ECONOMYNEXT – Sri Lanka customs and tax officials have themselves acknowledged there is “rampant state of corruption in their institutions with little risk or consequence of exposure,” according to an International Monetary Fund corruption diagnostic report.
Sri Lanka has high import and excise tax rates, which critics have said is a blueprint to boost corruption in tax authorities as well as illegal manufacture of alcohol and smuggling of cigarettes.
“While corruption vulnerabilities appear to permeate Sri Lankan revenue administration,
there appears to be little, if any, accountability, or consequence for such actions,” the report noted.
“There is virtually no culture of integrity observed, with corruption allegedly found at every level – including top management.
“In fact, promotions are almost exclusively based on seniority with no regard to merit,
skill, or leadership ability, or whether the person has compromised integrity in any way.”
The agencies were also closed services, with little if any employment mobility into and out of the departments.
Sri Lanka Customs usually had its top executive recruited from the civil service. The Commissioner-General of Inland Revenue was promoted internally, but served only one year.
“Very short duration leadership appointments are hardly conducive to tackling complex multi-year reforms and likely explains the institutional inertia and lack of urgently needed for IRD modernization,” the report said.
Inland Revenue, Customs, and Excise operated within the government framework of the public service commission (PSC).
“Both Customs and IRD officials acknowledge the rampant state of corruption in their
institutions with little risk or consequence of exposure, and similarly few if any consequences
when corruption allegations are made,” the report said.
“With more than 2,000 staff in each of the Customs and IRD departments, no cases against corrupt tax officials have been made or reported in recent years.
“The 2021 Customs Department report noted 11 preliminary disciplinary cases being investigated but not concluded and two formal cases similarly still under investigation. With very few if any internally investigated corruption cases, unsurprisingly, few cases involving revenue officials are subject to the independent investigation of CIABOC (anti-bribery agency) which acknowledges revenue related cases are relatively rare.”
Revenue agencies elsewhere was also prone to corruption but efforts are made to counter the problem including through internal affairs offices.
“Revenue collection agencies internationally are renowned to be some of the most corruption-prone government institutions,” the IMF report said.
“Countering this risk requires an explicit policy of high integrity and zero-tolerance to corruption supported by robust institutional arrangements to enforce and reinforce such a culture.
“These characteristics are mostly absent in Sri Lanka; an observation confirmed by the business community and accounting profession.”
“Small Internal Affairs units could be established in each department reporting to the
department head to investigate allegations of corruption for referral to the PSC and/or CIABOC action as appropriate.”
Other critics have also also pointed that Sri Lanka has high import protection where potential taxes are legally channeled (tax is arbitraged) to the pockets of politically influential ‘domestic producers’ of goods, through higher than world prices.