Accountability Uncategorized

Enforce law against those who are responsible for causing a loss of billions of government tax-revenue through the abuse of MP tax-free car permits

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Mr Maithripala Sirisena
Hon’ Executive President of Republic of Sri Lanka
Presidential Secretariat
Colombo 1

My ref: BC/C/2653/2016

29th October 2016

Enforce law against those who are responsible for causing a loss of billions of government tax-revenue through the abuse of MP tax-free car permits

Further to the communiqué submitted on the above subject dated 10th Oct 2016, I make this submission revealing the reasons and background for the dismal failure of the Director General CIABOC to take proper action against the dishonest MPs and Cabinet of Ministers who are directly responsible for defrauding the government’s tax revenue by selling their tax-free car permits for unjust enrichment.

2. The People of this country were shocked to witness the new administration reintroducing tax free car permits for MPs which was condemned by the Minister of Finance Ravi Karunanayake, during the presentation of his maiden fiscal policy statement of the government (Budget Speech) in Parliament on 20th Nov 2015 as follows.

“Honourable Speaker, the vehicle permit schemes have been politicized and misused and have created a huge revenue loss over Rs. 40 billion a year to the Government. I propose to abolish all the vehicle permits granted under different schemes, including to Parliamentarian” [Hansard 20th Nov 2015 – page 408].

Background and failure of the CIABOC concerning the MP tax-free car permit abuse

3. It is observed that the CIABOC had apparently not considered the following factual information concerning the MP car permit abuse.
a) the absolute control over the Pubic Finance is vested in the Parliament and that no tax, rate or any other levy shall be imposed by any authority except by or under authority of a law enacted by the Parliament, which includes exemptions of any such levies imposed by law except by power conferred on a authority by law (Article 148 of the Constitution).

This stipules that no authority is empowered without a legal sanction provided by law (as in the case of granting of tax free permits to MPs) to grant any such tax exemptions to any person or persons except with the compliance with the due process established by law. In the event the Parliament rejects any tax exemption granted to any person by a Resolution tabled in the Parliament all levies exempted on any goods by any authority shall be paid and be recovered from the importer.

b) The Minister of Finance is permitted to grant tax exceptions, having regard to the economic development of the country, in the pubic interest and the relevant authority is granted through the Section 3C (1) of the Excise (Special Provisions) Act No 13 of 1989.

The power vested in the Minister under this provision shall not be abused, misused or overstepped and is to be used fairly and reasonably in good faith, and upon lawful and relevant grounds of public interest and only for public good, not for personal benefit of the Minister or any other person according to his private opinion or as he deems fit but with due respect to the trust placed in the Minister by the people with due regard and respect to the norm of representative democracy that vest inalienable sovereignty only in the people. And in the instant case, unless public interest is served by granting any such tax exemption as in the case of MP tax-free permits being abused by third parties who are not entitled to use such tax-exemptions such tax exemptions becomes ab initio void (invalid from the outset)

c) The Finance Minister Ravi Karunanayake, under Section 3C (1) of the Excise (Special Provisions) Act No 13 of 1989 as amended, grants an exemption of tax for motor vehicles imported by MPs (with a upper limit of the CIF value of US$ 62,500 specified) from payment of any levy. The relevant gazette notification No 1965/2 of was issued on 02nd May 2016 with powers (issuance of permits) delegated in the Secretary to the Ministry of Parliamentary Affairs for the issuance of such permits.

d) However, the Secretary to the Ministry of Parliamentary Reforms and Mass media had commenced issuing of such tax-free car permits for MPs in the month of February 2016, which was well before the said Gazette notification was published. Therefore these permits have no legal force and hence ab initio void (invalid from the outset), as the said permits were issued prior to issuance of the relevant gazette (No 1965/2 of 02nd May 2016).

e) The rationale of granting this tax exemption is that when comfortable vehicles are provided the MPs would discharge their duties effectively and that would outweigh the revenue losses incurred.

f) The Section 3C (3) of the Excise (Special Provisions) Act], stipulates the precautionary measures that shall be taken to protect government revenue when granting such tax exemptions. This includes mandatory requirement to obtain prior permission and to pay levies exempted at the time of importation, in the event MPs intend to sell their vehicles (and not Permits). This requirement however has not been stipulated in the gazette No 1965/2 of 02nd May 2016 or in the tax-free car permits issued to MPs.

g) The mandatory statutory requirement specified in the Fiscal Management (Responsibly) Act No 3 of 2003 [Section 2 and 3 (g)], designed to protect future generations from immoral fiscal polices being adopted by the government, has been deliberately overlooked, encouraging the dishonest MPs to sell their tax-free vehicle permits.

h) It is apparent that the above 3(f) is not a mistake but a fraudulent act committed with intent by the Finance Minister to defeat the primary law [Excise (Special Provisions) Act No 13 of 1989] designed with safeguards to protect the government revenue.

i) Therefore, the defrauding of the government’s tax revenue by selling the tax-free permits issued to the MPs for unjust enrichment falls well within the provisions of Section 70 of the Bribery Act, which interprets the criminal offence of Corruption as follows.

“Any person holding any public office who, with intent, to cause wrongful or unlawful loss to the Government, or to confer a wrongful or unlawful benefit, favour or advantage on himself or any person, or with knowledge, that any wrongful or unlawful loss will be caused to any person or to the Government, or that any wrongful or unlawful benefit, favour or advantage will be conferred on any person does, or forbears to do, any act, which he is empowered to do by virtue of his office as a public servant shall be guilty of the offence of corruption and shall upon summary trial and conviction by a Magistrate be liable to imprisonment for a term not exceeding ten years or to a fine not exceeding one hundred thousand rupees or to both such imprisonment and fine”.

Findings of the Independent Investigation conducted into the fraud

4. The following are the findings of the in-depth investigation conducted into this fraud.
a) These permits are sold freely in the open market with a price range of 22.5 million to 25 million rupees per permit and some permits are still available in the market for sale for varied prices

b) Most of these permits have been purchased by those who are in the motor vehicle import trade

c) These permits are sold with registration and transfer papers duly signed by MPs and in some cases with a Power of Attorney attested by the permit selling MP, facilitating those who import vehicles under these permits to open Letters of Credit, process Customs documentation and also to register the vehicles at the Department of Motor Traffic in the name of the end use, who purchased the vehicles from motor car importers

d) Up until 27th of October 2016, 75 numbers of vehicles have been imported (The detailed schedule presented to Department of Motor Traffic is enclosed herewith marked X1) on these permits, out of which 69 numbers are Toyota Land Cruiser VDJ200R/2016, a diesel driven jeep with an engine capacity of 4461CC (normally charged levies at the rate of 300%). Apparently this is the most demanding vehicle within the permitted CIF (cost, insurance and freight) value threshold (US $ 62,500.00).

e) The Customs has exempted the total tax revenue of Rs 33,459,250.00 for each of these vehicles and charged a Customs data entry fee of Rs 1750.00 only

f) Amongst the expensive vehicles imported, there are German made Mercedes and American made Hummer Jeeps as well. On the Hummer imported on the permit issued to MP, D Sidharthan, the total tax revenue exempted is Rs 44,701,750.00

g) As at 10th October 2016, 20 number of Toyota Land Cruiser jeeps imported on these permitted have been registered with the Department of Motor Traffic and on the same day transferred the ownership of the vehicle to their ‘new owner’

Name of MP Current owner First registration Date Date of Transfer

01. S Sridharan P R A Fernando 22-08-2016 22-08-2016
02. S Ghanamuttu Premadasa Jewellery Pvt Ltd 05-10-2016 05-10-2016
03. J A S K Jayakody A D A K Kavinda 29-08-2016 29-08-2016
04. S C Muthukumarana H M S Jayarathna 19-08-2016 19-08-2016
05. Chamal Rajapakse R P Amarasooriya 26-08-2016 03-10-2016
06. S Sivamohan S W I T Sandaruwan 05-09-2016 05-09-2016
07. A B D U Pathirana B A J C Abeyrathna 18-08-2016 18-08-2016
08. Janaka B Tennakoon Central Finance Co PLC 05-10-2016 05-10-2016
09. V N P Senanayake Alliance Trust Pvt Ltd 24-08-2016 24-08-2016
10. W L Aluvihare Maneesha Pvt Ltd 09-09-2016 09-09-2016
11. K S N Perera King Aqua Services Pvt Ltd 05-10-2016 05-10-2016
12. R C B Pathirana Finite Lanka Pvt Ltd 11-08-2016 11-08-2016
13. D T W W Dissanayake D G D I Silva 20-09-2016 20-09-2016
14. N Muthuhettigamage Colombo Logistics World Pvt Ltd 25-08-2016 25-08-2016
15. Sujeewa Senasinghe Ali Akbar Salehbhai 20-07-2016 20-07-2016
16. K W Wijesekara Peoples Lanka Mocro Credit Ltd 27-09-2016 27-09-2016
17. Mohan Lal Grero Lyceum International Pvt Ltd 15-08-2016 15-08-2016
18. P K Thewarapperuama Kotuwe Kade Pvt Ltd 22-09-2016 22-09-2016
19. H M P N De Silva W D A Hemantha 02-09-2016 02-09-2016
20. Imran Maharoof L U B Liyanage 09-08-2016 09-08-2016

h) Since this colossal revenue fraud was made public sale, registration and transfer of these vehicles have been withheld

i) Several vehicles bought by the 3rd parties from the motorcar dealers are being registered in the names of the permit holder MPs and used without effecting the transfer, which amounts to a commission of an offence under the Motor Traffic Act. For instance the new owner of the Toyota Land Cruiser Jeep imported on the permit issued in the name of MP Wimal Weerawansa is registered with the Department of Motor Traffic with the registration mark CAT 9797, but being used by the new owner without effecting the transfer.

j) There are many more such vehicles already imported, which are freely available for sale in the market and in some cases advertised in the print media with a selling price tag of over 37.5 million to 40 million rupees.

Legal obligation of the CIABOC on plausible complaints received

5. The law provides that (Section 4 of the Commission to Investigate Allegations of Bribery or Corruption Act No 19 of 1994), whenever a plausible complaint is made to it disclosing the commission of any offence of corruption under the Bribery Act, under Section 3 of the said Act the CIABOC is under duty to conduct a proper, credible and independent investigation into it.

Formal complaint made to the Director General of CIABOC

6. Further to findings of the investigation, on 26th August 2016, a formal complaint was made to the Director General of CIABOC, requesting to initiate an independent and credible investigation into this organised fraud forthwith as the abuse of tax free permits was amounts to gross betrayal of trust placed in the MPs and the Cabinet of Ministers.

Right action at most opportune time averted

a) A patently clear complaint about government revenue fraud of this magnitude with huge public condemnation warrants swift and decisive action by the CIABOC. However, the Director General failed to initiate any action after having accepted the complaint (ref: BC/C/2396/2016), and studied it
b) The Director General should have acted in the same manner in the way three Customs Officers were nabbed recently, whilst accepting a bribe of 125 million rupees (funds provided by the General Treasury for the operation). The CIABOC sleuths could have easily bought at least a few number of MP car permits in the open market

c) Further the CIABOC could have easily bought some vehicles already imported on MP permits and displayed in the motor car dealer showrooms, that are freely advertised for sale in the print media

d) It could have checked the details of the fund-transfers effected by the motorcar importers to open the letters of credit in the names of the MPs that would have revealed the names of the real importers involve in this racket, who abuse the tax-free privilege offered to MPs only
e) Had the Director General taken these actions swiftly the CIABOC could have easily averted this fraud running into defrauding of several billions of government revenue

DG’s proven inappropriate conduct on the tax-free permits abuse by MPs

7. There was a similar complaint (tax-free car permit abuse by the MPs and Ministers during the Rajapakse regime) made to the CIABOC on 11th Dec 2014, just two months before (12th Feb 2015) the Director General Dilrukshi Dias Wickramasinghe, was appointed to the office. She not only declined to take action as required by law but had the audacity to inform (through a communiqué dated 04th March 2015) that the loss incurred by the government (on sale of MP car permits) does not fall within the Bribery Act, which is reproduced below.
‘…The Conditions in the tax-free permits were decided as policy of the government. Therefore any loss caused to the government due to the implementation of such government policy will not fall within the scope of Section 70 of the Bribery Act. Accordingly, please note that the Commission will not take further action on your complaint.”

8. The views expressed by the government on the abuse of MP tax-free car permit scheme however, clearly contradict the view expressed by the former Director General CIABOC.

a) “… It is (car permit scheme) politicised and misused causing a huge revenue loss of over 40 billion a year…” (Finance Minister, Ravi Karunanayake – Hansard 20-11-2015 – page 408)

b) “… It (selling of MP tax-free car permits) is contrary to the law though members had been raising money through the sale of permits…” (State Finance Minister, Luxman Yapa Abeywardena (The Island – 26th October 2016)

c) ‘… Corruption is one of the factors that promote political violence and other forms of human rights abuses. Sri Lanka went through such a stage during the previous administration. The people reacted strongly against corruption by changing the corrupt administration by the power of the ballet in January 2015 at the Presidential election and again at the Parliamentary election in the August 2016…’
‘We were elected to office on the policy platform of democracy, good governance and rule of law. Therefore, we consider our prime duty to root out of corruption from the country’. (Pledge made to the International Community by you attending at the world Anti-Corruption summit held in London on 12th May 2016).

d) The Director General’s inaction also violates the mandatory statutory provision specified in the Fiscal Management (Responsibly) Act No 3 of 2003 [Section 2 and 3 (g)], designed to protect future generations from adopting immoral fiscal polices for improper purposes.

e) The Director General’s inaction and her view on this fraud amounts to a tacit approval of the manifestly illegal actions of the dishonest MPs and Cabinet of Ministers
The Director General of CIABOC charged for corruption

9. In this background, she was reported to the Chairman of the CIABOC for corruption on 26th Sep 2016, which was duly acknowledged by the Chairman to the Commission (BC/C/2653/2016).

Response of the Director General on the Complaint against her

The former Director General in an interview published in the Sunday Leader of 02nd October 2016, made an attempt to exculpate herself from the corruption charges levelled against her, a gist of which is reproduced below.

a) There are over 10,000 complaints currently pending
b) It (complaint referred to abuse of PM car permits) is dealt in the normal course
c) Concedes that she had studied the complaint
d) The complainant (Nagananda Kodituwakku) has lodged a false complaint

Formal complaint made to the Executive President who is under duty ensure proper functioning of the CIABOC

10. As the former Director General abused the public office to cover up this revenue fraud, whilst making manifestly unfounded statements to the media, on 10th October 2016, she was reported to Executive President. Under the Constitution the Executive President is liable [Article 33 (1) (c) of the Constitution] to ensure the proper functioning of the CIABOC.

Observations made by the UN on the failure of the rule of law in Sri Lanka

11. From the citizens viewpoint, this is a very important case about the betrayal of their sovereign rights by all three organs of the government that exercise people’s sovereign rights purely on the trust placed in them (Article 4 of the Constitution), misuse or overstep of which tantamount to the total breakdown of the rule of law and blatant disregard of the norm of representative democracy.

12. You will observe that the absence of accountability process in the exercise of people’s sovereign rights by the organs of the government has already come under scrutiny by the United Nations Human Rights Council, compelling the Government of Sri Lanka to concede that the people have no trust and confidence in the administration of justice system, persuading it to co-sponsor the Resolution (A/HRC/RES/30/1) passed on 01st Oct 2015 in Geneva, Switzerland.
Conclusion

13. Therefore, whilst appreciating the acceptance of resignation of the Director General of CIABOC who is charged for corruption, I urge you to discharge the office of the Executive President as per your Constitutional Oath and in terms of Article 33 (1)(c) of the Constitution, ensuring proper functioning of the CIABOC, by appointing an independent person with high degree of integrity to the office of the Director General of the CIABOC with clear mandate given to initiate;

a) Criminal proceedings in terms of Section 70 of the Bribery Act against all individuals holding office as MPs and the Cabinet of Ministers, including the former Director General of CIABOC Dilrukshi Dias Wickramasinghe for abusing the office held for public goods but misused the office to confer benefits or favours for themselves or others causing tremendous revenue loss to the government.

b) Action against all dishonest MPs and Cabinet of Ministers to recover the entirety of the statutory levies defrauded concerning the sale of tax-free car permits to those who are not entitled to enjoy this privilege.

Nagananda Kodituwakku
The former Head of the Customs Revenue Task force
Public Interest Litigation Activist, Attorney-at-Law (SL) Solicitor (UK)
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