Significant role of Sri Lanka Customs in a changing world:

Customs cannot rest and wait in the face of racketeers - C. S. W. Jayatilake Director General of Customs

By Indeewara Thilakarathne

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In an exclusive interview with ‘Sunday Observer’ , C. S. W. Jayatilake, Director General of Customs spells out the vital role that Sri Lanka Customs plays as a collector of taxes and in adapting security and protective measures at the point of export and import of goods to the country. He also explains challenges faced by the Department in the face of organised racketeers and cross border terrorism.

Q: With increasing smuggling of goods into the country by illegal means and organized racketeers coming into the scene in a big manner, can the Department of Customs single handedly deal with these issues with its present human and physical resources?

A: well, it is a challenging task. People those who are smuggling and under valuing and involved in fraud do not rest. Therefore, nobody can rest in this game. If you are to collect correct revenue, it is a game between two parties. We cannot say we are fully equipped because somebody else may create an area where they may make money without paying tax.

One must not forget tax culture in Sri Lanka. Tax is a thing that nobody wants to pay and nobody even likes to hear it. It is considered as a penalty. If you say that you are getting into a tax nest, people say your are bad. Paying tax is like a sin in this country. Perception on tax payment and collection is very bad.

Q: What are the measures that the customs has taken to protect intellectual property rights?

A: In corporate sector, large scale importers and exporters have been regular tax payers. Another burden on the customs is to make sure that intellectual property rights are protected. No duplicates and substandard goods should be allowed into the country. However, in Sri Lanka right holders do not have a say on this matter.

For instance Siedles or National, if they import business is profitable, they are not interested in second party importing ‘National’ or ‘Notional’. Poor people who cannot read will buy goods by looking at the lettering. There customs has a duty to protect the consumers. For that right holders should come forward.

We are working with USAID to get assistance to set up a data base of all the right holders, their products and their special features. These are mainly in the areas of music CDs and Software and computer accessories, pirated CDs. But my main concern is about Western drugs that are imported into the country. Those drugs are without proper qualities.

Absolutely no standards are maintained on importing of birth control equipments and injections. No imports can be made without CDDA’s approval. CDDA (Cosmetic Drug Device Authority) approval is given only to registered manufacturers and registered owners of the rights or products to import. What happened is once the product is approved, other people import duplicates of that product manufactured in diverse countries.

Then there is a necessity for Customs to intervene into the matter. But customs should be supported by right holders. Duplicate products are almost the same as the originals but substandard.

Q: Role of Sri Lanka customs is increasingly becoming vital especially in the context of cross border terrorism, pyramid schemes and also a main revenue collector of the government in terms of diverse tariffs and taxes.

How do you perceive the changing face of Sri Lanka customs from colonial day to independent Sri Lanka?

A: Basically the Department of Customs came into being as an organization to recover taxes and control the entry /exist point of a country. Historically speaking, colonial administration wanted to have a Department of Customs in order to collect import and export taxes.

As it was a very important entity, Customs under the Colonial Secretary and principle collector, at that time, was the second important government officer who would act for the Governor when the Governor was on leave.

Today in developed countries custom duties are not the most important factor when it comes to tax collection.

Custom is expected to play a more protective, socially responsible and controlling role. It is also important as an agent in imposing and implementing international trade agreements like WTO.

In Sri Lankan context, tax revenue still remains as the major component of government’s income and it is about 85 per cent of government’s revenue. Out of the tax revenue, the Department of Customs collects 55 per cent government’s revenue in terms of custom duties, collection of VAT at the point of import, port and airport levies, CESS and various other social responsibility levies.

However, the role of customs does not confine to tax collection. Custom also implements tax regimes such as granting of exemptions and granting of concessions for imports. Customs implement bi-lateral and multi-lateral trade agreements like SAFTA, and check whether country of origin has been observed and also address related issues.

We have array of social responsibility package on gathering information on the one hand and prevention or enforcement of laws and regulations of the other organizations on the other hand. There are more than sixty odd laws and regulations we have to implement; health related, fauna flora related, standards related, food control, exchange control requirements, species and dangerous species and antiques related laws and regulations.

We have recently introduced Maximum Retail Price (MRP) requirement printing on the items like chewing gums, chocolates which are directly consumed.

At the time of importation MRP should be fixed on the items and the tax has to be collected accordingly. One way local industrialists are protected by displaying the price and on the other way, it is for the purpose of tax collection. Customs involves in almost all the areas.

For instance, recently we examined a consignment of fresh fish imported into the country. It was found that formalin content in the consignment of 75 tones of fish was not suitable for human consumption.

So the customs had to call food inspectors and then we had to find a way of disposing the consignment. Responsibility of disposing it was entrusted to customs. These kinds of activities are not related to tax collection. These are social protective activities.

However, detection of illegally imported cigarettes is directly linked to tax collection. If you permit cigarettes coming into the country or cigarettes get smuggled into the country, our revenues generating from manufacturing of cigarettes will drastically drop.

As far back as in 2001 and 2002, eleven per cent of total cigarette consumption was smuggled cigarettes. Now smuggled cigarettes come down to one per cent. It is a very lucrative business and smuggler can afford to lose even five times because cost of manufacturing a cigarette is one rupee while it is sold in the market at 15, 17 rupees.

Highest tax revenue from cigarette

Due to the rewards given to officers, custom was able to smuggling of cigarettes into the country. Those days we used to confiscate and give the cigarettes to the army or have them disposed. Now, Ceylon Tobacco Company takes the confiscated cigarette and disposes them by burning them in a burner.

The entire process of disposing cigarettes is carried out under the supervision of customs officials. On inquiry of a concerned citizen, we have to send photographs of disposing cigarettes.

Our total commitment for the recovery of tax per year is 365 billion rupees and out of that we expect around 31 million from CTC along which is ten percent from a one company. It is more than a sum we recovered from motor vehicle imports.