Govt. moves fast with new Inland Revenue bill
The Sri Lankan government is rushing to enact a new Inland Revenue Bill prepared with International Monetary Fund (IMF) expertise without adequate consultation with public and private sector stakeholders, tax officials and experts warned.
The Finance Ministry is planning to finalise this bill shortly and if it is unable to enact in parliament soon, then it will be introduced as an amendment to the existing law, a senior Finance Ministry official said.
But no discussions have been held at any level to date on the proposed bill even though the legislation was scheduled to be passed in parliament soon as the cabinet of ministers has given approval for this purpose, tax officials and experts pointed out.
A team of IMF experts has collected information on current revenue collection procedure and implementation of existing tax laws from several divisions of the Inland Revenue Department (IRD), a senior tax official revealed.
The new Act has been prepared by these experts on the line of Ghana’s new tax law prescribed by the IMF. The proposed Sri Lankan bill is in fact a carbon copy of that country’s new legislation, several eminent tax experts told the Business Times claiming that they have documentary evidence to prove this fact.
Top IRD officials however have been kept in the dark during these preparations by IMF experts, a senior IRD official, who is also a trade union leader, told Business Times adding that tax officers will have to study and understand the new law at least four to five years for them to implement it.
This could result in heavy revenue loss to the government during the interim period, he warned, pointing out that the proposal to separate the functions of the IRD to two divisions namely administration and tax collection will bring dire consequences.
IRD trade unions are discussing necessary action that would be taken against the enactment of the new Bill, he said, disclosing that some top officials are now engaged in a power struggle to get high posts at IRD following the creation of new divisions at the department.
These unions were critical of the bill being moved too quickly with too little deliberation. The proposed Bill departs from the very foundation and fabric of the current Act. If implemented in its current form, any judicial precedence, interpretations, practices and principles relating to income tax established over almost a century could not be applied in the imposition, payment and recovery of income tax in Sri Lanka, eminent tax experts alleged.
The proposed law attempts to fundamentally change the sources of income, method of calculating the taxable income, claiming deductions, assessment procedure and the administrative provisions.
“There were no reasons to make such drastic changes in the existing income tax,” one expert pointed out adding that the precedence always recalls the preservation of its uniform evolution”.
The new Bill does not add any income sources to the existing revenue sources and it would not be able to close existing loopholes in revenue collection due to time constraints in drafting the new legislation, the sources disclosed.
Further the new Bill provides undue priority to less important sections which have less relevance to the Sri Lanka economy and neglects the more important sections on tax law imposition and recovery, they emphasised.
The current Inland Revenue Act No 10 of 2006 is based on the pattern and the principles of previous Inland Revenue Acts namely; the Inland Revenue Act No. 38 of 2000, Inland Revenue Act No. 28 of 1979 and the Inland Revenue Act No. 4 of 1963 as well as the Income Tax Ordinance of 1932. The current Act has, accordingly, evolved through years and it incorporates established legal, accounting and economic principles.
When drafting an Inland Revenue Act the basic structure and the principles of imposition, payment and recovery have to be maintained, they claimed.
Sri Lanka’s tax system has undergone several changes to meet the demands of different financial policies under various governments. The tax system has been reviewed by three Taxation Commissions in 1953, 1966 and 1991.