State coffers lose billions as Customs officers enjoy unfair benefits

• Only 30% of revenue collected from import-related penalties is directly credited to Consolidated Fund 
• SLC only maintains a physical attendance register, leading to possible leakages in overtime pay

• By Nishel Fernando 

The state coffers have been deprived of billions of rupees, as Sri Lanka Customs (SLC) officers enjoy unfair benefits in penalties related to customs offenses and overtime pay, a special audit carried out by the Auditor General on the management/administration of various funds in SLC revealed.

While the tax revenue collected by SLC on legitimate import activities is included in the government revenue at the time itself, the audit revealed that only 30 percent of the revenue collected from import-related penalties is directly credited to the Consolidated Fund.

From 2012 to August 2023, Rs.14.53 billion was credited to the Consolidated Fund as this 30 percent value of all fines collected. 
“… there are some occasions observed that the amount so credited is less than the actual customs revenue that should have been charged on the said import,” Auditor General W.P.C. Wickramaratne said.

According to a sample audit carried out on 17 occasions from 2017 to 2023, the total amount of penalty initially imposed was Rs.7.6 billion. The penalty value was later mitigated to Rs.481.69 million, due to the relaxation of the investigating officer, in accordance with the powers vested on the Director General of SLC. Accordingly, the value of 30 percent credited to the government from the mitigated penalty value was Rs.144.5 million. Therefore, the loss of state revenue amounted to Rs.181.51 million. The amount of tax attempted to be evaded was Rs.326.02 million.

Currently, there are three main funds, known as the Custom Officers’ Reward Fund of Sri Lanka Customs (Reward Fund), Custom Officers’ Management and Compensation Fund of Sri Lanka Customs (Management and Compensation Fund) and Sri Lanka Custom Officers’ Overtime, Cargo Examination Fees and Information Technology and Communication Fund (Overtime, Cargo Examination Fees and Information Communication Fund), maintained.

In addition, there are four sub funds maintained under the above Reward Fund, named as Narcotic Fund, Fuel Fund, 2.5 percent Fund and Fund for other Divisions.

Even though the reward money should be distributed among the officials and informants, agreeing to a scheme approved by the Finance Minister, as per Section 153 (2) (b) of Customs Ordinance No. 17 of 1869, the Auditor General revealed that without such approval of the Finance Minister, an internal departmental order had been prepared at its own discretion.

As per the available information, the amount paid as reward money during 2012 to August 31, 2023 stood at Rs.24.22 billion. 

Further, it was revealed that internal orders were prepared, so that the rewards could be given to the officers who are not related as a group contributing to investigations, in accordance with the act. Moreover, routine operational detection was also considered as detection of customs offenses and the staff was given reward rights for that. 
“Therefore, it was observed that even if the officers only report for duty, they receive salaries, incentives and overtime and if they perform the duties and responsibilities of the customs officers, then they receive additional benefits,” the Auditor General noted. 

Although all public servants are required to use the fingerprint machine to record their arrival and departure, only an attendance register had been maintained at SLC.
“Ninety percent of the customs overtime fund was paid to the officials, regardless of whether they worked outside the normal working hours and only 10 percent was credited to the government revenue,” the Auditor General pointed out.

In 2021 and 2022, Rs.948.32 million and Rs.938.87 million were paid to SLC officers from the overtime fund, while the revenue credited to the government was only Rs. 85.73 million and Rs.83.67 million from this fund in the period.