The deadlock between Sri Lanka Customs and the Finance Ministry saw a breakthrough last week as Customs unions opted to suspend their strike following discussions with State Minister of Finance Ranjith Siyambalapitiya.
The National Audit Office (NAO) has meanwhile expressed concern over the Customs Officers’ Reward Fund.
The decision to call off the strike, which was to have been in effect until 31 March, came after a series of negotiations.
Last week, Customs staff had resorted to work-to-rule trade union action in response to the Treasury’s decision to assume control of the Rs. 700 million Reward Fund previously under the purview of Customs.
The dispute had risen when the Treasury had notified the Director General of Customs that the Reward Fund, utilised for overtime payments, training, and rewards for detections and tip-offs, had been transferred to the Finance Ministry.
Customs officials had argued that the fund’s transfer would result in payment delays, affecting their motivation. However, a senior Finance Ministry official had justified the move, citing an International Monetary Fund (IMF) programme to centralise funds of several institutions under the ministry.
The Finance Ministry had offered Customs the option to retain Rs. 100 million in the Reward Fund and transfer the remainder, assuring prompt payments within a week. Currently, the fund holds over Rs. 700 million, with accruing interest.
As the strike was called off on Wednesday (20), around 4,000 containers remained held up at the Colombo Port. Container Transport Owners’ Association (CTOA) President Sanath Manjula expressed concerns over delays in clearing containers, given that Customs prioritised essential items such as food and medicine.
Major port terminals, including Colombo International Container Terminals (CICT), South Asia Gateway Terminals (SAGT), Jaya Container Terminals (JCT), and East Container Terminal (ECT), are grappling with hundreds of containers awaiting clearance.
NAO revelations
In such a backdrop, in a recent audit conducted by the NAO on the Customs Officers’ Reward Fund, startling revelations have emerged regarding the significant negative impact on Government revenue over the years due to overlooked Customs investigations and violations. The findings shed light on a systemic failure within Sri Lanka’s Customs enforcement mechanisms, potentially costing the Government substantial sums in uncollected taxes.
The audit has highlighted a concerning trend where imports associated with Customs offences had not been properly scrutinised, resulting in the Government missing out on minimum tax revenues owed.
Shockingly, the lost tax revenue had been treated as penalties, with a staggering 50% of the penalty amount allocated for rewarding officials and informants. Despite these glaring discrepancies, no investigations had been initiated to rectify the situation, exacerbating the revenue shortfall.
Furthermore, it was observed that the distribution of reward money to Customs officers had been steadily increasing, indicating a lack of oversight and accountability within Sri Lanka Customs. While the Director of Customs possesses the authority to address violations under Section 162 of the Customs Ordinance, the attention given to securing Government revenue was deemed inadequate.
Responding to these allegations, Sri Lanka Customs had defended its actions by citing the diligent efforts of officers in detecting Customs offences. It had argued that penalties had been imposed to compensate for undetected mistakes, thereby contributing quantitatively to Government revenue. However, concerns remain regarding the effectiveness of current practices in mitigating revenue losses and maintaining the integrity of Customs enforcement.
In light of these findings, calls have been made for urgent amendments to the Customs Ordinance and related legal provisions to align with the country’s evolving economic policies. Additionally, stakeholders have emphasised on the need for enhanced oversight and policy planning to address the complexities of imports and exports effectively.
Financial management concerns
Furthermore, alarming figures have surfaced regarding the handling of arrears and the Reward Fund within Sri Lanka Customs, raising concerns over financial management and accountability.
The NAO disclosed that as of 31 December 2022, there had been arrears totalling Rs. 7,052.81 million in quarterly penalties owed to the Treasury. Of this amount, Rs. 5,921.93 million remained outstanding for periods ranging between one to five years, while arrears exceeding five years amounted to Rs. 1,098.98 million.
Customs authorities, however, justified these arrears as being related to delays in payment by the Ceylon Petroleum Corporation (CPC), citing non-settlement of loans to essential Government institutions such as the armed forces, Police, and the Railways Department.
Moreover, the report highlighted the distribution of Rs. 14,778 million among officials and informants from 2012 to 2021, with Rs. 12,910.82 million (87.36%) allocated to officials. Notably, the Reward Fund disbursed to officers in 2021 had surged by 118.4% compared to the previous year, with a significant portion of payments related to investigations conducted in 2018, 2019, and 2020.
Despite the establishment of a fuel sub-fund within the Reward Fund, amounting to Rs. 62.61 million, no expenditure had been reported from it during the reviewed year. This accumulation of funds, totalling Rs. 651.42 million by the end of the period, had been flagged as surplus, raising concerns over the management of resources and the necessity of the fund.
These revelations underscore the need for enhanced transparency and accountability within Sri Lanka Customs, as stakeholders call for stringent measures to address financial irregularities and ensure the effective utilisation of public funds. With ongoing scrutiny from the NAO, it remains imperative for Customs authorities to enact reforms aimed at bolstering financial management practices and restoring public trust in the institution.
Additionally, the Narcotics Prevention Fund, another sub-fund, had seen an increase of Rs. 22.85 million, with only Rs. 7.91 million disbursed during the year.
Rewards totalling Rs. 3,924.05 million had been distributed over five years (2016-2021) among the top 100 officers, averaging approximately Rs. 39 million per officer. Notably, five individuals had received payments exceeding Rs. 60 million during this period.
Meanwhile, when contacted by The Sunday Morning, Sri Lanka Ports Authority (SLPA) Chairman Keith Bernard said that trade union action had had no major impact on port activities. “If the strike had continued, there would have been an issue of congestion, but at present, port operations have not been affected,” he said.