COPF calls for tax on companies benefited by ‘Midnight Gazette’

The Committee on Public Finance (COPF) has directed the Ministry of Finance to tax the companies that benefited from a recent ‘midnight gazette’, which increased import duty on sugar from 25 cents a kilo to Rs. 50 a kilo. The COPF has also asked the Finance Ministry officials to put in place a mechanism to collect taxes, provide explanations if they are unable to do so, and suggest action to prevent such situations in the future.

COPF obtained information pertaining to sugar imports for the past three months from the Department of Customs. It questioned Ministry of Finance officials about the suspicious timing of the import duty increase and the surge in sugar imports by certain companies just before the duty hike.

In response, Ministry of Finance officials said the duty increase was part of the fiscal-based revenue consolidation programme linked to an IMF initiative. Furthermore, they highlighted that the sudden increase in sugar imports was a seasonal occurrence. In light of these claims, the Committee insisted on a comprehensive comparative analysis of previous years to verify these assertions.

COPF sounded the alarm about specific companies importing unusually large quantities of sugar without concrete evidence supporting the necessity for such massive imports. For example, a company that typically imported 2,000 metric tons of sugar monthly inexplicably imported 10,000 metric tons in October, just before the tax increase, reaping substantial gains as the tax jumped 200-fold from 25 cents to 50 rupees.

COPF Chairman Dr. Harsha de Silva stressed the importance of ending the use of ‘midnight gazettes’ related to special commodity levies. These practices provide the Minister of Finance with unchecked authority to change tax rates or grant tax exemptions to specific companies. This concern aligns with the recommendations made by the IMF in their Governance Diagnostic Report, urging Sri Lanka to eliminate ‘midnight gazettes’ due to their potential for fostering corruption.

State Minister Dr. Suren Raghavan, Members of Parliament M.A. Sumanthiran, Patali Champika Ranawaka, Nimal Lanza, and Isuru Dodangoda were present at the Committee meeting.