New Excise Act hits dead end

  • World Bank terminates funds
  • No new Act but changes to Ordinance

By Madhusha Thavapalakumar

Plans of bringing in a new Excise Act, replacing the existing over 100-year-old Excise Ordinance of the country, has hit a dead end as the World Bank (WB), the fund provider of this plan, has terminated its funds, The Sunday Morning Business learnt.

Drafting a new Excise Act was a part of a $ 60 million World Bank-funded project that comprised a couple of other similar projects for several state institutions, but the entire project was terminated recently due to unknown reasons.

The new Excise Act was expected to be an amalgamation of the existing Excise Ordinance and Tobacco Tax Act, with a completely digitalised platform. Under this revamp, the Excise Ordinance along with 1,020 excise notifications and 2,500 circulars, was to be updated to cater to modern-day requirements and be merged with the Tobacco Tax Act.

Nevertheless, now as the required funds will not be received, the Government has given up on the idea of bringing in a new Excise Act. However, the Department of Excise expects to make amendments to the existing Ordinance to suit present-day needs.

Sources from the Excise Department told The Sunday Morning Business that the amendments would be made in consultation with industry stakeholders, but are unlikely to be completed within this year. However, a foundation is expected to be laid for the amendments within the next four months.

Under earlier plans, the new Excise Act was expected to incorporate world-class best practices in terms of the expansion of the excise tax revenue base, simplify tax rates, and introduce new technologies. It was also expected to 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. 

Nevertheless, it is still not decided whether these software-related changes would be made by the Sri Lankan Government in the existing Ordinance while amending it, as these changes would be a costly affair. For example, the development of a digital system which would address the loopholes in excise tax collection alone would cost over $ 7 million.

Under the previous plan, stakeholders, police stations around the island, and tourist hotels were planned to be interlinked for improved monitoring of supply chains while manufacturers, consumers, and liquor license holders were expected to be able to obtain data and information including the types of licenses, prices, and regulations on one platform.

As of October last year, the new Excise Act, which was at the preliminary drafting stage with two committees amending the Excise Ordinance along with the excise regulations and notifications, was expected to come into effect from last December onwards. 

The Excise 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 digitization over the years. 

Further, according to the industry stakeholders, the existing Ordinance provides ample loopholes for perpetrators to produce illicit liquor, thereby creating a massive loss in the Government’s tax revenue while only legitimate liquor manufacturers pay large sums in taxes. 

Despite being over a century old, Sri Lanka’s present Excise Ordinance is still a ‘great piece of legislation’, sources from the Department claimed. 

Last year, then Minister of Finance Mangala Samaraweera during a press conference stated that the Existing Excise Ordinance was brought in during Queen Victoria’s regime and therefore the mentality of the Ordinance still belongs to early 19th Century. 

“If we continue with this Act, the officials at the Department of Excise will keep getting richer while the illicit liquor brewing increases day by day,” Samaraweera noted.