New consolidated Excise Act abandoned?

New Govt. unlikely to proceed

– Grey areas necessitated long review

By Madhusha Thavapalakumar

The new consolidated Excise Act which was to come into effect in January 2020 is likely to be abandoned by the new Government, well-placed sources told The Sunday Morning Business.
As exclusively reported by us on 13 October under the headline “New Excise Act by December”, the previous Government was in the process of introducing a new Excise Act by the end of this year which was said to be an amalgamation of the existing 100-year-old Excise Ordinance and Tobacco Tax Act, with a completely digitalised platform.
However, sources told us that several grey areas in the draft of the new Excise Act as well as the fact that the revamping of the Excise Act that was initiated almost two years ago is yet to be completed, delayed timely implementation of the Act, resulting in a likely abandonment of the idea of a new Act.
The Sunday Morning Business reliably learns that the draft of the new Excise Act reached the Department of Excise and Ministry of Finance some time ago and it was prepared mainly by then Minister of Finance Mangala Samaraweera’s consultants in dialogue with experts from Europe, India, and Australia together with assistance from the World Bank (WB), even though it was initially planned to be drafted mainly by international experts and the WB.
This resulted in a draft of the Excise Act, which contained parts that were impractical to Sri Lanka’s conditions while some areas completely differed from the original Excise Act in use at the moment, creating space for malpractice. Therefore, a committee is still in the process of reviewing impractical clauses in the new draft and making necessary changes to match it up to the modern-day practical requirements of the country.
“It has to be tailor-made to suit our conditions. Even a single misplaced word can give the wrong ideas and create place for malpractice. There are times where we have argued over a single word for over two days,” a member of the committee told The Sunday Morning Business.
According to our sources, the issues in the new draft which came unexpectedly necessitated the review, leading to delays in the implementation of the new Act as planned from January 2020.
Even if the new Act manages to come out a few months after the initial implementation date, it is very unlikely that the new Government would proceed with it, due to the fact that it was planned, initiated, and drafted by the previous Government and also due to the concerns created as a result of the aforementioned issues.
The new Excise Act was at the preliminary drafting stage in October where two committees were amending the Excise Ordinance along with the excise regulations and notifications in consultation with the University of Moratuwa, which was specifically focusing on the digitalisation process.
Under this revamp, the Excise Ordinance along with 1,020 excise notifications and 2,500 circulars were said to be updated to cater to modern-day requirements and be merged with the Tobacco Tax Act, and incorporate world-class best practices in terms of the expansion of the excise tax revenue base, simplification of tax rates, and introduction of new technologies.
In October, reliable sources told The Sunday Morning Business that if implemented, this would create a single legal framework to govern both the liquor and tobacco industries of Sri Lanka.
Sources further noted that it would also improve the excise revenue management system, as the Department of Excise would adopt a digital system for revenue collection similar to the Revenue Administration Management Information System (RAMIS) of the Department of Inland Revenue.
Sources noted that the whole revamping process is being funded by the WB as it is an expensive undertaking. For example, the development of a digital system which would address the loopholes in excise tax collection alone would cost over $ 7 million.
The Ordinance was introduced in 1912 and the Department of Excise was established in 1913. Since then, the Ordinance has been amended 25 times. However, there has been virtually no digitalisation over the years. Therefore, the new Act was expected to be on par with international excise laws, particularly in terms of digitalised and expedited services.
Addressing the media, two months ago, then Minister of Finance Mangala Samaraweera noted that the existing Excise Ordinance was brought in during Queen Victoria’s regime and therefore the clauses of the Ordinance still belonged to the early 19th Century.
“If we continue with this Act, the officials at the Department of Excise will keep getting richer while illicit liquor brewing increases day by day,” Samaraweera noted.
The new Act was expected to increase the excise revenue of Sri Lanka to more than that of 2019 targets. According to the Ministry of Finance, the excise revenue target in 2019 was Rs. 130 billion, but had only reached Rs. 68 billion as at the end of July this year.