Govt. considers replacement of Special Commodity Levy

The Government is considering the replacement of the Special Commodity Levy with other more stable, taxes in the medium term in accordance with a suggestion of the International Monetary Fund (IMF), Finance Ministry sources revealed.

Revenue losses caused by unrestricted policy changes of the special commodity levy have been taken into account by the ministry in making policy decision to replace this tax, a senior official of the ministry said.

The special commodity levy is a very unusual type of tax; when it applies, no other indirect taxes (such as excises or the VAT) are due, an IMF technical assistance report pointed out.

One of the major issues concerning this levy’s scope and applicable rates was that it can be changed overnight by signature of the Minister of Finance, the report added.

Gazette notifications and approval by Parliament are only required as soon as convenient, which seems to create a conflict with Sri Lanka’s Constitution, requiring that Parliament have full control of public finances.

Citing an example the report noted that in October 2020, the finance minister reduced the levy on several goods, including sugar, from Rs. 50 to Rs 0.25 overnight.

Subsequently, an unusually large amount of sugar was imported by a well-connected entrepreneur. As the consumer price of sugar remained unchanged, the levy reduction led to large windfall gains for the importer.

The Auditor-General quantified revenue losses within the first five months at Rs. 16 billion, raising questions on the intent of the policy change, the IMF technical report highlighted. (Bandula)