“Fraud and corruption that big corporate companies have resorted to in acquiring State properties and evading taxes and controls have cost the public purse a whopping sum of over 1,000 billion rupees during twenty years from 1985 to 2005, General Secretary of the Democratic Left Front, Presidential Advisor and eminent lawyer Vasudeva Nanayakkara has pointed out in a letter to President Mahinda Rajapaksa”, states the lead story in (8th July 2009) ‘Island’.
*Vasu calls for presidential probe
*Evasion etc cost 50 pc of tax revenue
*‘Empower Auditor General’
*Bailout packages questionable
Fraud and corruption that big corporate companies have resorted to in acquiring State properties and evading taxes and controls have cost the public purse a whopping sum of over 1,000 billion rupees during twenty years from 1985 to 2005, General Secretary of the Democratic Left Front, Presidential Advisor and eminent lawyer Vasudeva Nanayakkara has pointed out in a letter to President Mahinda Rajapaksa.
Deals under divestiture programmes involving Lanka Marine Services Ltd, Sri Lanka Insurance Corporation, Lanka Indian Oil Company and Plantation Companies besides the Tax Amnesty Act No 10 of 2003 determined by the Supreme Court as fraudulent continue to cause huge losses to the Treasury, Nanayakkara says in his letter. He points out that Mercantile Credit Company with a negative net worth obtained 1,750 million rupees (which currently stands at Rs. 7,000 million) from the Central Bank in 1990 but no action has been taken in this regard.
Non-repatriation of export proceeds, Nanayakkara says, has compounded the foreign exchange woes of the State. The loose, if not the illegitimate manner in which the Current Account convertibility has been managed, he says, has cost the country a large volume of foreign exchange while the government is struggling to raise foreign currency loans to sort out the Balance of Payment difficulties. These malpractices, he says, have not been probed in spite of a sustained campaign by him and Nihal Sri Ameresekere seeking the government intervention to remedy the situation.
Nanayakkara states, quoting an Auditor General’s report, that tax evasions and the failure or neglect to collect taxes have cost the State nearly one half of its tax revenue and the mega VAT racket alone deprived the country of Rs. 3,500 mn.
Nanayakkara asks the government how much public funds is due to be expended by way of bailout packages for banks and companies and what plans are there in place to recover that money from errant directors and CEOs of failed financial institutions.
The Auditor General, Nanayakkara says, must be empowered and given resources to investigate all scandalous and fraudulent deals in the alienation of public property under the so-called privatization and other deals. He also calls upon the government to set up a Presidential Commission to probe all corruption related to public assets and revenue.
Nanaykkara tells the President that the failure of his government to take strong and determined action to prevent the country being bled white by frauds and corruption would amount to a serious lapse in governance.
The Losses suffered by the State Treasury and the Public at large, amounting
to billions of Rupees, needs investigation to recover the same
1. Your Excellency knows the famous saying alabahinava vela meranawa (or creepers and vines of public finance are dying so that yams of unconscionable profits will be heavy and swollen for the rich.) This is precisely what happened to the State Revenue and public assets over a long period of rightwing regimes which favoured big business at the expense of public assets.
2. Big corporate companies claiming social responsibility have indulged in fraud and corruption in acquiring State properties and evading taxes and controls. A conservative estimate of such losses would be over rupees thousand billion or more during the last 20 years up to 2005.
3. To pin point a few of such deals that went under the cover of privatization, I would cite LMSL, SLIC, LIOC and Plantation Companies. In addition, the perverse Tax Amnesty Act No. 10 of 2003, was determined by the Supreme Court as a fraudulent Act that caused extensive losses to State Revenues. The SAGT deal of which John Keels are again the beneficiaries of its own misdemeanor, has been a tremendous loss to the government and to the detriment of the public, and continues to be so.
4. Further Your Excellency is aware of the Presidential Commission on Failed Finance Companies which the COPE highlighted in 2005. Mercantile Credit Company with a negative net worth incredibly obtained 1750 million rupees from the Central Bank in 1990, which now stands at around Rs. 7000 Million, with no action taken, begging the question why?
5. The non-repatriation of export proceeds into Sri Lanka is another crime and a scandal which has resulted in a continuing difficulty in foreign exchange. The loose, if not the illegitimate manner, in which the Current Account convertibility has been managed, has deprived the country of large amounts of foreign exchange, whilst the Government is being compelled to raise Loans in foreign currency to cope with the balance of payments difficulties. They have not been investigated up to now, despite the issue being raised frequently by Mr. Nihal Sri Ameresekere and myself.
6. Further huge amounts of foreign exchange are being liberally made available, even now, to those going out of the country each time they do so, in addition to the credit card facility. On the other hand, some of the most needed important items are, put on restrictive import duties, thus denying to the People access to such goods.
7. The duty free concessions and tax holidays are lavishly given to many, who are least entitled as we discovered in the Case of LMSL, which was a shameless fix. Even though Your Excellency in the last budget declared that, all tax concessions given under the BOI should be scrutinized, I am not aware of any such exercise to date. There are two categories of persons in our country – one those who enjoy incredible tax holidays given by mere letters of BOI officials and those who pay taxes.
8. The Tax evasions and the failure and neglect to collect Taxes due to the State would amount to nearly 50% of the Tax Revenue due, according to Auditor General’s Reports. This is in addition to the frauds like the VAT Case, in which alone the amount swindled is over Rs 3,500 Mn. of public funds.
9. I would also like to know how much public money is due to be spent as “rescue funds” on the Banks and Companies and how they are being applied and what plans are there to recover the same from the those negligent Directors, CEOs and perpetrators. I also learnt that the Leasing and Finance Companies in financial difficulties are, given government funds to overcome their crisis. We do not know the terms and conditions of this programme and how these funds will be ultimately recovered, and what securities are being made available to the Government by the companies. These inquiries are made in the public interest in order to discover, who ultimately foots the bill, and who carries the benefits under the schemes. In general large numbers of small and medium enterprises, which meet the same fate on a daily basis, do not receive any support, is noteworthy.
10. The report recently released by the Cabinet Sub-committee on Plantation Companies exposes the huge losses caused to the State by falsifying Accounts and violating the terms and conditions of the leases, in addition to the damages caused by deliberate neglect and withholding payments which have become overdue. The State Plantations were given away to the private companies at huge losses to the government in real market value terms.
11. With earnest, we request and implore that the Auditor General be empowered and given resources to investigate all scandalous and fraudulent deals in the alienation of public property under so-called privatizations and the other deals.
12. The losses so far suffered by the State, because of tax evasions, illegitimate tax holidays and other fraudulent deals, including the deliberately protracted litigations to withhold the due tax payments require investigations.
13. Taxes due to be collected consequent to the previous annulment of the Tax Amnesty Act, and the Taxes due on account the annulment of the tax holidays given to the LMSL still remain uncollected in spite of the Supreme Court decision.
14. The extent of foreign exchange seepages in any form should be brought within this mandate. This course of action should cover a specific period and the reporting back should be within a definite timeframe. This request is fully justified by the stunning disclosures that came about as a result of few Fundamental Rights Actions filed in the Supreme Court.
15. Your Excellency may consider other alternatives apart from my proposals, However, we urge that a presidential commission be set up to investigate all corruption related to public assets and revenue. This will arrest the high rate of corruption and also bring large revenues to the state.
If Your Excellency’s Government fails to take strong and determined action to prevent the country being bled white by frauds and corruption, Your Excellency’s government, including ourselves, would be guilty of a serious lapse in governance.
Yours sincerely,Democratic Left Front
23rd June 2009