Tax Dept. tactic: Spy on your neighbour’s affairs!

Sri Lanka's tax laws are exceptionally good but the implementation and administration of those laws is sorely lacking competence, something which may lead to the downfall of the Inland Revenue (IR) Department, experts say.

N.R. Gajendran, a tax expert and Partner at Gajma and Co, Chartered Accountants, addressed a seminar this past week on the country's tax regime, organised by the European Chambers of Commerce of Sri Lanka (ECCSL) and said that 'the government wants revenue and wants revenue to be growing' but no one is focusing on government expenditure. The need for revenue is so urgent that Gajendran said he has heard stories where tax officers have been going to houses, asking to see the owner’s tax files and even inquiring about their neighbours, a violation of the law.

In 2005, the IR had a revenue target of Rs.200 billion and this was increased to Rs.260 billion in 2006. The target for 2007 has grown to Rs.315 billion. In essence, the government’s need to raise revenue is placing a higher burden on compliant tax payers who Gajendran believes are treated with contempt. In fact, he said that 98% of revenue comes from voluntary compliance from tax payers so it is the remaining two percent which is creating problems for the law abiding citizens of Sri Lanka.

Gajendran said the IR is always interested in collecting something more than what one pays. The appeal process which he described as 'autocratic rule' does not work because revenue officers are unable to deal with the empowerment they have been given. If a tax file is under dispute, the tax payer should not have to pay those taxes until the dispute has been resolved. Furthermore, the IR must allow people to stand up and fight. He also stressed the importance of getting the smaller potential tax payers involved in the system.

The acceptability of the tax structure depends on the perception of its fairness. The VAT scam involving Rs.388 billion has been a low point because so far, no one has taken responsibility and corrective action has not been taken. Gajendran also said problems lie with the subordinate actions of the deputy commissioners which total 95 as opposed to the 19 assessors who should really have assessing power. Furthermore, IT or information technology has been a big failure because the technology is faulty, leading to erroneous assessments which go against the tax payer. He also described the VAT scheme as being a 'big failure' which was initially brought in to minimise evasions but instead has led to a cascading effect. Gajendran urged that government servants, parliamentarians and provincial counsellors be taxed to create a fair and equitable system. This might even prevent the IR from implementing unreasonable and unnecessary means of taxation in their effort to increase revenue.
(NG)