Colombo, Economy

Petrol Pricing

Minister Bandula Gunawardene appeared on V and implicitly commenting on the Supreme Court decision perhaps made a point that all taxes are made by Parliament. Not quite since the Minister of fiancé can gazette orders under the Revenue Protection Act if my memory is right. True they have to be tabled in Parliament thereafter. The question at issue is not a change in taxes.

The Supreme Court as far as I am aware has not changed the taxes on petrol. What it has done after consulting the Secretary of the Ministry of Finance who submitted pricing formulas decided to fix the price of petrol. It has taken into account the current taxes and levies on petrol. What it has done is to prevent profiteering by the CPC perhaps to cover up its losses on the hedging contracts and the defaulting in payments by the government departments like the CEB, the Railway and the Armed Forces. Should the public be called upon to pay by way of higher prices for the negligence, corruption and incompetence of the government? I think not. Can the Supreme Court intervene in pricing matters? Not unless they are fixed by monopolies or cartels. Doesn’t the Consumer Affairs Authority have the power to intervene where there is monopoly pricing?

Fair prices must be enforced where there is market power by one supplier. This is part of Fair Pricing and is accepted and practiced in every free market economy. Regulation of monopolies and cartels is the duty of the regulatory authority. Where the regulatory authority fails in its duty the Court certainly can and should intervene to prevent undue exploitation by any agency whether owned by the government or the private sector. Hasn’t the Minister Bandula intervened in fixing prices of gas, milk foods etc to see that there is no undue profiteering by those exercising monopoly power either singly or as a cartel. Being a small economy closed to some extent we consumers can be easily exploited. If the Government wants to preserve its revenue from taxes on petrol it can always raise such taxes rather than engaging in veiled criticism of the Supreme Court which in this case is certainly acting in the public interest.

Please Minister Bandula Gunawardene don’t mix up pricing in organizations with market power from taxing powers of the Government.

  • Rohan Samarajiva

    The principle is that Parliament is solely responsible for imposing taxes; through the annual Amendment to the Finance Act, it can, and does, delegate some these powers to Secretary Treasury.

    But this principle is increasingly being violated. The violators include the Supreme Court itself. The Environmental Levies Act of 2008 gave the Minister of Environment the power to levy general revenue taxes. The Minister keeps saying that he will make his Ministry self-sufficient using these taxes.

    First mistake the Court did was allowing this unconstitutional bill to go through. Then when the levies were challenged, it allowed the EnviLevy on mobile usage to go through. Second violation.

    Bandula may be wrong on many things, but at least he is stating the principle correctly. It is the Supreme Court that has to be educated on Constitutional principles.

  • The Supreme Court is reported to have directed that taxes on petrol should not be more than 100 percent of the cost of petrol (assuming a cost price of approx. US$ 56 a barrel of crude oil). This would mean, contrary to RMB's opinion, changing the taxes.

    Indeed, to meet RMB's criterion, of not allowing profiteering from petrol, the Supreme Court would HAVE to fix the taxes. This is because the CPC is fully government owned. At any given price, the CPC can profit with low taxes, or instead the government can profits with high taxes — but the revenues go in to the same pocket.

    It seems clear that the government chose the method of high taxes so that it can cream off the profits from Indian Oil Company (IOC) as well, in addition to preventing price competition from IOC.

    The basis in law for the Supreme Court intervening/or not in the taxation decisions of the government is worthy of discussion — it's not clear to me why I should believe the pundits or Ministers who say that decisions on taxation CANNOT be subject to review or intervention by the Supreme Court. On what precise constitutional or legal principle does that claim rest? Humbly asks the talking Frog.

  • Pushparanjan

    The question is if the prices were increased by the court will the cabinet make this fuss ? Will that decision go through all these delaying tactics?

  • muzammil

    Those who are seeking power from the people in order to serve the people should do that, and if they don't ,they should be taken to task.Now the most important question here is , who is going to do it ? Well, somebody has to initiate it and another body has to either support it ,ignore it or reject it. In the case of petrol pricing , govt did what it wanted to do leaving the UNP enough room to do their bit. Both ere elected to serve the people through whatever power they are
    holding in the name of people, licensed by democracy. Supreme law authority was approached. Can the law say no no don't come here ? The law took the matter in to it's hands and gave a verdict. The trouble here is not the judiciary, but
    the timing. Election time and the verdict is not favourable to the govt.The govt may
    have a different and acceptable reason but but it's not above the law.

  • T.Douglas

    1 litre of Petrol in USA $0.60 Sri lankan Rs. 75/= but sri Lank sells at 120/= per llitre of petrol. Sri lankan makes a profit of Rs. 45/=

    the supreme court made a ruling to sell 1 litre of petrol at 100/= and still the Govt. make a profit of Rs. 20/= for the war front

  • S.Sivanandan

    Petro pricing has a direct bearing on "Badumilla" now "Bandula" has to burn his midnight oil to bring down "Badumila" in otherwards COL "cost of living" for married, "cost of loving" for unmarried and "cost of leaving" for deserters
    Sivanandan

  • Crep

    well, indian company has obey for Supreme court as a forien firm. But the govt still trying to give suffer to public. why the govt could supply petrole according to SC and could supply thruogh SATHOSA branches to prevent black marcket and unwanted price increasing-

  • Citizen

    It is indeed surprising to note that HE The president has remarked that public may go against the state for inreasing the taxes on tobacco, Arrack, and duty free vehicles, they will never as they know they are SIN taxes derived by SONS of Lanka thepoliticians through their stooges to their pockets by duty rebates and illicit imports at the expense of he general public ,HE The President can be rest assured
    Citizen

  • Rohan Samarajiva

    What is the constitutional principle which gives the legislature the right to set taxes?

    Within the legal tradition that our Constitution is anchored in, we'd have to go back to the Magna Carta:

    "The King should not levy 'scutage or aid,' other than the customart aids, except by the 'common counsel of the realm'; and to take that counsel he had to summon the archbishops, bishops, abbots, earls and greater men (barons) singly, and the lesser men (barons) by writs addressed to the sheriffs" –Jennings, Ivor (1954). The Queen's government. London: Penguin, p. 13.

    But a simpler test can be applied. We can all agree that taxes are unpleasant but necessary. Which part of government is best equipped to perform the unpleasant but necessary task of levying taxes? And of taking on the controversy that comes with it? And of being accountable for the abuse of the power?

    It seems to me that the legislature is the best positioned to take on this task. Taxes should be handled through the political process, not judicial or administrative processes. We do not vote for judges. We cannot fire them if they abuse their powers. But we do vote for MPs and we can fire them at the next election and we can yell and scream at them in the meantime.

    SB Dissanayake yelled and screamed at the Supreme Court and where did that end up?

    Those who like the results of the actions of the Supreme Court and try to defend it should try a mental exercise. Imagine an outcome you do not like (e.g. the Supreme Court imposing Rs 200 a litre tax on petrol so that environmental pollution and traffic jams are reduced). Then imagine how you as a citizen would set about trying to change that ruling. Would you still like the Supreme Court running the country?

    • I appreciate Rohan's comment and am quite in agreement. If, however, it was meant as an answer to the question on which I ended my previous comment, then my question has been misunderstood (or inadvertently side-stepped).

      The Courts can and should intervene in the decisions of the legislature/govt., when fundamental principles of law (normally spelled out in the constitution) are seen to be violated by the laws or regulations that are passed. For instance, people can go to the courts if they are arbitrarily dismissed from govt. employment and the Court could insist that the job be reinstated. This does not mean that the Court has taken over the hiring decisions of the govt. — which would be absurd.

      Taxation decision need not be considered a special class of decisions in which such normal recourse to judicial review are disallowed. It is I think right and appropriate to ask about and discuss the principles of law the Courts could use to justify their intervention in decisions of taxation. But avoiding that discussion by making the blanket (and rather strange) assumption that taxation decisions should be sacrosanct — in a way that other legislative/govt. decisions are not — is to set up a red-herring, and it is not the way forward for a thoughtful discussion on the subject.

      In this case, the govt. arbitrarily and suddenly introduced a massive increase in the taxation of petrol, in a manner that was designed to offset advantages to the consumer from the decline in world market prices, and was anti-competitive against IOC (violating the principle of the government's own competition laws). Prima facie there seems to be a good case for judicial review, both in terms of equal treatment of commercial entities and abuse of monopoly power (another area of law that comes under the jurisdiction of the courts).

      The Court has not as yet decided the case on the basis of either of these principles. What it has issued is an interim injunction to maintain something closer to what the status quo was in taxes, while the case is being heard to completion. Interim injunctions that prevent wild departures from the status quo until a complaint has been decided upon, are quite in-keeping with the principles of proper judicial intervention. (Or so thinks the talking frog, though he admits to knowing less about the law than about economics).

  • The Consumer Affairs Authority (CAA) Act No 9 of 2003, sets out laws and principles with regard to Pricing Policy; Anti-competitive Practices of trade and Consumer Rights. So, perhaps, Sri Lanka does have some measure of competition laws, and the question of violating them could arise. In this case we have the unusual scenario that the violation is by the govt. itself, which means the CAA may not function as anticipated by the laws — which might constitute a type of procedural failure opening the door for Supreme Court intervention.

    Quite apart from that, the Court also explains in the order why it considers itself to have jurisdiction on the matter. To quote from the order:

    "As noted above, the imposition of the Excise Duty in terms of Section 3(1) of Act No. 13 of 1989 and the imposition of customs duties and the grant of partial waivers as stated in Annex ‘A’ in terms of section 10A and 10A of the Customs Ordinance are executive functions that come within the purview of the fundamental rights jurisdiction of the court. The alleged infringements result from illegal, arbitrary and unreasonable executive action. The Secretary being the appropriate functionary and the Attorney General who represents the President in terms of article 35(3) of the Constitution have been heard on the several days this matter was considered. Accordingly we direct that necessary orders be made in terms of the applicable law to give effect to the content of Annex ‘A’ which has been prepared by the secretary to the Treasury." (as cited in http://transcurrents.com/tc/2008/12/post_206.html

    Therefore, at least as claimed, the interim order is against arbitrary exercise of executive function, not against the legislative prerogative of parliament.

    While appreciating (and perhaps even sharing) Rohan's concerns about the Supreme Court introducing "reasonableness" criteria, I can't agree that such usage automatically falls foul of legal or constitutional principles. I would have agreed if he asserted that no other Court other than the Supreme Court should be able to do so.

    One does not have to agree with the Supreme Court to recognise that the case involves several sets of legal and constitutional principles, further complicated by the particular peculiarity of the market structure and ownership in the Petroleum Industry of Sri Lanka. The talking frog does not imagine that there is a clear and incontestable justification of the Courts actions. But he is puzzled by claims of there being NO justification WHATSOEVER, despite there being much to be said in support, on the basis of legal/constitutional principles.

    All that said, the talking frog will desist from offering any further two-cents on this subject.

  • Rohan Samarajiva

    The Courts can, and should, look to see if the procedure used to arrive at an administrative decision was within the law and in accordance with the principles of natural justice. But by using some vague notion of reasonableness, it cannot substitute its discretion for that of the appropriate executive entity.

    Judicial review cannot be triggered by the quantum of a tax increase; only by flaws in the procedure used to effect it. If the former, every government official will have to engage in the impossible task of guessing what would be considered reasonable by a future Court.

    Given that Sri Lanka does not have competition laws (other than those that can be implied from various licenses and such), the question of violating competition laws does not arise. Under what competition law regime would the maintenance of identical pricing by LIOC and CPC be allowed?