On 27th Jan 2016, the JVP Leader, Mr Anura Kumara Dissanayake, made a ‘revealing statement’ in the parliament, alleging that on the orders of the DGC Chulananda Perera and Finance Minister Ravi Karunanayake, a large number of Toyota Prado jeeps (180 units) seized by Customs, have been released only on recovery of 1.6 million rupees of additional duty for each vehicle. Anura K further alleged that the government had incurred a colossal revenue loss of over 4.7 billion rupees, as a result of the withdrawal of the Gazette Notification No 1901/3 of 10th Feb 2015 (issued by the Finance Minister), which permitted the Customs Officers to ‘combat such frauds’.
It appears that a group of Customs officers have taken the JVP leader for a ride, having fed him with some false information. Whatever is the motive behind these allegations, the JVP Leader cannot be allowed to mislead the people abusing the Parliamentary privileges.
Customs Law relating to valuation of commodities
Sri Lanka is a member of the General Agreement on Trade and Tarrifs (GATT) since July 1948 and in 1994 several important changes were made to GATT Valuation Agreement (Article VII), which were incorporated into the Customs Ordinance in 2003. This changes requires (Section 51) Customs to charge levies on all commodities on the ‘transaction value’, which is the primary source of valuation of goods for Customs purposes.
With this change, the Customs Law also provided stringent sanctions for ‘deliberate understatement of value for customs purposes’, which includes forfeiture of goods (Section 52) and if the fraudulent intent is established, to impose severe penal sanctions up to the treble the value of the goods (Section 129).
Alleged revenue losses on vehicle imports
In Sri Lanka, the Government’s tax revenue depends heavily on the levies charged on motor vehicles. And it is nothing but fair to say that Customs Department is responsible for causing a significant revenue loss due to the collusion of the some Customs officers assisting the unscrupulous importers to present false values for Customs purposes.
‘Vehicles’ withdrawn from application of GATT valuation regime
Considering the magnitude of the revenue loss that had been incurring by the understatement of values, a policy decision was taken in Nov 2013, to remove the ‘motor vehicles’ from the application of GATT Valuation Agreement VII.
This was followed by a formulation of a new valuation regime applicable to motor vehicles based on the minimum value concept determined by the Minister and published in the gazette in terms of Article 10 of the Schedule E of the Customs Ordinance. The objective of the new valuation regime was to maintain the ‘true value’ of the motor vehicles, ensuring the proper collection of revenue.
Corruption eats into Minimum Value regime as well
However, the special Customs Valuation Committee appointed to formulate the new valuation regime had ‘moles’ within, who had apparently connived with the fraudulent elements in the motor vehicle trade and made way for corruption to creep in. Accordingly the ‘minimum value’, which was the basis for charging of levies determined by the Committee, became false and untrue. As a result the minimum values decided by them had been significantly lower than the actual ‘transaction values’, causing heavy losses of revenue to the government.
Apparently Anura K has been totally clueless on the issue and also on the magnitude of the corrupt practices adopted by the Customs Officers throughout. He has entered into an unknown territory controlled by unpatriotic corrupt elements. What he should have done was to demand the Corruption Commission to initiate a credible inquiry into the manner in which the Customs Valuation Committee had formulated the schedule of minimum value.
Importers taking advantage of the situation prevailed
It is common knowledge that people do not voluntarily pay taxes and pay less when loopholes exist.
The importers took the maximum advantage of the false minimum value regime operated by the Customs and began paying lower levies, causing heavy revenue losses to the government. Although the importers paid less they could not be dealt with according to law, as their actions were perfectly within the law, owing to the blatant failure on the part of the Customs Valuation Committee as illustrated above.
Unlawful seizure of Prado vehicles at Hambantota port
Later on, a group of enforcement officers in the Customs in the revenue protection directorate found out that the values so determined by the Customs Valuation Committee were false. And as the JVP leader has correctly said, these officers seized a large number of vehicles, alleging that ‘there was a violation of law relating to valuation of the vehicles for Customs purposes’ and therefore the vehicles were liable to be forfeited under the Customs Ordinance (Section 52). Naturally their objective was to release these vehicles subject to a recovery of penalties, allowing them to claim 1/3 of such recoveries as cash rewards.
However, it appears that the officers responsible for the seizure of the Prado jeeps were clueless on the law applicable to the motor vehicles. They had failed to comprehend that the commodity (motor vehicles) has been withdrawn from the application of the GATT valuation agreement Article VII, since 2013, permitting no enforcement action whatsoever as the basis for recovery of levies was the minimum value so determined by the Customs, which had no bearing on the transaction value whether it was lower or higher than the minimum value regime.
Unlawful seizure challenged
Further to the representation made against the unlawful seizure of the vehicles to the Attorney General, a Gazette (No 1933/16 of 22nd Sep 2015) was issued by the government, rectifying the error made by the previous gazette (No 1901/3 of 10th Feb 2015), clearly outlining the process as specified in the Customs Ordinance (Article 10 of Schedule E). This effectively outlawed any enforcement action being taken against motor vehicle imports after levies are charged on the basis of the minimum value as determined by the Customs and not on the transaction value.
JVP leader being misled
JVP Leader Mr Anura Kumara alleges that the withdrawal of the Gazette No 1901/3 of 10th Feb 2015 has effectively prevented the Customs Officers from enforcing the law to recover a colossal loss of revenue of 4.7 billion rupees. This allegation is manifestly false and unfounded, because the said gazette was withdrawn as it had violated the primary law (Article 10 of Schedule E of the Customs Ordinance) under which it was published. The correct application of law has been clearly spelt out by the Chairman of the Customs Valuation Committee on 20th Oct 2015 as follows.
‘Once value for motor vehicles are determined by the DGC, it shall be the Customs Value for recovery of taxes and when complied with (by the importers), no penal sanctions provided by Customs Ordinance can be invoked.’
The new DGC takes action as required by law
In keeping with the correct application of law, the new DGC, Chulananda Perera, made an order to release all Prado jeeps, subject to recovery of levies on the minimum value as determined by the Customs. As a direct result of this action the officers involved in the unlawful seizure have been denied with the opportunity to appropriate cash rewards, as the DGC did not permit any penalty recoveries, which is absolutely correct and lawful order. Naturally, it is obvious that the officers who seized these vehicles were unhappy and fed the JVP Leader with falsified information, enabling him to make unfounded allegations against the DGC and the Finance Minister in the Parliament.
Best course of action to protect revenue
The best course of action available in this regard for Mr Anura K, if he is genuinely interested in protecting the government revenue is to demand the Finance Minister Mr Ravi K to withdraw the regulations framed under Article 10 of the Schedule E of the Customs Ordinance for Motor Vehicles, bringing the motor vehicles back under the GATT valuation agreement, which permits stringent enforcement action, if the process of valuation of commodities is abused for improper purposes.
If he is an honest politician he should investigate those who are responsible for taking him for a ride, undermining the office of the DGC with false allegations made against it for not permitting the dishonest officers to claim cash rewards from the intended unjust penalties to be imposed on car importers. And the JVP leader also owes a public apology for abusing parliamentary privileges to make manifestly unfounded allegations without clarifying the bona fide of the information.
It is pertinent to mention that the JVP made similar error when they came out with the baseless ‘Lamborghini’ allegation against the MR family without clarifying the source and credibility of the information. Anura K publicly alleged that Rajapaksas had imported 19 ‘Lamborghini’ cars, defrauding over 975 million rupees of government revenue, with no idea about the ‘Carnet System’, which permits temporary imported with no levies subject to re-export. The truth is that not 19 but 21 such cars had been imported under the Carnet facility but had re-exported them after the event. The Customs Imports Directorate confirmed the re-exportation this vehicles but the JVP refused to correct their false statement.