A severe shortage of sugar continues to plague Sri Lanka, even after the removal of the Maximum Retail Price (MRP) imposed by the Consumer Affairs Authority (CAA). This move followed the introduction of a new import tax at the beginning of the month, aimed at stabilising the sugar market.

Effective from 2 November, the Special Commodity Levy imposed on imported sugar was increased by order of the Finance Minister. Accordingly, the Special Commodity Levy of 25 cents imposed per kilogramme of imported sugar was increased to Rs. 50. 

The prices were revised for the first time after the sudden reduction of taxes in 2020. Subsequently, on 3 November, the CAA issued a gazette utilising its powers vested in the Consumer Affairs Authority Act No.9 of 2003 to establish an MRP for sugar.

The set prices were Rs. 275 per kilo for unpackaged white sugar, Rs. 295 per kilo for packaged white sugar, Rs. 330 per kilo for unpackaged brown sugar, and Rs. 350 per kilo for packaged brown sugar. 

According to this regulation, no entity involved in the import, production, distribution, supply, or sale of sugar can exceed the specified MRP. However, the CAA last week announced the removal of the MRP due to a sudden shortage in the market.

According to the daily price report issued by the Central Bank of Sri Lanka (CBSL) on Thursday (23) (latest available), the wholesale price of white sugar at Pettah was Rs. 300. Notably, the prices for the Dambulla wholesale market and Narahenpita retail market were not specified in the report.

The removal of the MRP has sparked concerns among consumers, as prices may now fluctuate without a defined upper limit. The Government’s decision to increase the Special Commodity Levy, coupled with the shortage, raises questions about the overall strategy to stabilise the sugar market and ensure an adequate supply for consumers.

Profound impact

In such a backdrop, All Island Canteen Owners’ Association (AICOA) President Asela Sampath said that the unwise decisions taken by the Government had a profound impact on the entire economy.

He said: “This has direct and indirect impacts on the entire country. No sugar is available at the prices set by the Government. The MRP was introduced a day after the taxes were increased.”

Sampath told The Sunday Morning that by the time the Government introduced the MRP, the lorries carrying stocks of sugar had already left the warehouses and the prices had been decided based on the taxes.

According to him, the Government should have increased the taxes along with the MRP as the warehouses contained sugar imported to Sri Lanka at a tax of 25 cents. Soon after the imposition of the tax, sugar could no longer be imported to the country.

He raised questions regarding those who wished for the sugar taxed at 25 cents to be released to the market soon after the tax had been introduced. “Why didn’t the Government impose the MRP together with the tax announcement? Why did it wait until stocks were released to the market?”  

“The lorries have reached the outstation markets and the owners have purchased sugar at the increased price. They did not want to sell stocks at a lower rate and incur losses. Why did they cause losses to a section of the business community in order to give a massive profit to a very few importers?” he questioned.

Audit report findings 

As learnt by The Sunday Morning, it is alleged that this decision has caused a million-rupee loss once again, echoing concerns similar to those raised during the first alleged scam reported in 2020.

The 2020 sugar tax reduction has been questioned often in the political arena, as many point the finger at the then Government for causing the nation billions of rupees in losses while letting a few importers enjoy the benefit of the tax reduction. 

As shown in the Special Audit Report, nine major importers and minor importers had imported 277,715 metric tonnes of white sugar to Sri Lanka during the period from 14 October 2020 to 28 February 2021 after the reduction of the tax imposed on sugar.

As highlighted in the ‘Special Audit Report on the study of expected relief provided to consumers from the reduction of Special Commodity Levy on one kilogramme of sugar from Rs. 50 to 25 cents’ conducted by the National Audit Office (NAO) of the Auditor General’s Department, a receivable tax revenue amounted to Rs. 13,816,221,750, consisting of Rs. 49.75 each as per the previous taxes that existed, had been foregone by the Government for the quantity of white sugar imported during this period in order to reduce the price of sugar and to give relief to consumers.

It has been further revealed in the report that at the instance of paying tax, nine major importers and another minor importer had enjoyed the benefit of the tax expense being reduced by Rs. 49.75, which could have been Rs. 50 each under the earlier tax for one kilogramme of sugar, with the Government thus foregoing a tax revenue of Rs. 13,816,221,750 for white sugar.

Nevertheless, there has been no Government inquiry to uncover those responsible for the alleged sugar scam in 2020 that caused billions of rupees in losses to the Government.

Restoring pre-2020 status quo

In such a backdrop, when contacted by The Sunday Morning, State Minister of Finance Shehan Semasinghe stated that the sugar tax had been reverted to its pre-2020 levels and that the decision had been reached after discussions aimed at exploring potential avenues to augment Government tax revenue.

“Previously, there was significant public backlash when the sugar tax was reduced to 25 cents. During our review of tax policies and the applicability of existing measures, it was suggested, through discussions, to reinstate the status quo that prevailed before 2020. While this decision was communicated to the Cabinet, there was speculation that sugar taxation would be increased. To address these speculations and rectify the situation, a Maximum Retail Price gazette notification was issued,” he said. 

However, the State Minister admitted that there had been an increase in sugar prices and an apparent market shortage, which he believed had been artificially created. “The CAA will address this matter in the next couple of weeks and we are confident that the issue will be brought under control. Any claims of a scam are baseless allegations,” Semasinghe said. 

“We acknowledge that information regarding Government policy decisions should be handled more discreetly. We are committed to strengthening confidentiality. The Government makes decisions based on various factors and the prevailing circumstances. The imposition of the sugar tax is primarily aimed at restoring the pre-2020 status quo. We will exercise caution in future, ensuring that decisions are made with greater confidentiality,” Semasinghe added.

As per statistics, annual sugar production in Sri Lanka is about 52,308 MT, accounting for only 9% of the total sugar consumption in the country. An average of 596,000 MT of sugar had been imported annually during the period from 2010 to 2020.

Sugar is imported mainly from countries such as India, Turkey, China, and Vietnam, and about nine major sugar importers have been identified in Sri Lanka at present. It is noteworthy that only the private sector has been engaged in sugar importation in Sri Lanka recently.