John Wilson, Managing Proprietor, John Wilson Partners: Viewpoint

Viewpoint: John Wilson

Sri Lanka outperformed most regional peers in the World Bank’s “Doing Business 2019” report in terms of trading across borders, though still lagged behind India. Sri Lanka was ranked 93rd, with India at 80th; Pakistan at 142nd; the Maldives at 155th; and Bangladesh at 176th. This needs to improve; however, it is true that several important legal developments have taken place in the area of international trade. For example, Sri Lanka signed up to the World Trade Organisation’s Trade Facilitation Agreement and the government is evaluating functionality and implementation of a national single-window system. Nonetheless, reform seems to have stalled with regard to the Customs Ordinance. Businesses have reported to us that there is no certainty in regard to classification in terms of the 8-digit Harmonised System code, and that typically Customs officers classify and assess duty with a view to maximising tariff revenue, or, allegedly, for personal benefit.

The Customs Ordinance, which is the current Customs legislation of Sri Lanka, was enacted as far back as 1869. At that time Sri Lanka – or Ceylon, as the country was then called – was a crown colony within the British Empire. Since its enactment, there have been 50 piecemeal amendments during the 149 years that the ordinance has been in force.

While all major countries engaged in international trade have revised, updated or enacted totally new Customs legislation, Sri Lanka has not yet enacted new comprehensive legislation. The drafting style of some of the provisions is extremely dense with very long sentences, some of which run over 20 lines and are thus difficult to understand. There are also various provisions which are no longer relevant in light of modern developments in transportation.

The biggest concern is the fact that the antiquated provisions are unnecessarily strict in some regards, and some of the procedures are not aligned with the basic rules of justice we are accustomed to today. For example, the provisions in the Customs Ordinance in relation to the conduct of Customs investigations are framed in such a manner that the fundamental right of equality before the law under the constitution (in the context of the conduct of inquiries) is breached. This means that inquiries into alleged offences are conducted by the same officers who participated in the investigations. Such procedural unfairness is an abuse of authority. As a result, the affected parties are denied equality in the course of the decision-making process, as the same officers function as both prosecutor and judge. A system which functions in this manner, due to the uncertainty and negative perceptions it creates, is detrimental to attracting foreign investment. Indeed, this occurs to such an extent that inward and outward processing of shipments is blocked, which can lead to the closure of factories, production plants and other businesses and affect rising unemployment.

Effective and efficient international trade across borders requires speed of decision making. Unfortunately, Customs inquiries are conducted without time limits. When investigations are initiated by Customs with respect to alleged contraventions of the Customs legislation, such investigations could continue for prolonged periods of time, since the Customs Ordinance does not provide a deadline for the completion of the investigation. In the meantime, goods which have been seized may deteriorate, causing considerable loss to the importers and owners of the goods. When the goods perish or become unusable, the resulting loss is not only to the importer but also to the national economy, since valuable foreign exchange would have been spent on procuring the goods. New legislation has been drafted which includes many salutary provisions. It is important that such legislation be adopted without delay. Sri Lanka’s business environment requires this, and traders and the consuming public deserve it.