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Illicit artificial toddy trade deprives govt. of Rs. 80 billion in revenue annually

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State Minister promises remedial action

By Saman Indrajith

One of the topics that kept reverberating throughout the budget debate that ended in parliament last Wednesday was the drain of excise revenue as a result of loopholes in the tax net by artificial toddy manufacturing businessmen.

Various facets of the issue were raised by SJB Matara District MP Buddhika Pathirana during the question time on three separate days highlighting the severity of the damage inflicted on the national economy by tax evading toddy businessmen who deprive the government coffers of a whopping Rs. 80 billion annually.

Following the disclosure by MP Pathriana, State Minister of Money & Capital Market and State Enterprise Reforms Ajith Nivard Cabraal promised remedial action.

Commissioner-General of Excise, Ariyadasa Bodaragama, acknowledged that there exists a tax leakage but he was wary of the figure of Rs. 80 billion.

Bodaragama is due to retire at the end of the month. Deputy Commissioner-General of the Inland Revenue Department, M. J. Gunasiri has been named as his successor.

Challenges before Gunasiri, as the new Excise Commissioner-General, are enormous, and whether he would be able to help Minister Cabraal deliver on his promise remains to be seen.

As Gunasiri earlier served as Deputy Commissioner-General Tax Administration (Corporate Small Entities & Non Corporate Sector) at the Inland Revenue Department, his expertise may be useful to remedy the situation. However, he has only three more months of service before his retirement. Unless he is given a service extension, the task of finding solutions to the tax evasion issue raised by Pathirana will probably have to wait till another Commissioner-General is appointed.

Pathirana told The Sunday Island that the government coffer is bound to lose over Rs. 80 billion a year due to tax evasion by artificial toddy manufacturers and the ramifications to the national economy are more acute if the health cost is also taken into account.

“We have seen many instances of serious health problems that illicit brewers caused to the people. Artificial toddy is produced by mixing urea, ammonia, nickel cadmium of old batteries and sugar. This harmful brew is sold at liquor shops and used for manufacturing ‘coconut arrack’ and vinegar.

“Suppose we overlook tipplers who consume the toxic brew knowingly or unknowingly, what about innocent consumers who buy vinegar? In Sri Lankan food culture, vinegar is an integral part. Imagine the number of people who get ill because they consume vinegar made of artificial toddy,” the MP said.

“The artificial toddy industry is well-rooted in coastal areas in the south. If one checks the number of trees tapped and the number of liters of toddy being sold, it is a very simple calculation to understand how much artificial toddy is being consumed. Only around one and a half litres of toddy could be tapped from a single coconut palm. As per reports of coconut researchers, the amount could vary slightly due to factors such as climate, humidity and season. The amount being sold by license holders varies from the actual amount extracted from palms. A difference is in the region of 60,000-70,000 litres. So, it is obvious that toddy comes from other sources”, he noted.

There have been raids by police and STF but toddy businessmen continue to ply their trade because the police cannot take the culprits before courts as per Sections 49, 50 and 52 of the Excise Ordinance. They have to hand over the suspects and the equipment to excise officers, who most of the time do not produce the suspects in courts but release them after filing a Technical Crime Report (TCR), the parliamentarian further said.

“Under the TCR, the racketeers only have to pay a small sum by way of a composition fee. The TCR is actually one of the loopholes these businessmen get out so easily. I pointed out all these to the government. I hope Minister Cabraal will act as promised. I also pointed out to him that there are not only excise officers but some finance ministry officials who benefit from the artificial toddy business. I hope and pray that the minister will be able to remedy this situation,” Pathirana added.

President of the Nawa Sinhala Rawaya, Ven Magalkande Sudattha Thera said the illicit toddy industry is thriving despite isolated raids. The police and the STF conducted successful raids in many areas in the recent past. Thereafter, the police hand over the suspects and equipment to the Excise Department for legal action. Excise Department officials file a TCR and release them on a composition fee.

Many illicit toddy producers have licences for toddy tapping. So finding sugar, ammonia, yeast, batteries in toddy amounts to only a technical error; it becomes a technical crime if they suspect that the manufacturer had purposefully mixed them with toddy or produced toddy using them as ingredients. During a recent raid, the police found three bags containing 25 kilos of ammonia to be used to produce toddy. How could the government ensure public safety when poison is being sold in bottles in the name of toddy, the prelate asked.

President of the consumer watchdog National Movement for Consumer Rights Protection, Ranjith Withanage said that old mobile phone batteries were also being used in the fermentation process of artificial toddy.

He said a countrywide survey conducted by his organisation revealed that discarded mobile phone batteries and power banks and chemicals such as urea were used to produce artificial toddy.

 “We have information that such toddy is being sold to produce coconut arrack and vinegar.  Arrack and vinegar made from artificial toddy were sold in the market while those responsible for preventing consumers from such harmful products have done nothing so far to raid shops and places that sold them”, he asserted.

Withanage said that local arrack and vinegar made from artificial toddy have been identified as one of the main causes of chronic kidney diseases.

He further said the government loses over Rs 180 billion a year due to the illicit liquor and tobacco (Rs. 100 billion on illicit liquor and tobacco and Rs. 80 billion on illicit toddy).

“We expected the government to present budget proposals to counter the loss of revenue, but there was none”, he added.

Excise Department spokesman, Deputy Commissioner, Kapila Kumarasinghe said there were instances where toddy manufacturers were caught for using illegal methods to increase the volume of alcohol. Water, sugar, urea, yeast and salt are being used to get a high content of ammonia in toddy.

He said that toddy is being sold in taverns as fresh toddy and bottled toddy after pasteurizing so that they could be kept for one to two weeks. Toddy is also being sold for the production of vinegar. If toddy with additives are used to distill arrack, the machines extract only the alcohol and the additives are discarded as ‘spent-wash’. The distilling machines are calibrated only to extract alcohol, and not other elements in the raw materials.

In the most popular brands of arrack sold in the market, there is only three percent toddy and 97 percent water, ethanol and rectified spirits. Adding alien items during production is illegal,” he warned, adding that the Excise Department with its available resources is fighting hard not only against the artificial toddy industry but also other narcotics and drugs, he said.

Excise Commissioner General Bodaragama acknowledged there was a significant loss of excise revenue due to various tactics used by toddy manufacturers.

He said that there is a leakage of tax revenue but assured that he was certain that it could not be Rs. 80 billion.

State Minister of Money & Capital Market and State Enterprise Reforms Ajith Nivard Cabraal told The Sunday Island that Pathirana had raised this issue several times in Parliament and he had already instructed Secretary to the Ministry of Finance and the Excise Department officers to submit a comprehensive report to him on the matter.

The toddy industry extends from Kalutara, Gampaha, Puttalam, Badulla, Moneragala, Hambantota, Anuradhapura to the Northern and Eastern provinces. As at Dec. 31, 2019, there were 3,094 licensed toddy tappers and 32 licensed toddy producers in the country.

“There could be many more engaged in supportive services for their livelihood but we have no exact details on them”, he noted.

“Pathirana made constructive suggestions and we took note of them. We are thankful to his efforts and are determined to remedy the situation. I intend to study this matter first with my officials. I assure you that this would be studied properly and necessary action initiated”, the Minister assured.

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MCC inconsistent with Constitution

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AG agrees with Prof. Gunaruwan report

By Shamindra Ferdinando

Attorney General Dappula de Livera, PC, has informed President Gotabaya Rajapaksa that the Millennium Challenge Corporation (MCC) Compact, Project Implementation Agreement, as well as Articles of Association of MCA (Millennium Challenge Act), Sri Lanka, are violative of cerain provisions of the Constitution.

The AG has said so in a 20-page report sent to Dr. P.B. Jayasundera, Secretary to the President.

The President’s Office on Sept. 3, 2020, sought the AG’s opinion on the MCC Compact and related matters in the wake of the Cabinet-appointed Prof. Gunaruwan Committee strongly advising against going ahead with the US initiative. The US sought Sri Lanka’s consent for the Acquisition and Cross Servicing Agreement (ACSA), Status of Forces Agreement (SOFA) and MCC. The previous government finalised ACSA in early August 2017.

Dr. Jayasundera made available the Gunaruwan report to the AG.

The outgoing US administration in Dec 2020 announced Sri Lanka had been left out of the MCC project.

AG’s Coordinating Officer State Counsel Nishara Jayaratne confirmed the MCC et al were inconsistent with the Constitution and other laws.

The Island,

 however, learns that the AG’s Department on two previous occasions, in letters dated Oct 10, 2018 and June 10, 2019, addressed to Jonathan G. Nash, Chief Operating Officer, MCC, and Director General, External Resources Department, respectively, asserted that the Compact and the Programme Implementation Agreement (PIA) were in line with the Sri Lankan law.

The first letter was sent during Jayantha Jayasuriya’s tenure as the AG and the second under incumbent AG without his approval, sources said. Dappula de Livera succeeded Jayasuriya in April 2019 about a week after the April 21 Easter Sunday carnage. Jayasuriya is the incumbent Chief Justice.

Prof. Gunaruwan’s Committee soon after the last presidential election in Nov 2019 failed to obtain the AG’s Department opinion in spite of making representations through the Prime Minister’s Office.

In the run-up to 2019 parliamentary election, then Finance Minister Mangala Samaraweera said the Attorney General had approved the US project though the Sri Lanka Podujana Peramuna (SLPP) called it a sell-out.

The following is the text of the letter dated Oct 10, 2018 captioned ‘Legal Status of Proposed MCC Compact signed by Sanjay Rajaratnam, PC, Senior Additional Solicitor General, addressed to Jonathan G. Nash, Chief Operating Officer, MCC:

“I refer to your communication dated 27th September, 2018 in respect of the above captioned matter. In this regard, I am made to understand that the delegation from the Government of Sri Lanka was able to have fruitful discussion with the Millennium Challenge Corporation Team in resolving some of the outstanding issues.

“Having gleaned through the proposed Millennium Challenge Compact, the draft Program Implementation Agreement (PIA) as well as the Points of Discussion (without prejudice) between the negotiating parties which has been made available to me, I wish to at the very outset opine that no existing laws of Sri Lanka inhibit the Compact and the PIA being implemented in Sri Lanka. If I may elucidate further, the covenants of the Compact and the PIA do not infringe any existing domestic law or any previous undertakings given by the Government of Sri Lanka. It is acknowledged that the Compact imposes legal obligations on both parties to the Agreement

“Further, consequent to the negotiations and discussions had between parties, it is proposed that the Government of Sri Lanka would seek the passage of a law in Parliament to establish the MCA- Sri Lanka as a non-profit Company limited by guarantee under the Companies Act No.07 of 2007 to implement the provisions of the Compact. It is envisaged that the proposed enactment would encompass the Compact and the PIA as Annexures, which would form an integral part of this enactment.

“Thus, I am of the view that the passage of the said enactment by Parliament would result in the Compact and the PIA, having the parity of status of a domestic law in Sri Lanka.

“In the Context of the above, it is requisite that Section 7.1 of Article 7 of the Compact referring to the provisions on Entry Into Force, would be revised with the deletion of the sentence pertaining to the Compact prevailing over the domestic laws of Sri Lanka.

“However, in order to assuage any concerns with regard to the implementation of the Compact, by an unlikely event of a legislation in the future which may impinge or infringe the said compact, upon notification by the Ministry of Finance and Mass Media (the relevant Ministry) of this fact, a legal opinion would be tendered that the proposed legislation if proceeded with would violate the covenants of the Compact. This would enable the relevant Ministry to forward its observations to the Cabinet of Ministers and Parliament, that the Attorney-General has opined that the proposed Bill if enacted would violate the Compact.

“In the circumstances, I believe that the aforementioned matters would confirm the legal status of the Compact and its entry into force.”

“Copies were sent to Ms. Caroline Nguyen, Managing Director- Europe, Asia Pacific and Latin America Millennium Challenge Corporation and J. Charitha Ratwatte, Head of Policy Development and Chief of Party MCC- Sri Lanka Project.”

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Environmentalist accuses Govt. of resorting to trickery to hand over 800,000 acres to pvt. companies

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By Rathindra Kuruwita

President Gotabaya Rajapaksa’s ‘Gama Samaga Pilisandara’ is a psychological operation to counter people’s resistance to a move to hand over chena and grasslands to large companies, environmentalist Sajeewa Chamikara said yesterday.

Chamikara claimed that the government had earmarked 800,000 acres of land to be given to corporations, and those lands would mainly consist of forests and areas used for chena cultivations and to feed cattle by small scale farmers.

“The Gama Samaga Pilisandara is an attempt to misguide the people by giving them false promises. The government tells people they could cultivate lands belonging to the Forest Conservation Department and instructs officials not to punish people who send cattle into forests. People walk away feeling good but a few months later they will find that these same lands handed over to big companies.”

They had conducted a survey on the lands that had been given to corporations by the government during 2020 Most of those lands in fact were those used by cattle herders and chena cultivators, he said.

For example 70,000 acres in Demaliya and Wandama were being given to a company engaged in sugarcane cultivation, and almost all those lands were those used by small scale farmers and cattle herders, Chamikara said. Among the lands that were given were those earmarked for those displaced by the Uma Oya project. The previous administrations tried to provide irrigation water to those lands through the Handapanagala scheme.

Chamikara said: “Another 62,000 acres have been earmarked in Moneragala, Ampara and Badulla districts for sugarcane cultivation. 80% of these lands are chena cultivations. In Rambaken Oya 5,426 acres have been earmarked for 15 companies to carry out various agro projects and most of these lands are now used by small scale cattle herders. Recently, the Department of Agriculture wrote to the Forest Conservation Department requesting that 80,000 acres in Moneragala, Anuradhapura and Badulla districts be released. These lands are to be used for corn cultivation. The Forest Conservation Department then asked the Department of Agriculture to identify the lands and we know that these lands for the most part are those used by small scale cattle herders and chena cultivators.”

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Contempt of Court case against GMOA President re-fixed for hearing on March 03 and 10

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By Chitra Weerarathne

The Court of Appeal yesterday re-fixed for hearing on March 3 and March 10, the Contempt of Court application against the President of the Government Medical Officers’ Association Dr. Anuruddha Padeniya.

Counsel Ravindranath Dabare said that his client Dr. Padeniya was under self-quarantine and was unable to attend Court.

Dr. Padeniya was summoned for Contempt of Court under Article 105/3 of the Constitution of Sri Lanka for allegedly having criticised a Superior Court ruling in respect of the admission of students to the Sri Lanka Institute of Technology and Medicine, Malabe, at a public rally on April 7, 2016, disrespecting a Supreme Court order pertaining to the enrolment of a student in the Private Medical College, which will ultimately lead to an MBBS degree.

The Court of Appeal bench comprised Justice Arjuna Obeysekera (President) and Dr. Mayadunne Corea.

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