Another drastic tax hike overnight paves the way for 2nd sugar scam

By: Staff Writer

Colombo (LNW): Sri Lanka’s new 50 rupee sugar tax, imposed suddenly while people were sleeping, is against reform advocated in an International Monetary Fund report on reducing corruption, opposition MP Dr. Harsha de Silva said.

Sri Lanka issued an order to raise an import tax on sugar from 25 cents to 50 rupees overnight, without a type of pre-parliamentary sovereign prerogative delegated to the minister in charge.

Sri Lankas parliament later rubber-stamps such midnight taxes, imposed under a law on special commodity levy and a cess.

“One of the things even the IMF has been speaking about in terms of governance reform is to stop this practice of midnight gazettes,” de Silva told a public forum.

Sri Lankan importer reported to have imported 8500 MT of sugar on 30 -10-2023 three days before the increase of commodity levy to Rs. 50 from 25 cents per kilo foregoing a tax revenue of Rs422 million.

This tax increase has benefited the importer as he has cleared his stock of sugar from customs paying 25 cents per kilo which was the applicable tax at that time, media reports revealed.

“Where suddenly decisions are taken, and sometimes inside information goes to the others,” DRd solva said.

The report pointed to one case where sugar taxes had been cut where one importer is said to have benefited.

“In October 2020, the finance minister reduced the levy on several goods, including sugar, from Rs 50 to Rs 0.25 overnight,” the IMF report said.

“Subsequently, an unusually large amount of sugar was imported by a well-connected entrepreneur.

“As the consumer price of sugar remained unchanged, the levy reduction led to large windfall gains for the importer.”

De Silva said got messages that “shipload” of sugar had been cleared, though he had no personal knowledge.

However it is not clear whether the ship was a routine order which arrived coincidentally or not.

Unlike in the British period, Sri Lanka’s post independent rulers hatch taxes in secret and unleashes them on the citizenry without prior warning by quantums that are big enough to result in large losses or profits.

Hoarding goods before budgets also became a practice at one time due to large tax increase.

One way out is for citizens to sponsor a law preventing the ruling class from raising taxes by more than 5 percent, liberal advocates say.

Sudden changes in law disturbs the operating environment for businesses, and undermines what is generally understood as the ‘rule of law’, a key requirement of which is predictability.

Midnight taxes are imposed by the minister and are rubber stamped by the parliament after the fact, in direct contradiction to principle of ‘taxation by consent’ for which parliaments were originally set up by the Magna Carta, analysts have pointed out earlier likening it to fiscal tyranny.