Customs defends halt on cross-border LC vehicle imports, cites widespread duty fraud

• Sri Lanka Customs collected Rs.200 billion in taxes from vehicle imports so far

Colombo, June 27 (Daily Mirror) - Sri Lanka Customs yesterday defended its recent decision to halt the clearance of vehicles imported under cross-border Letters of Credit (LCs), citing the measure as a crucial step to combat significant tax evasion through fraudulent under-valuation.

Responding to a Daily Mirror story published Wednesday which highlighted the plight of importers with hundreds of vehicles stranded at the port, Customs officials clarified that the move enforces existing regulations to prevent the loss of billions in state revenue.

At a press conference held in Colombo, Additional Director of Customs Seevali Arukgoda explained that a surge in irregularities was detected after vehicle imports resumed this year. He stated that the majority of importers were using LCs opened in a third country, such as Singapore or Dubai, for vehicles originating from manufacturing hubs like Japan, specifically to declare a purchase price lower than the actual value.

“The majority, not all, use a third country to under-value the vehicle and commit duty fraud,” Arukgoda said. “If you open the LC from Japan, you have to state the actual purchase price.”

The enforcement action hinges on a regulation in the Imports and Exports (Control) Act which requires import documents, including the Pre-Shipment Inspection Certificate and de-registration papers, to be endorsed by a bank in the exporting country.

“This means if a vehicle is coming from Japan, even if the LC is from Singapore, the documents must be endorsed by a Japanese bank,” Arukgoda explained. “The Japanese banks refused to endorse them because the value declared was lower than the purchase price. That is the issue.”

The Daily Mirror story had noted that the Vehicle Importers' Association of Sri Lanka (VIASL) claimed 200-300 vehicles are currently stuck, with another 300 in transit, due to the abrupt enforcement of a 2013 gazette. Importers argue this has been standard industry practice for over a decade.

However, Customs maintains that its primary responsibility is the correct collection of state revenue, especially in the current economic climate. Arukgoda stressed that the action was not meant to penalize legitimate businesses but to close a loophole that was being widely exploited.

“We took this step as a measure to collect the due tax for the government correctly, not to make things difficult for anyone,” he asserted.

Despite the hold-up on approximately 200 vehicles, Arukgoda revealed that Customs is well on its way to meeting its revenue targets, particularly from vehicle imports.

“We have already released 16,000 motor vehicles, earning nearly Rs.200 billion in revenue for the government,” he stated.

He further elaborated on the department's fiscal goals, noting, “Our customs duty revenue target for this year is 2,115 billion rupees. From vehicles, we expect Rs.450 billion. We believe we can get this.”

Arukgoda framed the enforcement as a matter of national importance. “It's our responsibility. If we don't [meet the target], taxes will increase further for everyone.”

Regarding the fate of the currently stranded vehicles, Arukgoda indicated that a resolution is being discussed, which would likely require importers to pay the correct duties.

“A solution is being formulated. It will probably be a fine or an additional tax for the importers... so that the amount they tried to evade will be paid.”