What was the loss?
15.9 billion rupees
In May 2020 the Government of Sri Lanka increased the Special Commodity Levy on sugar imports from LKR 35 per kilogram to Rs.50 per kilogram, aligning with the promised policy of the government to increase and protect the domestic production. On 14th October 2020 the tax was reduced from Rs. 50 per kilogram to Rs. 0.25 per kilogram. Subsequently, the government announced that the retail price of sugar cannot be reduced. Thereafter, they proceeded to increase the tax imposed on a kilogram of sugar to Rs. 40 again, on the 27th of the same month. However, according to the Special Commodity Levy Act of Sri Lanka, the increased tax could only come into force a month later. Therefore, the amended tax rate could not come into force between the 13th of October and the 13th of November.
The Sri Lankan sugar market is an oligopoly. Just before this midnight gazette was issued with a sudden tax rate change, one of the key sugar importers in the country, Pyramid Wilmar (Pvt) Ltd had imported a large consignment of sugar which was stored in their bonded warehouse and released after paying the tax of Rs. 0.25 when it was reduced. Within this period, this company had imported a total of 125,000 MT of sugar using this tax reduction. According to the Member of Parliament and a member of the Parliamentary Committee on Public Accounts (COPA) Harsha de Silva, this company has imported 39% of the total imports of sugar between October 2020 and February 2021 and the loss that treasury has undergone is approximately Rs. 15.9 billion.
Notably, Sathosa, a State-owned Enterprise, happened to purchase over 2000 MT of sugar from the same company that imported it at Rs. 0.25, at a price between Rs. 125 and Rs.127. However, Sathosa is reported to have faced a loss of about Rs. 75 million, because the maximum retail price per kilogram was fixed at Rs. 85. Even though there was pressure on the government and the COPA to conduct a forensic audit on this case, there is a lack of information about any such ongoing audit.
What is the corruption?
The practice of issuing ‘Overnight gazettes’ targeting import taxes and other pricing changes in a manner that benefits certain interests or groups, could potentially be a sign of “State capture”.
State Capture: “Powerful Individuals, institutions, companies or groups within or outside a country using corruption to shape a nation’s policies, legal environment and economy to benefit their own private interests”.
Who are the victims?
- The general public, due to the loss of state revenue that could have been utilized to address critical needs and development initiatives of the country.
- Other importers of sugar, due to undue advantages to one importer
What has been done?
- The JVP filed a fundamental rights petition at the Supreme Court “seeking an order on the Attorney General to institute legal action against those whose actions allegedly resulted in a loss of Rs 15.9 billion in tax revenue”.
- The JVP is reported to have filed a complaint with the Criminal Investigations Department (CID). There is no further information available regarding this.
- The Committee on Public Finance (COPF) is reported to have produced a report on the Sugar Scam, but the report is not publicly available.
What can be done?
- Demand public access to the report produced by the COPF and that those responsible be held accountable.
- Demand to regulate the practice of issuing “overnight gazettes”.
- Create public awareness on the issue of state capture, so that there will be greater demand for transparency and accountability in governance.
[UPDATE] – It was reported in April 2022, that the National Audit Office has recommended that the Government take immediate actions to recover the revenue lost to the state through the slashing of taxes on imported sugar. The report also recommends that the lost revenue be recovered from importers who made huge profits as a result of the tax cut. Souce – https://www.newsfirst.lk/2022/04/17/sugar-tax-scam-recover-loss-of-rs-16b-from-importer-audit-office/