Sri Lanka modernises revenue administration amidst dwindling income
Sri Lanka will be modernising revenue administration to support recent tax policy reforms by improving the quantity and quality of revenue collection authorities, the Finance Ministry announced.
Revenue collection authorities including the Inland Revenue Department (IRD) and Customs are moving towards the automation of its core activities in a bid to improve efficiency, transparency and financial flexibility in a government saddled by dwindling revenue.
A reform plan to modernise the IRD and Customs administration with enhanced risk assessment and improvements in organisational structure and management is expected to be approved by the cabinet of ministers by next month, a senior Finance Ministry official revealed.
The International Monetary Fund (IMF) will support the ministry in implementing the reform plan aimed at upgrading the services of the two revenue collection authorities, he disclosed.
A VAT compliance strategy, with risk-based audits for large taxpayers, was successfully piloted for specific sectors and will be rolled out by end-December to maximize collections under the recently expanded VAT base.
The IRD should expedite work to make its systems fully compatible with the new Inland Revenue Act (IRA), given recent delays to the IT system upgrade, he pointed out.
With growing trade volumes and changing operating environments, customs modernisation is vital in meeting the dynamic challenges.
Among those challenges were sophisticated and demanding clients who have invested significantly in modern logistics, inventory control, manufacturing, and information systems, policy and procedural obligations.
These policy and procedural obligations are associated with international commitments, proliferation of bilateral and regional agreements which increase the complexity of the administration of border formalities and controls and security concerns including threats from organised crime and terrorism, he emphasised.
The daily revenue of the Customs is around Rs. 3 to 4 billion. Generally, the Customs Department clears around 1,500 containers daily.
IRD has already adopted a VAT compliance strategy that includes a time-bound plan to implement risk-based audits and key performance indicators (KPIs) to measure their effectiveness.
With respect to income tax administration, a concrete plan is critical to ensure that the IRA is implemented in a timely and effective manner, including the training of tax officers.
An implementation plan has been devised by establishing a steering committee and its terms of reference, creating project teams at the IRD, and initiating the stakeholder consultation and communication process through the publication of detailed tax manuals.
Public outreach campaign is also planned, to educate and sensitize taxpayers to the new framework.
IRD will adopt compliance strategies for corporate and personal income taxes (structural benchmark), following a successful implementation of the new IRA.