Customs under scrutiny as audit exposes massive revenue leakages
The Sri Lanka Customs, the most powerful revenue-generating agency and the country’s frontline guardian of imports and exports, is facing an escalating crisis of credibility despite recording its strongest fiscal performance in history. Customs revenue as of the first 10 months of 2025 topped Rs. 2 trillion.
It has been reaching around Rs. 2,004 billion or 95 per cent of the full-year target of Rs. 2,115 billion.
However, the National Audit Office (NAO) report 2024 issued recently reveals that beneath this success lies a system plagued by weak oversight, discretionary decision-making, and reward structures that divert substantial sums away from the Treasury.
At the heart of the audit are several opaque internal funds, including the Reward Fund, Management and Compensation Fund, and the Overtime and Cargo Examination Fund, along with four additional sub-funds.
Originally created to improve efficiency and incentivise performance, these funds now operate with minimal transparency, vague policy controls, and incentive mechanisms that foster personal gain over national interest.
One of the audit’s most damaging revelations concerns how penalties from Customs offences are shared. After internal deductions, only 30 per cent of net penalties are remitted to the Treasury’s Consolidated Fund an amount that, in some cases, is less than the customs duty that should have been charged.
Between 2012 and August 2023, the Treasury received Rs. 14.53 billion, while Rs. 24.22 billion was paid to officers and informants.
The report further discloses that for 35 years, Customs issued reward payments based solely on internal departmental orders without the legally required approval of the Minister of Finance.
Routine operational detections that did not qualify as offences were frequently reclassified to justify reward payouts, allowing officers to claim incentives, overtime, and salary benefits for tasks that fall within their daily responsibilities.
Administrative discipline is another area of concern. Although the 2017 public sector circular requires all state institutions to maintain biometric attendance systems, Customs still relies on handwritten attendance registers.
This outdated practice leaves ample room for manipulation, unverifiable absences, and unjustified payments.
The overtime system is similarly riddled with irregularities. Out of the overtime fund, a whopping 90 per cent is paid directly to Customs officers, mostly without any confirmation of extra hours worked, while only 10 per cent is credited to the state.
During 2021 and 2022, officers have collected Rs. 948 million and Rs. 938 million, while the government received just Rs. 85.7 million and Rs. 83.6 million, respectively.
Discretionary reductions in penalties also caused significant losses. 17 major penalties totalling Rs. 7.61 billion have been slashed to Rs. 481.69 million, leaving the Treasury with only Rs. 144.5 million.
Compared to the taxes originally evaded, the state has lost Rs. 181.5 million due to these decisions by investigating officers and senior officials.
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