A taxation expert at a ‘big four’ accounting firm is urging Sri Lanka’s government to consolidate the seven taxes and levies imposed on imported motor vehicles on the back of an, up to 30 percent reduction of vehicle import costs, due to removal of two import levies.
“There has only been small change in the number of levies that are being imposed. Still there are seven levies. I think that’s too much,” says Suresh Perera, a tax consultant at accounting firm KPMG, referring to the recent import tax revision.
Until a fortnight ago, Sri Lanka had a nine band import tax structure on automobiles which included a surcharge on customs duty, CESS, excise duty, port and airport development levy, nations building tax, regional infrastructure development levy, social responsibility levy and value added tax.
The tax revision removed the 15 percent surcharge on custom duty and the 10 percent CESS on motor vehicle imports narrowing the range of taxes from 90 to 280 percent of the cost, insurance and freight (CIF value).
Previously taxes and levies added 150 to 500 percent to the cost of an imported motor vehicle. Import duty and levies on a midsized family car, was around 300 percent of the CIF value.
“When you import a motor vehicle in to Australia there are only two levies at the point of importation; GST and customs levy. Hong Kong has only two levies. Do we need seven levies at the point of importation? Why can’t we reduce it to two or three?” questions Perera.
Prior to the revision the CIF or the landing price of a 1.3 litre car was around 1.3 million rupees. Taxes, duties and levies added a further 360 percent to the cost taking the retail price to over 4.6 million. The monthly payment on a five year car lease at 17 percent topped 114,000 rupees, far beyond the reach of many middle class families.
A mid sized SUV imported at a CIF price of 2.7 million rupees rose 450 percent to 12 million after taxes.
A car such as an Indian-made Maruti which had attracted levies of up to 183 percent of its value will now be charged a duty of 90 percent.
Perera says under the new import tax structure levies have generally been halved.
“It’s difficult to say how the market will react. But there are calculations that an average vehicle may come down by 300,000 and an SUV by about 3 million,” he said.
Sri Lanka hiked levies on new motor vehicles following a balance of payments crisis to reduce the outflow of foreign exchange.
The hike had the desired effect but it also reduced the collections by import duties to 10 billion rupees in 2009 and three billion in 2010, form 17 billion collected in 2008.
The rupee stabilized after the Central Bank allowed the currency to depreciate, an emergency IMF loan and the end of the conflict.
Overhaul
However, Perera points out that despite a motor vehicles import levies reduction there is no reduction in customs duties.
“In fact customs duty has gone up from 28 percent to 30 percent for motor vehicles,” he says.
Sri Lanka’s customs laws were consolidated into one customs ordinance in 1869. Customs Duty in Sri Lanka has been imposed by S-8 of the customs ordinance.
Perera says the statute is an archaic piece of legislation amended in an ad hoc manner.
“This is one statute that needs to be completely overhauled to suit the modern times,” says Perera.
“For instance customs ordinance does not have a proper appellate procedure embodied in the statute unlike the other tax statutes like the Inland Revenue Act, VAT Act etc. The inquiries conducted under S-8 of the customs ordinance pursuant to investigations carried out by Customs officers are far from being independent,” he explains.
“The need for a new and comprehensive Customs Law has been repeatedly mentioned. Budget speeches of 2002, 2005 and 2006 have referred to the need to cancel this statute which is over 150 years old. But no steps have been taken,” added Perera.
Transparency demands that the procedures should be clearly spelt out, that documents containing the procedure should be easily accessible to the public, and that the procedures should comply with the requirements of fairness / natural justice.
(b) The customs department is effectively the prosecutor (executive) and the judge (as the inquiring officer exercises a judge-like function) in the situation of a customs inquiry.
It is an accepted and fundamental principle that executive and judicial powers should be separate (doctrine of separation of powers). This is to ensure that the different organs of State function as checks and balances on each other.
If these powers are exercised by officers of the same department, there is a RISK of non-independence... and as we know, justice must not only be done, but the perception that justice is done should also prevail...
(c) It is a known fact that customs officers get monetary rewards for successful recoveries where there is 'found' to be a 'default' or 'evasion'...
Therefore, this fact may add to (at least) the "perception" of non-independence.
EVEN a perception of non-independence is an undesirable element, and would not instill public confidence in the customs department...
(d) The system should ensure fairness from the outset, and should not unduly burden litigants financially or otherwise. Invoking the jurisdiction of the appellate courts could be both financially costly, and result in other '(opportunity) costs' such as the deprivation of goods seized pending the determination of such writ / FR applications.
The mere fact that one may invoke the writ jurisdiction of the Court of Appeal or the fundamental rights jurisdiction of the Supreme Court, is not of itself a reason why the customs inquiry system (if unsatisfactory) should not be reformed. Any view to the contrary is akin to suggesting that crime could be encouraged provided that law enforcement authorities were efficient!!!
For all these reasons, one would agree with Mr. Perera's views / conclusion implying that an overhaul of the customs law (especially in the area of 'inquiries') is most certainly needed.
2010-06-20 8:56 PM
A few words to add as a comment of course. Viewers can see the opinion of Mr.Suresh Perera on ‘how to reduce the number of taxes charged by the SL Government’ which is quite timely yet, finally he diverts by suggesting an amendment on Customs Law and its origination. The government imposes the taxes and levies on goods, as Customs we recover them. If you want to suggest that the taxes imposed on a specific item is well beyond the affordable level, you may request it to the parliament. I’m not sure why this person points out that the inquiries carried out by Customs were not independent and there is no satisfactory appellate procedure. If you have experienced such, please share with us, you can challenge it by bringing the appeal to judicial procedures; ultimately you can bring it to the highest position of Law, the Supreme Court. Customs do bring the offenders to the book, recovering due revenue to the government at the same time stabilizing the industries. They do hold inquiries, they do present in court and fight for the ‘Right’ thing. Simply saying, Customs safeguards the revenue of the country. Reducing the number of taxes imposed by the SL Government doesn’t have anything to do with Customs and Customs Law. That should be done through the parliament. Starting on one and diverting to another is not the answer. If anyone defrauds revenue to the government, it is the duty of the Customs to recover it and bring the offenders to the book. Bringing down the tax percentages of goods will somehow make the businessmen not to do Customs violations [Smuggling, Undervaluation, Misclassification] yet, it reduces the government revenue unless, we as a country, have better alternatives to overcome the shortage. The conclusion is straight, why turning to Customs and its law. Any hidden personal agenda! I’m just expressing my perception, on ‘how to turn down the number of taxes imposed by the Government’ and I’m not a Tax Consultant, just an officer working for SL Customs.