nations as well, enabling us to advance these critical endeavours.

Addressing the on-going political challenges, our attention is directed towards resolving land disputes, particularly in regions like Jaffna where tensions persist between villagers and the Wildlife Department. Similar conflicts also arise in areas such as Vavuniya, Trincomalee, Polonnaruwa, and Mahianganaya. We aim to address these issues through inclusive dialogue, involving all concerned parties. Furthermore, I have instructed to proceed in accordance with the 1985 map. Additionally, I anticipate meeting with Tamil MPs in Parliament next week to discuss these matters further. Following consultations with the security forces, agreements have been reached to release more land, providing a pathway forward in our efforts.

Another pressing issue is the delimitation of powers. A key demand is the empowerment of the 3rd list of devolution, with an emphasis on not interfering with police powers at present, leaving them open for future consideration. The Land Act is slated for presentation, and there are no objections to the delegation of other subjects in the 3rd list. However, securing the necessary consensus with other parties in Parliament to achieve a two-thirds majority remains crucial.

Simultaneously, discussions are underway regarding the implementation of the Provincial Board of Education. Proposals have been made to establish provincial professional training institutes in each province. Additionally, plans are underway to appoint provincial-level committees to lead the modernization of agriculture, establish a tourism board, and undertake related initiatives.

Additionally, the work of five provincial ministries is expected to be distributed among twenty ministries. This restructuring cannot simply resemble a general ministry, so officials are currently deliberating on adjusting their structure accordingly.

I eagerly anticipate addressing the final aspect of this matter, the decentralized budget, once all parties have convened. There’s also a call for a secondary board, akin to a Senate, which the government does not oppose. However, such an initiative would need to coincide with the framing of a constitution, potentially requiring a referendum. I also intend to engage in discussions on this topic with other party leaders.

These measures aim to lay the groundwork for a new era in our country. Religious leaders have been entrusted with significant responsibilities in this endeavour. I am confident that further discussions on these matters will yield fruitful outcomes.

Continue Reading

Sri Lanka rupee closes at 310.00/15 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 310.00/15 to the US dollar Wednesday, from 310.25/50 on Tuesday, dealers said.

Bond yields were broadly steady.

A bond maturing on 01.02.2026 closed at 10.60/80 percent from 10.60/75 percent.

A bond maturing on 15.09.2027 closed at 11.90/12.00 percent up from 11.80/95 percent.

A bond maturing on 15.03.2028 closed stable at 12.00/15 percent.

A bond maturing on 15.07.2029 closed at 12.20/50 percent from 12.25/50 percent.

A bond maturing on 15.05.2030 closed stable at 12.25/40 percent.

A bond maturing on 15.05.2031 closed at 12.55/75 percent down from 12.60/80 percent.

A bond maturing on 01.07.2032 closed at 12.50/90 percent down from 12.55/13.00 percent. (Colombo/Feb28/2024)

Continue Reading