Sri Lanka’s State Bank of Ceylon has yet to terminate letters of credit (LCs) relating to the import of 399 vehicles.
On May 24, 2021, Sri Lanka’s Cabinet of Ministers decided to suspend the importation of even a limited number of vehicles due to the country’s dire economic situation amid the devastating COVID-19 pandemic.
In April 2021, the Sri Lankan Cabinet of Ministers decided to import a number of vehicles in order to enhance the effectiveness of the government’s development momentum.
The decision was made on the basis of a cabinet memorandum produced by the prime minister and the memorandum made it clear that 150 vehicles (50 Ambulances / 50 Water Bowser / 50 Double Cabs) were to be imported into the country.
The cabinet memorandum also produced an alternative for MPs who were affected by the government’s decision to suspend the issuance of duty-free permits to import vehicles.
As a result, as a solution to the problem, it was decided to import 399 vehicles under Rs. 3.7 billion leasing facility offered by the Bank of Ceylon.
The government’s decision to suspend the importation of 399 vehicles including 227 luxury vehicles with cabinet approval created unexpected critical problems for the first local bank.
Although the decision to suspend vehicle imports was taken on May 24, the LCs were in fact opened by BOC on April 29 on behalf of the government of Sri Lanka, and these LCs have yet to be terminated.
It is clearly stated here that the applicant in the letters of credit is Bank of Ceylon.
That is, it is a commercial transaction of the Bank of Ceylan.
The directive of the Central Bank of Sri Lanka to all licenses of commercial banks and licenses of specialized banks to suspend facilitating the importation of motor vehicles under letters of credit is valid on that date and, therefore, the Bank of Ceylon could in fact be fined under the provisions of the Import and Export (Control) Act No. 1 of 1969 for violating this directive.
More importantly, the Bank of Ceylon will also have to pay the duty for the 399 vehicles and the BOC is not a duty free body to the state.
Therefore, if the Bank of Ceylon does not pay the tax for these vehicles, it can be considered as tax evasion.