Pre-and post-Aragalaya sugar tax scams and culpability of Finance Ministry



Then Secretary to the Ministry of Finance S.R. Attygalle declared, at a hastily arranged media briefing on March 12, 2021, that the Treasury suffered revenue loss due to reduction of Special Commodity Levy (SCL) on sugar imports from Rs. 50 a kilo to 25 cents

The Supreme Court ruling delivered on Nov 14, 2023 dealt with the economic crisis and found fault with the then President Gotabaya Rajapaksa, Finance Ministers, Mahinda Rajapaksa and Basil Rajapaksa and others. But absolutely no action has been taken yet on the basis of the Supreme Court findings. Instead, Parliament continue with a Select Committee tasked with investigating causes for the financial bankruptcy. The Opposition has boycotted the Committee, headed by SLPP General Secretary and Attorney-at-Law Sagara Kariyawasam.

By Shamindra Ferdinando


Last week’s Midweek piece “Warning issued over proposed ‘Open Government Partnership’ action plan” (OGP action plan) dealt with the daunting challenge in addressing improvement of public services, prevention of bribery and corruption, proper management of public resources, ways and means of addressing basic requirement of vulnerable communities and the management of state and privately funded projects at national and provincial level.

The decision on the part of President Ranil Wickremesinghe to place the high profile project under the Additional Secretary to the President at the Presidential Secretariat Chandima Wickramasinghe underscored the importance the UNP leader attached to the initiative. Sri Lanka is in the process of preparing a third OGP action plan which is expected to be submitted to the Cabinet-of-Ministers by no less a person than President Ranil Wickremesinghe. As the National Focal point for the OGP, Chandima Wickramasinghe is spearheading the effort.

Against that background, let me discuss the sugar scams perpetrated in Oct 2019 and Nov 2023 and the continuing failure on the part of Parliament to compel the Finance Ministry to take action at least in respect of the first scam. If the Wickremesinghe-Rajapaksa government is genuinely interested in addressing bribery and corruption, it needs to act on such mega corrupt deals without further delay. Those who have been tasked with preparing the OGP action plan should examine the sugar scams as they could help them to realize the daunting challenges ahead from within the government.

Mahinda Rajapaksa served as the Finance Minister at the time of the first sugar scam, whereas the second fraud took place under incumbent President and Finance Minister Wickremesinghe’s watch.

Unless the incumbent government is prepared to tackle waste, corruption, irregularities and mismanagement in line with OGP action plan, it shouldn’t squander time and energy thinking it can again hoodwink the masses with the latest OGP project. The government should bear in mind that the first and the second OGP projects flopped.

The Yahapalana government (2015-2019) and the Gotabaya Rajapaksa administration (2019-July 2022) should be held responsible for the collapse of OGP initiatives and the declaration of bankruptcy in April 2022.

High-handed tax fraud

In spite of the Committee on Public Finance (CoPF) relentlessly pressing the Finance Ministry and the Inland Revenue Department (IRD) over the inordinate delay in recovering the losses caused by the first sugar scam, the powers that be continued to hold up the process. Obviously overthrowing President Gotabaya Rajapaksa in July 2022 hasn’t resulted in speeding up of the process.

CoPF, under the chairmanship of Dr. Harsha de Silva, censured the Finance Ministry and IRD over their pathetic failure to recover the losses in terms of the findings made by Auditor General W.P.C. Wickremaratne. Senior representatives of the Finance Ministry and IRD appeared before CoPF on Aug 16. Among those who had been present at the proceedings were SLPP MP Chandima Weerakkody (now aligned with the main Opposition Samagi Jana Balawegaya), SLPP MP Duminda Dissanayake (SLFPer elected on the SLPP ticket), SLPP MP U.K. Sumith Udukumbura and SLPP MP Madura Vithanage.

CoPF flayed the Finance Ministry for turning a blind eye to sordid operations carried out by sugar importers who thrived at the expense of hapless consumers. The SJB should demand an explanation from President Wickremesinghe, as well as State Finance Ministers Ranjith Siyambalapitiya and Shehan Semasinghe, both elected on the SLPP, and members of the government parliamentary group at the time Gotabaya Rajapaksa’s government perpetrated the first sugar scam.

Then Finance Minister Mahinda Rajapaksa issued a gazette, dated Oct 13, 2020, in respect of the import of white sugar. The twice former President brought down the import tax (Special Commodity Levy/SCL) from Rs.50 to 25 cents (per kg).

It would be pertinent to mention that the then Trade Minister Bandula Gunawardena is on record as having said that he was never consulted on the Oct 13, 2020 gazette. S.R. Attygalle served as Secretary to the Treasury, whereas intervention made by then Presidential Secretary Dr. P.B. Jayasundera, to facilitate the scam, is in the public domain.

Anura Priyadarshana Yapa, MP, in his capacity as Chairman, CoPF, in early 2021, declared that the consumers hadn’t benefited at all from the sharp reduction of the SCL. The Gotabaya Rajapaksa government ignored the CoPF chief’s assertion. The government absolutely paid no attention to a special report issued by the National Audit Office regarding the sugar tax scam. The report asked the government to recover the losses from importers who made massive profits, thanks to the massive slashing of the sugar import tax.

According to the special audit, within four months after the reduction of the tax (14th October 2020 to 8th February 2021) the cash-strapped government was deprived of tax revenue to the tune of a whopping Rs. 16.763 bn. During the same period some of the stock had also been dumped on Sathosa above the cleared price and that resulted in a loss of Rs. 102 mn to the state enterprise.

The audit revealed that one of the major sugar importers Pyramid Wilmar recorded a colossal profit of some 1,222%.

The Human Rights Commission, on April 18, 2022, amidst growing unrest, urged Gotabaya Rajapaksa’s government to immediately implement the Auditor General’s recommendation.

The then Commission’s chairperson and retired Supreme Court Justice Rohini Marasinghe stressed in a statement: “… the arbitrary and unreasonable use of state power affects the economic, social and cultural rights of citizens.” The government simply ignored that warning, too.

In addition to the Finance Ministry and the IRD, lawmaker Patali Champika Ranawaka, in his capacity as Chairman of the House Ways and Means Committee, has strongly questioned the Attorney General’s Department’s response to the sugar scams. However, MP Ranawaka’s criticism should be examined, also taking into consideration the second sugar scam perpetrated by the incumbent government in the first week of last November.

Dr. de Silva, at the conclusion of the January 16 proceedings, had asked the IRD to submit a report as to why the monies owed by major sugar importers couldn’t be collected.

The failure on the part of responsible authorities to reach a consensus on a specific plan to deal with tax frauds remains a major problem.

Let me stress that the real issue is the circumstances under which the Finance Ministry issued the relevant gazette notification, dated Oct 13, 2020, pertaining to the reduction of the sugar tax. The Auditor General’s report conveniently failed to inquire into that aspect. If the AG quite rightly asserted that sugar importers benefited from the issuance of that particular gazette, it would be the responsibility of the government to investigate the possible collusion between the importers and the Cabinet-of-Ministers, who obviously leaked that information to them in advance and thereby helped them to import vast quantities if sugar at 25 cents a kilo tax and then made a killing when the tax was raised overnight to Rs 50 per kg.

Manusha on second sugar scam

The Wickremesinghe-Rajapaksa government made a desperate bid to dismiss accusations regarding the second sugar fraud that captured media attention in the run-up to the presentation of Budget 2024.

In the second scam, sugar consignments had been cleared just before the government increased the tax from 25 cents per kg of sugar to Rs 50 from midnight Nov 1.

President Ranil Wickremesinghe’s Director General on Trade unions Saman Ratnapriya during his regular media briefing at Lake House denied what he called the Opposition’s unsubstantiated claim that sugar importers had benefited from the latest increase in sugar tax.

The writer who had been there to cover the media briefing and sought an explanation from former UNP National List MP Ratnapriya regarding Labour and Foreign Employment Minister Manusha Nanayakkara’s accusation that sugar importers benefited from what he called inside information.

SJB Galle District MP Nanayakkara who switched allegiance to the then Premier Ranil Wickremesinghe and reiterated the commitment to President Wickremesinghe and found fault with the Customs.

Minister Nanayakkara declared that he wouldn’t remain silent regarding the latest scam as he raised his voice against the one perpetrated during the previous administration.

However, the lawmaker hadn’t commented on the second scam since his initial observation issued by way of a statement released by the Labour and Foreign Employment Ministry on Nov 07, 2023. Claiming that only Customs had been aware of the impending revision of tax, lawmaker Nanayakkara called for an investigation to ascertain how sugar importers received that information even before the Cabinet-of-Ministers was made aware of the move.

Minister Nanayakkara shouldn’t forget that the issuance of the relevant gazette notification is the responsibility of the Finance Ministry and certainly not the Customs which comes under the former.

CoPF and Auditor General should also inquire into the second scam. Authorities haven’t inquired into lawmaker Nanayakkara’s claim made in his capacity as a member of the current Cabinet. In his statement, MP Nanayakkara cleared the Cabinet, but the Cabinet-of-Ministers cannot absolve itself of the responsibility for leaking of such sensitive information at a time the country is yet struggling to overcome a state of bankruptcy.

The most obvious conclusion we can reach is that the latest scam was allowed in order to build a war chest for the present government to fight the next election. And the previous one was to pay off someone who financed the SLPP’s last polls campaign. All these happen as international lenders, like the IMF, blow lots of hot air about how keen they are in fighting corruption, while allowing such daylight robberies to continue which only results in the poor and even middle class Sri Lankans going without meals! What a way to tighten our belts IMF?

The team tasked with preparing the OGP action plan under any circumstances cannot be blind to continuing corruption at every level. Those tasked with the job involving the Presidential Secretariat, Transparency International Sri Lanka and Sarvodaya have to consider the current economic status, especially against the backdrop of the historic and unprecedented Supreme Court ruling in respect of the economic ruination.

Preparation of a report acceptable to the OGP community would pose quite a challenge as the country is down on its knees before the International Monetary Fund (IMF) for the 17th occasion.

The current crisis could have been averted if the Gotabaya Rajapaksa government sought the IMF intervention earlier, as experts have claimed. But, ironically, instead, the then government, soon after the 2019 presidential election, declared an unparalleled tax cut that deprived the Treasury of a staggering Rs 600 bn in much needed revenue, on top of the body blow the country received, especially to its lucrative tourism industry from the devastating Easter Sunday terror attacks, which even targeted important tourist hotels. To make matters worse, we were struck by the COVID pandemic that also paralysed much of the world, never before experienced in our living memory.

The Supreme Court ruling that was delivered on Nov 14, 2023 dealt with the issue and found fault with the then President Gotabaya Rajapaksa, Finance Ministers, Mahinda Rajapaksa and Basil Rajapaksa and others. But absolutely no action has been taken yet on the basis of the Supreme Court findings. Instead, Parliament continue with a Select Committee tasked with investigating causes for the financial bankruptcy. The Opposition has boycotted the Committee, headed by SLPP General Secretary and Attorney-at-Law Sagara Kariyawasam.

Former COPE Chairman Prof. Charitha Herath who promised in last July to release a comprehensive report on the economic crisis within three months is yet to do so (https://island.lk/probe-into-countrys-bankruptcy-ex-cope-chief-going-ahead-with-own-inquiry/). Whatever the outcome of the parliamentary probe, conducted by the SLPP and dissident SLPPer’s report, the OGP should go by the Supreme Court ruling. The possibility of attempts at different versions to suit political agendas in an election year cannot be ruled out.

A govt. in dilemma

The post-Supreme Court ruling scenario cannot be discussed without taking into consideration the continuing alliance between President Wickremesinghe and the SLPP. The latest to declare his support for the incumbent President is Chief Government Whip Prasanna Ranatunga, the SLPP’s Gampaha District strongman.

With an influential section of the SLPP openly backing Wickremesinghe’s candidature at the next presidential election, scheduled for later this year, the UNP leader seemed to have secured the backing of a sizable group of government group members. Of course of the SLPP MPs, Gampaha District lawmaker Nimal Lanza is the first to throw his weight behind the UNP leader at an early stage of the Wickremesinghe presidency.

OGP Research Officer Christina Socci, in an article titled ‘Reform Space to Watch: Strengthening Governance in Sri Lanka,’ posted on Dec 12, 2023, dealt with the situation and developments here. Socci, formerly of the National Democratic Institute (NDI) and the UN Project Office on Governance, emphasized the responsibility on the part of the government to adopt and implement new policies to promote integrity, eliminate corruption and corruption vulnerabilities. Socci quite rightly declared that in the wake of President Gotabaya Rajapaksa’s ouster (she called it people’s uprising) the executive, the legislature and judiciary were coming under increasing pressure to adopt far reaching reforms at all levels (https://www.opengovpartnership.org/stories/reforms-to-watch-2023-strengthening-governance-in-sri-lanka/)

The crux of the matter is can Sri Lanka restore public faith in a system brazenly abused, exploited and used by political parties currently in Parliament. In fact, the Parliament has been accused of enacting several laws which were actually detrimental to the country. There cannot be a better example than the enactment of the Foreign Exchange Act No 12 of 2017 by the Yahapalana administration that severely weakened regulatory powers. That law was brought in place of the time-tested Foreign Exchange Control Act No 24 of 1953 (https://island.lk/abolition-of-time-tested-exchange-control-act-in-terms-of-rti-act-house-releases- names-of-mps-who-voted-for-new-law/)

The then UNP parliamentary group voted for that destructive law. Some of those who voted for that law now function as members of the SJB. Regardless of the breaking up of the UNP ahead of the 2020 general election in 2020 those who voted for Foreign Exchange Act No 12 of 2017, too, should be held accountable for the current crisis.

All political parties need to review their strategies and policies. Perhaps the OGP action plan can sort of guide political parties.

While appreciating the OGP project, it must be pointed out that even after the declaration of bankruptcy political parties represented in Parliament are yet to agree on a tangible action plan to curb rampant waste, corruption, irregularities and mismanagement. The allegations made against President Gotabaya Rajapaksa’s Cabinet in a fundamental rights petition filed by three of his ministers, Vasudeva Nanayakkara, Wimal Weerawansa and Udaya Gammanpila in respect of the controversial Yugadanavi agreement signed in Sept 2021 should have promoted genuine examination of the immoral system in place. Instead, President Gotabaya Rajapaksa sacked Weerawansa and Gammanpila in early March 2022.

Three weeks later public protests, backed by the US, erupted and by July 2022 the man who handsomely won the presidential poll was out and Wickremesinghe, discarded at the parliamentary polls, took over the presidency. The rest is history. But, the UNP leader, regardless of the criticism of the way he secured the executive office, brought the situation under control swiftly.

The ongoing controversy over Sri Lanka Cricket (SLC), based on damning disclosures made by the National Audit Office (NAO) in its report on Sri Lanka’s tour of Australia for the T20 World Cup (Oct. 09-Nov.13), in 2022. The Wickremesinghe-Rajapaksa government’s reaction to that report revealed the pathetic state of affairs – instead of taking action, the political leadership unceremoniously sacked Sports Minister Roshan Ranasinghe and brought the Ministry under Harin Fernando, MP. Having entered Parliament on the SJB National List, Fernando served as Tourism and Lands Minister when he was also sworn in as Sports and Youth Affairs Minister on Nov 27, 2023 by President Wickremesinghe.

Opposition accusations directed at the Chairman of Committee on Public Enterprises (COPE) Prof. Ranjith Bandara (SLPP National List) as regards his alleged attempts to shield the SLC underscored the responsibility on the part of the government and Parliament to restore public confidence in the parliamentary system. Sri Lanka is in such a precarious state, political parties represented in Parliament are no longer in a position to hoodwink the public. President Gotabaya Rajapaksa’s fate proved beyond doubt that cosmetic political, economic and social reforms won’t end developing instability caused by the executive, legislature and the judiciary to a certain extent.


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