Massive Tax Scam in Coconut Oil Imports Exposes Governance Failures
A significant tax revenue loss of Rs. 50 billion has come to light, highlighting serious irregularities in coconut oil imports, as revealed by MP S. M. Marikkar during a press conference at the Samagi Jana Balawegaya headquarters This alarming revelation not only underscores failures in governance and enforcement but also raises critical questions about the transparency and accountability of the country’s regulatory systems.
Between January 1, 2024, and October 31, 2024, the government suffered this massive loss due to several companies evading taxes on the import of unrefined coconut oil..
The lapse is rooted in the inability to enforce revised tax policies introduced at the start of 2024.
Prior to these changes, the tax structure for coconut oil imports imposed a Special Commodity Levy of Rs. 125,000 per metric ton on unrefined coconut oil and Rs. 150,000 per metric ton on refined coconut oil. These imports were previously exempt from VAT under earlier gazette notifications. However, a special gazette issued on January 1, 2024, brought about a major policy shift by reintroducing VAT. Under the new regulations, an 18% VAT and a 2.5% social security tax were imposed, resulting in a combined tax rate of 20.5% per kilogram.
Despite these measures, tax evasion persisted. MP Marikkar disclosed that several companies collectively imported 38.8 million kilograms of unrefined coconut oil without paying the applicable taxes. The imports were broken down as follows: 12.9 million kilograms by one company, 624,000 kilograms by another, 18.8 million kilograms by a third, and 4.23 million kilograms by a fourth. The total volume of untaxed imports underscores the scale of the issue and the significant financial impact on government revenue.
Adding to the controversy, Marikkar revealed a troubling instance of an importing company seeking tax relief. On July 17, 2023, the company wrote to former President Ranil Wickremesinghe requesting exemption from the new tax regulations. The request was forwarded to the Department of State Fiscal Policy and subsequently referred to the Department of Inland Revenue. However, by August 29, 2024, the Inland Revenue Department’s observations had not resulted in decisive action. This raises questions about the legal validity of such a request and whether due process was followed.
The issue goes beyond financial loss, posing potential risks to public health. Marikkar cautioned that unrefined coconut oil, if sold without proper refining, could be hazardous to consumers. Companies claiming to sell unrefined oil must still adhere to taxation laws, ensuring accountability and safety.
Flawed Tax Policy:
This scandal has unfolded during a transitional political period, beginning under former President Wickremesinghe’s tenure and continuing under the new administration of President Anura Dissanayake, who assumed office on September 21, 2024. By October 2024, over 38,000 tons of untaxed coconut oil had been imported, exacerbating the issue and exposing gaps in governance.
The revelations demand urgent action from authorities to address the flaws in tax enforcement and governance. Transparent investigations and strict legal action against those responsible are essential to restore public trust in the country’s financial and regulatory systems. The scandal serves as a wake-up call to improve accountability and ensure that such large-scale revenue losses do not recur.
