- Enhances Revenue, Prevents Leakages
A former Ministry Secretary’s suggestion to have a low, one slab import duty regime across the board to enhance Government revenue, which will at the same time prevent leakages, was supported by a former Director General of Customs.
Former Enterprise Development Ministry Secretary Ranjith Fernando speaking at a tax seminar on Tuesday (September 21) said that during the two year period he was Ministry Secretary, a study revealed that despite the fact that there was an import tax regime as high as 50-60% on certain items at that time, revenue collected amounted to only 4% of the total items imported.
He attributed this leakage to corruption.
Fernando, a former CEO/director of NDB Bank (NDB) and currently Chairman United Motors Lanka PLC, the sole agent in the island for brand new Mitsubishi vehicles was Enterprise Development Ministry Secretary from December 2001 to April 2004, the brief period when the UNP/UNF Government was in power.
He said that places such as Dubai and Singapore charge a flat duty rate of 5% across the board and advocated that Sri Lanka too should follow those examples.
Fernando further said that even protectionist India was dismantling its high duty structures, with the highest duty now applicable being 20%. In Sri Lanka’s case the highest duty slab applicable was 28%. The island has some five duty slabs.
Former Director General Customs Sarath Jayathilake, another speaker at this event, lending support to Fernando’s argument for the need of having a low import duty structure said that the ports and airport levy (PAL), which cuts across all import sectors, and which is of a standard rate, is one of the highest import tax earners in the country.
PAL which was previously 2.5% was increased to 5%, he said. Jayathilake said that there are some 10 different types of taxes applicable at the point of import, whereas in 1994 this figure was only four. Meanwhile Central Bank statistics showed that while earnings from import duties last year were Rs. 79.8 billion, earnings from PAL were Rs. 36.3 billion.
Jayathilake however disputed Fernando’s ratio of imports versus import taxes collected, saying that 50% of the imported items that enter the country come in on a duty free basis by virtue of the fact those were imports made by BoI companies and hence not being liable to pay any duties.
He further said that additionally certain essential commodities were also allowed duty free entry into the country. Therefore Fernando’s argument, that despite the existence of a high import tax regime, that import taxes collected, from all imports made, being equivalent to 4% was not correct, when the BoI regime and the duty free imports of certain essential commodities are also factored into the equation.
Assistant Customs Superintendent Peter M. Goonewardena lending his voice of dissent to Fernando’s suggestion of having a low duty regime across the board said that poverty in the country was such that there were sections of the population who would not be able to survive even in the event that a 4% low duty free regime was imposed across the board, covering both essential commodities as well as luxury vehicles, the latter consumer of whom were only the rich.
Goonewardena also contended that India could afford to lower their duty structure because their export sector was strong, unlike that of Sri Lanka’s. No amount of trade agreements have had helped to uplift Sri Lanka’s export sector, he said.
Goonewardena voiced the danger, that in the event Sri Lanka has a low duty regime, its foreign exchange would be frittered away due to the liberal import of luxury items.
Fernando however agreed to Goonewardena’s contention that luxury vehicles should not be subjected to a low 4% duty.
He however disagreed with Goonewardena’s view that a 4% duty on certain essential items, which are now allowed duty free, would hit the poor, as the margins alone kept on such items were more than 4%.
Fernando was also of the view that the reason why India’s export sector was performing was because they opened up their economy, thereby getting foreign investments and the latest technologies down and were thus in a position to imbibe the latest in such developments and apply such learnings to their export sector, thereby improving the same.
He contended the reason why India’s software/BPO export sector was strong was because they opened up their economy.
The seminar was organized by Colombo University’s Law Faculty Alumni Association.