The Special Commodity Levy has been a contentious issue in Sri Lanka’s economic policy. Imposed at high rates under the “Minister’s Prerogative,” these levies bypass parliamentary approval, leading to allegations of corruption and lack of financial transparency.
The Sri Lanka’s cabinet has decided to retain the Special Commodity Levy (SCL) Act, reversing a prior decision to abolish it and replace it with a value-added tax (VAT). The move, announced in a government statement, aims to protect local farmers and manage the impact on food prices.
Initially, the cabinet, on March 25, 2024, had resolved to replace the SCL with VAT to address issues of corruption and constitutional challenges. However, the decision faced criticism for its potential negative effects on farmers and food security.
The SCL Act, which covers 63 items, imposes taxes at high rates on staple foods such as rice, potatoes, and maize. Critics argue that while these taxes protect domestic agriculture, they also make basic foods costly, exacerbating malnutrition among poor families. Taxes on rice and potatoes are reportedly close to 50 per cent, while levies on maize drive up the cost of protein for children.
President Anura Kumara Dissanayake submitted a cabinet paper advocating for the continuation of the SCL from January 1, 2025. The proposal was approved by the cabinet, reflecting the government’s intent to prioritise farmer protection over other economic considerations.
Royal Prerogative?
The SCL has been a contentious issue in Sri Lanka’s economic policy. Imposed at high rates under the “Minister’s Prerogative,” these levies bypass parliamentary approval, leading to allegations of corruption and lack of financial transparency. Critics draw parallels with historical practices like the “Royal Prerogative” before the Magna Carta, which allowed rulers to levy taxes without public consent.
Under an agreement with the International Monetary Fund (IMF), Sri Lanka had committed to replacing the SCL with VAT, citing concerns over governance and its impact on inflation. However, the government now argues that the SCL’s ability to prevent a “tax-on-tax” effect and support domestic agriculture outweighs these concerns.
While the decision is intended to bolster self-sufficiency and support farmers, critics argue that it pits agricultural interests against the needs of malnourished children and low-income families struggling with high food prices.
The debate underscores the delicate balance Sri Lanka must strike between supporting its farmers, ensuring food security, and fulfilling its international economic commitments.
