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Sunday December 3rd, 2023

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)

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UAE investors express interest in Sri Lanka’s energy, tourism, ports, real estate: Ali Sabry

ECONOMYNEXT – A group of investors based in the United Arab Emirates have expressed their interest in renewable energy, tourism, ports, and real estates, Foreign Minister Ali Sabry told Economy Next.

A Sri Lankan delegation led by President Ranil Wickremesinghe is in Dubai to take part in the 2023 United Nations Climate Change Conference (COP28).

Sabry said a group of large investors met the President on Friday and discussed possible opportunities in Sri Lanka.

“We met big investors here particularly on renewable energy, tourism, port development and also infrastructure development and real estate. That’s where they are doing very well,” Foreign Minister told Economy Next.

“Our embassy will organize a higher-level business delegation to visit Sri Lanka to look at the available opportunities.”

“There is a lot of traction and interest in Sri Lanka.”

Sri Lanka has been exploring to attract investors to crisis hit Sri Lanka which declared bankruptcy in April last year with sovereign debt default.

Since then, most investors have taken a step back from investing in the island nation due to its inability to serve debts and uncertainty over such investments.

Several government officials said investors may start pouring dollars into Sri Lanka very carefully after they see some certainty of debt repayments. (Dubai/Dec 3/2023)

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Sri Lanka to push for green initiative investment “after OCC finalizing” debt deals – President

ECONOMYNEXT – Sri Lanka will push for investment into green initiatives globally after the Official Creditor Committee (OCC) finalizing on the island nation’s debt restructuring, President Ranil Wickremesinghe told Economy Next at the 2023 United Nations Climate Change Conference (COP28).

President Wickremesinghe along with local and global advisors has inaugurated three ambitious projects to convert climate change-led disaster funding, which is mostly seen as donations, into viable commercial enterprises involving private sector investments.

The idea is to rally all the global nations in the Tropical Belt threatened by disasters related to climate change and bargain collectively with advanced economies which emit more greenhouse gases into the environment resulting in global warming for more green initiatives like renewable energy projects.

Wickremesinghe initiated a Climate Justice Forum (CJF), Tropical Belt Initiative (TBI), and called on the world to help establish the International Climate Change University in Sri Lanka.

His moves have been welcomed by global leaders, though analysts said an initiative like TBI is a “bold and imaginary” step.

“This is the first step. We have now put forward the proposal,” Wickremesinghe told Economy Next on Sunday on the sideline of the COP28 in Dubai’s EXPO 2020.

“There is an interest. We have to wait for OCC finalizing (debt restructuring) before pushing for investments.”


Global investors are hesitant to invest in Sri Lanka due to its bankruptcy and sovereign debt default.

Sri Lanka is still recovering from an unprecedented economic crisis which has compelled the island nation to declare bankruptcy with sovereign debt default.

President Wickremesinhe during a forum on Saturday said his initiatives would help government in advanced countries not to use tax money of its own people for climate related disasters in other countries and instead, private sector investors could help by investing in renewable energy initiatives.

President Wickremesinghe’s government has been in the process of implementing some tough policies it committed to the International Monetary Fund (IMF) to stabilize the country and ensure sustainability in its borrowing.

Sri Lanka is yet to finalize the debt restructuring fully as it still has to negotiate on repayment schedule of commercial and sovereign bond borrowing.

The OCC and Sri Lanka had agreed on the main parameters of a debt treatment consistent with those of the Extended Fund Facility (EFF) arrangement between Sri Lanka and the IMF.

The members of the Paris Club which are part of the Official Creditor Committee are representatives of countries with eligible claims on Sri Lanka: Australia, Austria, Belgium, Canada, Denmark, France, Germany, Japan, Korea, the Netherlands, Russia, Spain, Sweden, the United Kingdom, the United States of America.

The OCC has said it was expecting other bilateral creditors to consent to sharing, in a transparent manner, the information necessary for the OCC to evaluate comparability of treatment regarding their own bilateral agreement.

The OCC also has said it expects that the Sri Lankan authorities will continue to engage with their private creditors to find as soon as possible an agreement on terms at least as favourable as the terms offered by the OCC. (DUBAI/Dec 3/2023)

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Sri Lanka alcohol regulations may be spurring moonshine: Minister

ECONOMYNEXT – Sri Lanka’s alcohol regulations may be reducing access to legal products and driving illegal moonshine sector, State Minister for Finance Ranjith Siyambalapitiya said amid plans to change opening times of retail outlets.

Sri Lanka is currently discussing changing the opening times of bars (retail alcohol outlets), he said.

Sri Lanka’s excise laws may be contributing to the growth of illegal products, Minister Siyambalapitiya was quoted as saying at the annual meeting of Sri Lanka’s excise officers.

Over 20 years legal alcohol sales have grown 50 percent but illegal products are estimated to have grown 500 percent, he said.

It is not clear where the 500 percent estimate came from.

In Kandy there was a bar for every 6,000 persons but in Mullativu there was one for only 990,000 persons and people had to travel 80 kilometres to get to a legal outlet, Minister Siyambalapitiya had said.

However Sri Lanka has a widespread moonshine or ‘kasippu’ industry driven by high taxes on legal products.

The widely used ‘gal’ or special arrack is now around 3,500 rupees and may go up further with a hike in value added tax. About 2000 rupees of the sale price is taxes.

After a currency collapse and tax hikes legal alcohol sales have fallen, leading to local sugar companies burying ethanol, according to statements made in parliament.

An uneven distribution of bars may also be driving people towards alcohol.

Alcohol sales is controlled on the grounds that it is an addictive product which can lead to poverty, ill-health, bad behaviour and criminal activities, though advocates of high taxes ignore the poverty angle.

High taxes are promoted by temperance movements some of whom have called for outright prohibition in the last century.

Temperance movements spread among evangelical groups in the West and were also embraced by nationalists/moralists and independence movements in colonial authorities.

Prohibition in the US however led to more criminal activity as an organized crime took to bootlegging. (Colombo/Dec03/2023)

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