Allegations have been circulating regarding the misuse of permits issued for migrant workers by the Ministry of Labour and Foreign Employment in order to import Electric Vehicles (EVs), with Sri Lanka Customs seizing a number of vehicles that have been imported to the country via this permit recently.
The Sunday Morning dove into the impact of such corruption at a time the country is undergoing economic difficulties.
Incentives to expats
Amid dwindling reserves and a drop in exports due to economic crisis-related import restrictions and the global recession, migrant worker remittances and tourism earnings became all the more crucial for the country.
In order to increase dollar inflows to the country and mitigate black market activities, the Government looked at providing expats with incentives to remit only via legal channels.
Accordingly, Minister of Labour and Foreign Employment Manusha Nanayakkara obtained approval from the Cabinet of Ministers in October 2022 to provide an import licence for solar-powered EVs in accordance with the amount of foreign reserves expatriates had remitted to Sri Lanka.
Thus, a migrant worker who has transferred more than $ 3,000 is allowed to import an electric motorcycle worth $ 25,000 or less while those who have transferred more than $ 20,000 are be allowed to import an electric car priced at half the amount transmitted to Sri Lanka, up to a maximum of $ 65,000 for the period between 1 May 2022 and 31 December 2023.
However, the solar requirement for EVs was later removed.
Parallel to the incentives, the Minister noted that remittances, in fact, had improved over time.
The Minister said on his official X account that foreign remittances had climbed to $ 4,345.1 million from January to September this year (2023) – a 68.8% increase compared to the same period in 2022. Workers’ remittances for September stood at $ 482.4 million.
Accordingly, it was recently reported that via this import licence, Sri Lanka was able to import 200 EVs through migrant workers.
Investigations underway
State Minister of Finance Ranjith Siyambalapitiya said an investigation was underway to probe whether the seven vehicles seized by Sri Lanka Customs recently had been imported by misusing the licences issued to migrant workers.
Siyambalapitiya said: “Investigations have commenced to find these vehicles, which are suspected to have been sold. A total of 119 vehicles have been imported to Sri Lanka from the date of the relevant permission to 16 October and 75 have been imported by the same company.”
The State Minister added that investigations were underway to find whether there was an undervaluation, misappropriation, or non-payment of taxes to the Inland Revenue Department (IRD) and whether the relevant vehicles had actually been imported with the money of foreign workers. If it is proven to be a misuse of the said licence, it will amount to Rs. 35 billion of revenue lost to the Government.
The Sunday Morning contacted State Minister of Finance Shehan Semasinghe, who said: “There is a report called for that (following the probe). The intention of the Government was to encourage remittances, but if you look at the high-end vehicles that have been imported, there is a fair suspicion of misuse.”
Semasinghe also said that if misuse was proven, such incentives could not be extended, adding: “However, I can comment firmly after the inquiry.”
Meanwhile, Customs has started a post audit on the importation of vehicles.
Speaking to The Sunday Morning, Sri Lanka Customs Spokesperson Seevali Arukgoda said that Customs would be carrying out investigations to pay more attention to all the vehicles imported during the past few weeks. He also refused to discuss details of the seized vehicles since that information could be pivotal to the investigations.
Vehicle import ban
The vehicle import ban initially came into effect in March 2020 as a temporary solution to dwindling foreign reserves. At the time, the country’s economy had been badly impacted by the Easter Sunday terror attacks and the Covid pandemic, with the economic crisis following soon after.
In 2019, Sri Lanka spent approximately $ 815.7 million on vehicle imports alone. By August 2021, the Central Bank of Sri Lanka (CBSL) stated that expenditure on motor vehicle imports had declined by 80.9% as a result of the import restrictions imposed since March 2020.
Eye on EVs
Amid continuing discussions between the Government and vehicle importers, the ban on vehicle imports stayed in place as a result of the economy being in the doldrums.
Sri Lanka’s vehicles run predominantly on fossil fuels. However, due to the strict quota on fuel, the Government turned its attention to electric vehicles as it appeared to be the most sustainable option.
Meanwhile, the Ceylon Motor Traders’ Association (CMTA) issuing a statement said: “Being the only association which has access to global EV manufacturers and representing them in Sri Lanka, the CMTA is concerned whether due diligence has been carried out prior to the re-introduction of EVs to Sri Lanka. In this regard, the association, on the advice of global manufacturers, has decided to develop a detailed automotive industry roadmap with KPMG, covering (among other topics) the sustainable introduction of EVs.”
Meanwhile, European Union Ambassador to Sri Lanka and the Maldives Denis Chaibi, at the Stakeholder Breakfast Meeting organised by the CMTA held in August this year, pointed out that electrification would be “far-fetched” without an investment of $ 15-20 billion to double the electricity generation in the main grid.
Practicality of restrictions, exemptions
The Sunday Morning also contacted Advocata Institute Chief Executive Officer (CEO) Dhananth Fernando, who said: “Any permit system invites corruption because once the permit is given for one party, it is preferential treatment and will be exploited. That is exactly what has happened everywhere. Therefore, any vehicle permit system cannot be accepted in the first place (when there is a restriction).”
He also said that though the vehicle permits had been provided as an incentive, every Sri Lankan paid taxes to the Government, which should be equitable for all. Therefore, Fernando questioned the fairness of providing incentives to migrant workers only, because remitted money could be converted to rupees and was not a donation or anything of the sort.
Fernando further said that when someone received a vehicle permit, there was a possibility that the person who received the permit would sell it, which would constitute a robbery of taxpayer money that could have been charged for the imports. “It could be electric or any type of vehicle; there are consequences of exemptions since there is a ban in place for certain vehicle imports,” he noted.
“Therefore, the vehicle permit system should not be abolished. Even though there is a dollar crisis, it should be equitable to everyone. Allowing some people to import while preventing others from doing so will further complicate the problem rather than solving it.”
He said that corruption would also discourage remittances.
The Sunday Morning also inquired whether the Sri Lanka Tourism Development Authority expected to import vehicles for tourism industry operations, to which the Advocata CEO responded that such exemptions could be manipulated.
He instead suggested having a simple system instead of restrictions or special treatment while also permitting vehicle imports since the ban had affected the entire industry. “The existing vehicles are 3-4 years old now and their fuel efficiency will be dropping, which will create environmental concerns. There will also be a black market for vehicles and the value chain of insurance and finance will be affected.”
“The same applies to Customs as well. When there are too many tariff brackets, especially at the height of the vehicle import ban, it further incentivises corruption,” he explained.
Meanwhile, University of Colombo Faculty of Arts Department of Economics Senior Professor Sirimal Abeyratne said: “Whenever there are regulatory loopholes, it opens doors for corruption. We must look into market-based instruments and proper law and order implementation.”
The Professor also noted that ad hoc and piecemeal policies were counterproductive and costly.
He also stressed that there were no overnight solutions to the dollar shortage. “Foreign Direct Investments (FDIs) and the sale of some assets can mitigate the problem which is also beneficial in the longer term,” he added.
At the same time, he noted that stable forex flows depended on exports alone.