FM now claims loss of revenue not reported, contradicts AG’s findings

By Shamindra Ferdinando

The ongoing controversy over the failure on the part of the Finance Ministry and the Inland Revenue Department (IRD) to recover taxes from companies implicated in a massive sugar tax scam in 2020 has taken a shocking turn, with the Department of Trade and Investment Policy declaring that loss of revenue hadn’t taken place.

D. M. A. Dassanayake, Information Officer of the department that comes under the purview of the Finance, Economic Stabilisation and National Policies Ministry, said so in response to a query submitted to the Ministry in terms of the Right to Information Act (RTI) No 12 of 2016.

The Finance Ministry emphasised that contrary to claims, the issuance of Gazette 2197/12, dated Oct. 13,2020 whereby Special Commodity Levy (SCL) on sugar imports had been reduced to 25 cents from Rs 50 (per kg) didn’t cause any loss of revenue.

The Island received the Finance Ministry response on February 08, 2024 for a set of questions submitted on Dec 18, 2023. The questions were based on the proceedings of the Public Finance Commission on Dec 16 chaired by Dr. Harsha De Silva, economist and member of the main Opposition Samagi Jana Balawegaya (SJB)

During the Dec 16 proceedings, Dr. De Silva questioned the failure on the part of the Finance Ministry and the IRD to recover the losses as ascertained by the Auditor General by way of a forensic audit conducted into the Oct 2020 sugar scam. The House committee flayed the two institutions for turning a blind eye to several major sugar importers making a killing at the expense of the consumers. The Auditor General has named those who benefited from the SCL reduction.

MPs Chandima Weerakkody, Madura Vithanage, Duminda Dissanayake and Sumith Udukumbura attended the meeting.

Declaring that the government lost tax revenue, amounting to over Rs 16 bn, the AG had recommended criminal investigation into the sugar scam perpetrated during Mahinda Rajapaksa’s tenure as the Finance Minister. At the time of the issuance of the controversial Gazette in Oct 2020, S.R. Attygalle served as the Secretary to the Ministry of Finance. The forensic audit revealed that the government suffered a loss of Rs. 16.763 bn within four months (Oct 14, 2020 to Feb 08, 2021).

The House committee has pointed out that in spite of the SCL on sugar imports being reduced by a staggering 99.5%, the relevant authorities hadn’t done anything to prevent importers from exploiting the consumers. The IRD has been asked on January 16, 2024 to submit a report in respect of recoveries to be made from sugar importers.

Responding to another query, Information Officer Dassanayake said that the Finance Ministry had been summoned before the Public Finance Commission twice.Asked what were the difficulties in recovering revenue losses caused by the sugar tax scam, the RTI officer said that the question didn’t arise as losses hadn’t been estimated.

Asked whether another sugar tax scam perpetrated in November last year in the wake of the change of government consequent to Aragalaya was under investigation, the RTI officer declared that investigations conducted by the CID and the CIABOC (Commission to Investigate Allegations of Bribery or Corruption) so far didn’t reveal fraud. The Island pointed out that Labour and Foreign Employment Minister Manusha Nanayakkara is on record as having alleged a massive tax scam occurred in November last year.

The Island also asked whether President Wickremesinghe, in his capacity as the Finance Minister, instructed the Finance Ministry regarding the recouping losses. The RTI official said that the question is irrelevant as loss of revenue hadn’t been estimated or reported.

The Public Finance Commission has also paid attention to the reversal of the Special Commodity Levy in November in respect of sugar imports. The House committee questioned the rationale in the Finance Ministry seeking to collect as much as Rs 30 bn from consumers by way of tax reversal while allowing those who had been implicated in massive fraud to go unpunished.

The Finance Ministry disregarded questions submitted in terms of the RTI regarding the IMF stand in respect of the need to streamline revenue collection and whether the Ministry consulted the Attorney General as regards ways and means to address such corrupt practices.