Two years on: Sugar scam losses yet to be recovered

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Despite the lapse of nearly two years since the sugar scam, that resulted in a loss of over Rs 16 billion to the Government and about Rs 102 million to Lanka Sathosa, measures to recover this loss and rectify the issues that led to this scam seem to be afar.

The Government in October 2020 reduced the levy imposed on 1 kilogramme of both white sugar and brown sugar from Rs 50 to 25 cents, which, according to the recent report issued by the Auditor General, only benefited the trade community and the benefits were not passed on to consumers.

Transparency International Sri Lanka observed it is an established fact that the sugar market is an oligopoly and when tax reductions are imposed, sellers could easily profit, without transferring benefits to consumers.

Although the report released by the Auditor General also made recommendations to rectify the impact caused by the sugar scam and although there have been several calls for the implementation of these recommendations, authorities have turned a blind eye to the report.

According to the report, even following the tax reduction, Lanka Sathosa had sold sugar bought from private sector importers from time to time and it had resulted in a loss of about Rs 102 million to Lanka Sathosa during the period from 14 October 2020 (from the date of tax reduction) to 8 February 2021 (up to the date of removing the price ceiling).

It was observed by the report that even Lanka Sathosa, which is a government institution, had not taken necessary action to purchase sugar at the stock control price imposed by the Government and this loss was an additional charge on the Treasury. Further according to the report, Pyramid Wilmar (Pvt.) Ltd had also increased its sugar imports by 1,222 per cent during the period from October 2020 to February 2021.

The Ministry of Finance previously however, observed that there was “no basis” to establish a loss of revenue to the country.

Recommendations made by report

Thereby, the Auditor General made certain recommendations to rectify the resultant impacts of this reduction, including that of recovering the tax revenue foregone by the Government from the parties who retained the benefit in comparison to the reduction of the tax on sugar without passing it on to consumers and considering the possibility of passing that economic benefit to the people in the future or otherwise.

Further, it was recommended to take action to make relevant policy decisions on accurate information through calling for existing relevant information from related institutions, analysing logically and the interconnection between the information in reducing taxes imposed on goods to provide relief to people.

Examining the reasons for failure in preventing expedited imports of sugar exceeding the present requirement of the country by implementing the licence procedure introduced for limiting imports and failure in proper, speedy and meaningful implementation of the introduced licence procedure, the report said.

Further, the report recommended taking action to prepare and maintain an updated database by regulatory institutions at least in collaboration, so as to enable the authorities to specifically identify as and when necessary the dates, quantities, and prices relating to goods imported to Sri Lanka issued by the importers to wholesalers, and afterward in instances in which it can be practically implemented, the prices, dates and quantities in which the item is exchanged and a frequent study of market behaviour of essential goods as well.

The report also recommended the need to draw attention to find out the possibility of direct imports of sugar by Lanka Sathosa, which is sustaining losses by purchasing sugar at a high price from wholesalers and by selling sugar at low prices to consumers and drawing attention to prevent uneconomical purchases.

It was also recommended to study matters on inadequate and inefficient execution of responsibility relating to the regulation of price control and taking steps to strengthen these mechanisms while taking action to appropriately revise punishments according to persons, institutions, quantity and values of goods currently in force relating to contravention of function cited in the Consumer Affairs Authority Act.

Formulation of a specific methodology for regulation of the change in the prices of related products manufactured in Sri Lanka using various raw materials in relation to the price of these goods was also recommended by the report.

Human Rights Commission on revelations made by audit report

Chairperson of the Human Rights Commission of Sri Lanka, retired Supreme Court Justice Rohini Marasinghe also urged the Government to implement recommendations made by the Auditor General in regard to the sugar scam, while observing that the arbitrary and unreasonable use of State powers affects the economic, social, and cultural rights of citizens.

Political opinions on sugar scam

SJB MP Dr. Harsha de Silva said, whether the incumbent government has profited from all crises that we have experienced including the sugar scam remains a compelling question, while he observed that the Government has continued to make money while a majority of the country is suffering without being able to carry on with their day-to-day lives.

Further, former JVP Parliamentarian, Sunil Handunneththi also filed a Fundamental Rights Petition, viewing that there has been a violation of Fundamental Rights, as the public did not receive the intended benefits by this tax reduction.

In the Petition, Handunneththi sought an order for measures to be taken to recover the loss made and to recover Rs 500 million as compensation. The Petition has been fixed for hearing on 27 June 2022.

Thereby, in consideration of the material evidence available in regard to the sugar scam, authorities have to acknowledge that the scam did in fact take place in violation of the rights of consumers and take necessary steps to recover the loss faced by the Government by this scam as recommended by the Auditor General.

By Faadhila Thassim