rob billions from state coffers
By Nagananda Kodituwakku, former head of the Customs'
Revenue Task Force
government's new Inland Revenue [Special Provisions] Act came into
being on February 19, 2003 with almost no resistance from the opposition
parties. Under this new law all investigations, inquiries and recovery
actions pending in all courts against revenue fraudsters under Customs
Law, Inland Revenue Law, Exchange Control Law, Import and Export
Control Law and the Excise Law would be withdrawn.
It is reported
by former finance Minister Ronnie de Mel that nowhere in the world
such an unprecedented amnesty is granted to the revenue fraudsters
except Sri Lanka. The JVP has been the only other party which had
opposed this bill and Parliamentarian Sunil Handunnetti criticizing
the bill has rightly said that it would benefit only a handful of
rich and influential contributors to the ruling party funds.
lawmakers are one category who enjoy duty free benefits by way of
tax exemptions granted to import luxury vehicles, ostensibly for
their use and other tax incentive schemes. Most of the duty permits
issued to them ended up in the hands of revenue fraudsters who are
the ultimate beneficiaries of the so-called tax exemptions. With
this new law coming into place, some of the politicians would be
relieved from any action taken against them by the Customs for their
collusion in the revenue fraud.
declared by the new law will undoubtedly have detrimental effects
on the economy as well as on the law enforcement machinery. Truly
speaking it is a slap on the law abiding business community who
respected the revenue laws and paid the government taxes whereas
it is an encouragement to the organized revenue fraudsters who defrauds
government revenue in billions.
claim that it was caught unawares is unacceptable from the people's
representatives who are there to safeguard the interests of the
people. According to Customs statistics, the loss of customs revenue
by this bizarre amnesty is in the region of more than Rs. 27 billion.
Those organized revenue fraudsters who financed the funds of both
ruling party and opposition are clearly the beneficiaries.
With my vast
experience of more than two decades in the Customs Administration
under extremely trying circumstances, I, being an ardent advocate
of the peoples' right, believe I should speak out the truth for
the benefit of the right thinking people.
With the evidence I possess, I can categorically say with conviction
that the whole exercise of this new law is a deception, i.e. it
is a law introduced to protect the interests of fraudsters who are
well supported by the political leadership.
For the benefit
of those who are concerned with the corrupt practices of the political
leadership and thereby denial of the government of its rightful
revenue, I set out below various methods the fraudsters adopt to
achieve their ends.
The Customs law empowers the Minister of Finance [under section
19A of the Customs Ordinance] to grant duty exemptions for certain
kinds of imports where the minister considers that granting of such
exemptions are required in the national interest. This is one area
where the government revenue is heavily defrauded by political fraudsters
under the pretext of genuine imports for lawful purposes. Cases
of such revenue frauds are numerous and involvement of politicians
A study conducted
on duty exemptions granted to hotel industry by RTF [Revenue Task
Force] revealed that a large volume of the duty free permits issued
to hotels and travel agencies for importation of luxury cars for
tourist trade had been sold illegally and as a result the government
had incurred a heavy revenue loss running into hundreds of millions
of rupees. For example, the import of one such luxury vehicle incurs
a revenue loss of about 5 million rupees.
the submissions made in this regard, I directed the officers of
the RTF to seize such vehicles. I have conducted a series of such
inquires and had confiscated vehicles and imposed millions of rupees
as penalties against the lawbreakers. In most cases, the suspects
have admitted guilt and paid the penalties though some challenged
the orders in the Court of Appeal.
In one such
case, it was revealed a southern tourist hotel had sold four of
such permits illegally. Three had been sold to a finance company
and the other to a top sportsman. At the inquiry held into this
fraud the managing director of the hotel admitted guilt for illegal
disposal of the four permits and was fined Rs.4,000,000 which he
paid. The finance company also pleaded guilty and paid Rs 7,317,483
But the sportsman
was also summoned for an inquiry. I must say that the political
force and intimidations used against me in this case is enormous.
There was intervention from the highest level with orders abandon
the case. Two senior Customs officials repeatedly ordered me to
drop the case. However, having dealt with the hotel and the finance
firm, there was no way that I could set the sportsman free. I had
to summon them before me and impose a penalty of Rs. 4,198,255,
in spite of severe criticism from the senior officers.
never paid the penalty or surrendered the vehicle to the Customs.
Instead there were death threats. I had to leave the country under
these difficult circumstances. The matter was reported in the media
after my departure. After I left the country on December 19, 2001,
on the orders from the highest level, the order made against the
sportsman was nullified.
political action had an adverse effect on all the other cases where
penalties had been imposed for similar revenue frauds. They refused
to abide by the orders and challenged the forfeiture of vehicles
and penalties imposed. The then government did not stop there. A
written directive was issued to the Customs Department to suspend
all operations against such revenue frauds, which was patently illegal.
In my opinion
the new tax amnesty law is a brainchild of a politicians who advocated
for such an amnesty for a long time. The new tax amnesty not only
benefit those who have been found guilty of revenue frauds, but
also offers a way out for political fraudsters who risked action
being taken against them.
What is denied
to the state by this amnesty is its rightful revenue. The much-needed
funds required for the maintenance of the essential services such
as health, education and transport. Who is there to be blamed? The
people should blame themselves for voting for unscrupulous politicians.
The intellectual property law of Sri Lanka prohibits importation
of any goods with "false trade description" which are
capable of misleading the buyer. But truth is that most of the established
companies import goods with reputed brand names from countries like
Thailand and Vietnam at cheap prices, pay a very nominal customs
duty and then sell them to the public at an exorbitant price, misleading
them that the goods are of Japanese origin. Similarly a refrigerator
made in Vietnam is imported and sold locally as products of a local
Being the border
control agency, the sole responsibility of enforcing the law against
such deceitful traders is solely vested in the Customs administration.
Having fully appraised the situation, RTF officers were deployed
against such imports. After a formal inquiry, these companies were
found guilty for the violation of the law. These big companies pressurized
me to stop the operation of law against them. Although some admitted
guilt, they used their political clout to silence me.
the then Finance Ministry Secretary P. B. Jayasunadara to summon
me to the Ministry and challenge my stance against such imports.
They failed to succeed at the Ministry as it was proved that they
have defied the law. Having failed their strategy they then took
me to the Court of Appeal and sought a court order to set aside
the penalties imposed on them and implied permission to continue
with such imports.
With the new
tax amnesty law coming into force, all penalties and forfeitures
imposed on the unscrupulous section of the business - running into
billions -- would be set aside and they would be allowed to engage
in their unscrupulous trade practices with no impediment whatsoever.
Customs charge duties as a percentage of the value of goods that
are declared to customs. Hence any person, who makes a false declaration
of value of the goods to customs and pays a lesser duty naturally
enjoys undue advantage over others who make a correct declaration
and pay the tax. The customs law prohibits such actions and provides
for the confiscation of any goods that are undervalued. [Section
51 and 51 of the Customs Ordinance].
is the area where the heaviest loss of revenue is incurred by the
Customs. There are a large number of cases where the importers are
found guilty of understating the value. In certain investigations,
evidence of understatement of the value are found in the custody
of the importers.
into a case some time back. There were two companies, which imported
mamoties from the same source. Whereas the Brown & Co had declared
higher value and had paid higher duty on their imports, it was observed
that the other company had paid almost half of the duty Browns paid
for the same item from the same source. The evidence placed before
me clearly proved a case against the errant company and accordingly
the company was fined millions of order before the Court of Appeal.
case against an IT firm, Customs investigators found in the possession
of the company the original invoice, which declared the actual transaction
price. Accordingly after a formal inquiry, the company was found
guilty and imposed a penalty of more than 10 million rupees. Like
most other cases, this company also challenged my order before the
Court of Appeal.
instance, duty fraud was committed by a reputed vehicle importer.
In this case it was revealed that the importer had produced a forged
valuation certificate for the customs purposes. At the inquiry,
the importer's agent admitted that the invoice itself furnished
to the customs was a forged one. Hence vehicles valued over 12 million
rupees were confiscated and the importer was imposed a heavy fine.
However, once again there was intervention from the highest level
with orders to release the confiscated vehicles. The case was abandoned
and the penalty imposed was not paid.
In Sri Lanka,
what becomes law are the designs of unscrupulous politicians. The
new tax amnesty law is one such exercise. With the new tax amnesty
law comes into place, all these companies and individuals would
be relieved from their tax liabilities and from payment of penalties
and forfeitures imposed on them. They would be allowed to make huge
profits at the expense of rightful revenue to the state.
Under Customs tariff regulations that specify duties for goods,
"computer software" is also listed in the schedule with
a specific rate of duty. Investigations carried out by the officers
of the RTF had revealed that certain well-known companies had resorted
to unscrupulous methods whereas government institutions and some
private organizations had declared the true value of the same software
they had imported and paid customs duty. As a result, the government
has incurred losses running into more than hundreds of millions
that I conducted into this fraud revealed that a commercial bank
alone was liable for over 60 million rupees. Having established
the case with evidence before me, I issued a warrant to conduct
a search operation and seize all goods imported by the bank defrauding
the government of millions of rupees in revenue.
The bank immediately
filed action in the Court of Appeal, alleging that computer software
is not liable for customs duty, and hence the customs investigations
should be suspended. The court granted the order.
In spite of
the court order, I summoned the bank to appear before me for an
inquiry, because I was convinced that I had a very good case against
the bank. But the bank once again sought and obtained a restraining
order preventing the Customs from proceeding with the inquiry. As
a result of this judicial process, the customs was prevented from
securing for the State its rightful revenue.
With the new
amnesty law coming into place, not only this bank, but also several
other companies which defrauded the government of billions of rupees
in revenue would also be relieved from their liabilities. This is
a slap on the law-abiding section of the business community. In
my opinion this tax amnesty has far reaching economic consequences
and is a sheer mockery of the administration of the revenue law.
This is another organized revenue fraud indulged with the help of
some officers in banks, airlines, the Customs and the Textile Ministry.
With a view to encourage garment exports, the government offered
an incentive of 32% of the exports value of the garments to exporters.
To obtain the export incentive they had to furnish evidence of exports
and export earnings to the Treasury, which paid the export incentive.
had a great plan. They imported fabric under the pretext of making
garments and sold them in the open market. Some customs and Textile
Ministry officials certified that they had inspected the cargo.
The shipping lines and airlines issued bogus bills of ladings certifying
that the goods declared in the export entries had been shipped.
Some private banks certified that the remittance had been received
for the alleged shipments. The fraudsters had all evidence required
to claim the export incentive and they managed to rob hundreds of
millions of rupees from the state coffers.
that I conducted into this fraud revealed that hundreds of millions
of Treasury funds had been defrauded by a group of organized fraudsters
who had political backing.
As result of
this inquiry some airline officials who issued bogus shipping documents
were sacked. One such airline official is a provincial councilor.
It was one of the most difficult inquiries that I ever carried out.
Inquiries were completed only against very few and those who found
guilty were imposed heavy penalties running into hundred million
rupees. However, not a cent was paid by those who emptied the government
coffers. Court actions were instituted to nullify the Customs order
and the cases are pending because of the alleged inefficiency of
the Attorney General's Department.
The new tax
amnesty law would exonerate those who have already been prosecuted.
This is just another example for the mockery of the government's
fiscal policy designed to protect the interests of the fraudsters
not the public interest.
It is obvious
from this deplorable action by some politicians that they do not
have any respect or regard for the law enforcement officials, some
of whom refuse to give in to the demands of the fraudster-political
mafia and who risk their livelihood and even the life itself in
defending the rights of the people to lead a decent life. By enacting
a law of this bizarre nature, the link between fraudsters and politicians
have been proved.
amnesty bill faces double challenge in SC
By Ayesha R. Rafiq
An application has been filed in the Supreme Court, asking
for a determination that the Inland Revenue (Special Provisions)
Bill passed by parliament granting an across-the-board amnesty
to tax defaulters, is inconsistent with the Constitution and
ultra vires (outside of the law).
Petitioner Nihal Amarasekera, a chartered accountant, has
also filed a fundamental rights application in the Supreme
Courts, citing the Prime Minister, the Finance Minister and
several others as respondents and claiming that his fundamental
rights have been violated by the unlawful enactment of the
Inland Revenue Bill.
In his first application citing the Attorney General as a
Respondent, Mr. Amaresekera has emphasised that contrary to
the provisions of the Bill, the constitution clearly states
that it is only the President of Sri Lanka who has the power
to grant any respite or remit the whole or any part of any
penalty or forfeiture due to the State. He states that the
provisions of the Bill thereby manipulatively suspend the
provisions of the constitution, particularly those relating
to the exclusive right of the President to grant pardon.
He has pointed out that while the Bill had been presented
to Parliament on January 1, this year, no copy of the Bill
was made available to the public until the one week period
during which any member of the public is entitled to seek
the determination of the Supreme Court as to the constitutional
validity of the Bill, had elapsed. He says he had no reasonable
or adequate means of being aware of the contents of the Bill
until it was reported in the media in mid March.
The petition states that the provisions of the Bill 'brings
about the abdication of "good governance" by the
Government and clearly encourages law breakers and those who
perpetrate crimes, and thereby eroding all norms of "good
governance", and that it seeks to concentrate "wealth
in the hands of a privileged few to the common detriment"
and is contrary to the State's objective of raising the moral
standards of the people.
The petitioner also says that while the Preamble of the Bill
seemed to provide an income tax amnesty, the amnesty, however,
extends to the Customs and Excise Ordinance, Import and Export
and Exchange Control laws which provide for the imposition
of duties or penalties and also sentences of imprisonment.
The Preamble therefore camouflages and misleads the actual
effect, ambit and scope of its provisions, he says.
Mr. Amarasekera claims that if the amnesties are granted the
State would be denied of a revenue of national economic proportions,
and as some of the revenue will be on fines to be collected
from successfully concluded prosecutions, there is no rationale
to defraud the country of such legitimate revenues.
It is submitted in the petition that any persons instrumental
in causing the unlawful enactment of the Bill with the knowing
intention of conferring benefit on a privileged few thereby
causing colossal loss to the Government, or should any of
these persons seek refuge under the new law, would be committing
the offence of corruption.
While the preamble of the Bill states that provisions of the
Bill are being enacted "with a view to securing the future
compliance of such persons with the prevalent tax laws",
there is no provision in the Bill to ensure future compliance
by defaulters, and in the case of criminal offences, no provision
for the suspension of the fines or sentences to be reimposed
should the defaulters perpetrate such fraud in the future,
the petition states.
The petitioner has requested the court to determine that certain
provisions of the Bill are ultra vires several Articles of
the Constitution and as such could not have been legitimately
enacted. Also requested is an interim order directing the
Attorney General to obtain from the Directors General of Customs
and Excise, Controllers of Exchange, Imports and Exports and
the Commissioner General of Inland Revenue the extent of revenue
losses reckoned by each of them.
The papers have been settled by K. Kanag Ishvaran P.C. and
filed by Abdeen Associates.