Amended Excise Act yet to reach Finance Ministry

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The Excise Department of Sri Lanka is yet to submit the amendments made to the existing century-old Excise Act to the Ministry of Finance, and the delay is believed to be due to the prevailing curfew regulations imposed by the Government.

Speaking to us, a senior official of the Excise Department, who wished to remain anonymous, stated that even though the final preparations of the amendment have been completed, the Department is still unable to submit the finalised Excise Act to the Ministry due to the Covid-19 pandemic situation.

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“Nothing is going smoothly as everything is interrupted right now. Once the country reopens, we will submit it to the Ministry. However, we are hoping to do it within the next month,” the senior official added.

In January 2021, a committee headed by Commissioner General of Excise M.J. Gunasiri was appointed to make necessary amendments to the Excise Act in order to “modernise” it to suit present-day requirements.

Speaking to us in January, Deputy Commissioner of Excise Kapila Kumarasinghe said: “Certain laws pertaining to excise revenue management, implementation of excise regulations, and implementation of social and corporate responsibility projects will be changed. Unlike others’ claims, the current Excise Act is a dynamic piece of legislation. We are not going to replace it with a whole new one.”

However, the decision was taken after the World Bank terminated funding for the project of replacing the existing century-old Excise Act of Sri Lanka last year. Before the termination of the funds by the World Bank, drafting a new Excise Act was 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 in the latter part of last year.

The reason provided by Kumarasinghe for the termination was that Sri Lanka “did not want to borrow and undertake such a project which will increase its outstanding external debt”.

The new Excise Act was expected to be an amalgamation of the existing Excise Ordinance and Tobacco Tax Act, with a completely digitised 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.

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 Excise Department would adopt a digital system for revenue collection, similar to the Revenue Administration Management Information System (RAMIS) of the Inland Revenue Department (IRD).

Meanwhile, 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 licence holders were expected to be able to obtain data and information including the types of licences, prices, and regulations on one platform.

As of October 2019, 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 in December 2019.

The Excise Ordinance was introduced in 1912 and the Excise Department was established in 1913. Since then, the Ordinance has been amended 25 times. However, there has been virtually no digitisation over the years.

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

In 2019, 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 the 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.

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