- Verité Research urges the removal of executive discretion on tax changes to enhance government revenue in 2024 budget
- Despite parliament’s control over public finances, the Special Commodity Levy Act allows Finance Minister to introduce tax changes without parliamentary approval
- The infamous ‘sugar scam’ of 2020 involved a reduction in sugar tax, leading to massive profits for certain importers and substantial tax losses for the govt.
- Verité suggests reversing the tax reduction and eliminating executive discretion, potentially generating immediate revenue of Rs.25bn
The Colombo-based economic think tank, Verité Research, has identified the removal of executive discretion over tax changes as a crucial measure that should be incorporated into the 2024 budget, which is to be presented to parliament today, to enhance government revenue.
Even though the control of public finances in Sri Lanka lies with parliament , including passing laws with regard to tax changes and introduction of new taxes, the Special Commodity Levy Act grants the Finance Minister the authority to introduce tax changes without prior approval of parliament.
In 2020, this practice resulted in a notorious incident commonly known as the ‘sugar scam.’ During this event, the commodity levy on sugar tax was reduced from Rs. 50 to 25 cents, enabling a group of sugar importers, purportedly with inside information, to realise massive profits, while incurring substantial tax losses to the government.
According to Verité Research, the reversal of this tax reduction and the removal of the executive discretion of tax changes, could immediately generate Rs.25 billion in revenue to the government.
Interestingly, earlier this month, the Finance Minister through a midnight gazette, under the Special Commodity Levy Act reversed the commodity levy on sugar to Rs.50 from 25 cents, triggering speculations of a second sugar scam.
However, the government maintains that the reversal of the tax would boost its revenue by Rs.27 billion.
According to news reports, the government is now considering the replacement of the Special Commodity Levy Act.
They said the Finance Ministry will be directed to amend the tax legislation to eliminate or restrict ministerial authority to introduce tax changes without prior parliamentary approval and ensure that such changes do not generate revenue losses.
This will be in accordance with the new fiscal policy to meet the International Monetary Fund (IMF) revenue targets, the State Finance Minister Ranjith Siyambalapitiya was quoted as saying.
In addition to this, Verité Research proposes to increase the withholding tax rates from the current 5 percent to 10 percent in the budget 2024, which is expected to yield additional Rs.90 billion.
The think tank also proposed to adopt the published rational formula for indexing cigarette taxes, which could add over Rs.35 billion to state coffers.
The think tank further proposes to recover excess costs of Ceylon Petroleum Corporation through an increased tax on the whole industry rather and an increased price, above the internationally indexed formula, by the entity. The proposal is expected to generate Rs.25 billion in extra taxes collected from competing products.
Finally, Verité Research proposes to implement the described method to estimate and collect property taxes as it will initially increase tax collection by at least Rs.17 billion.