Some say the court process is more drastic in nature compared to other methods of recovery available to the commissioner. It may be because of the taxpayer concerned being compelled to be present in court by the process of summons. Sometimes, warrants are issued when the defaulter concerned does not make his appearance.

Where no cause is shown, or where insufficient cause is shown, the tax is "deemed" to be a fine by a sentence of the judge.

A prison sentence is not imposed immediately but it arises only when the fine, or a portion thereof, is not paid. The period of imprisonment, which is simple, vary with the quantum of default tax but, in any case, shall not exceed six months.

In tax recovery matters, the judges have often been sensitive of the defaulter's rights. The instalments allowed by court have often been more generous than those afforded by the Commissioner.

Both the Commissioner and the judges are well aware of the schematic arrangement of the law which makes manifest the imposition of imprisonment is the last option. Inability to pay is a consideration, which a judge will take into account before imposing the sentence of imprisonment.

The Commissioner's Administration Report for 2000 reveals that, as at 31.12.2000, about 20 billion rupees, out of taxes assessed of some 136 billion rupees, (about 17%) belong to " arrears". A portion of such arrears may be because some of the once well-off taxpayers are unable to pay taxes due to various misfortunes.

There may be situations in which it may just not be possible or prudent to collect such taxes. For example, where the costs of collection may exceed the tax collectible. Writing-off of uncollectible of taxes is thus an integral part of the tax collection process.

The writing off of tax is very much a Treasury procedure in terms of the Administrative/Financial Regulations. The Commissioner is empowered by the Treasury to write off very limited amounts.

Writing off of larger amounts is referred to the Secretary to the Treasury. Bankruptcy or insolvency of the taxpayer concerned are relevant factors.

However, the Commissioner has the tough task of justifying such write-off. Once, in the past, even a Cabinet Paper had to be prepared and Parliamentary sanction obtained, before writing off taxpayer accounts covering a number of years and belonging to the limbo of arrears.

Constitutional powers
Presidential powers of pardon are enshrined in Article 34(1) of the Constitution , which states that the President may, in the case of any offender convicted of any offence in any Court within the Republic of Sri Lanka, grant a pardon, grant a respite of the execution of any sentence, substitute a less severe form of punishment, remit any punishment, penalty or forfeiture otherwise due on account of such offence. Where death sentence is passed by Court, the recommendation of the trial judge, the advise of the Attorney General and Minister of Justice are mandatory for Presidential consideration.

Is Presidential intervention in the tax collection process, by the exercise of her prerogative rights under Article 34, desirable? It certainly acts as a disincentive to the tax administrator, to the judicial officers and others connected with the tax collection process.

Such action also frustrates the efforts of the government to curb corruption in the revenue departments. Above all, such action severely demoralizes the compliant taxpayers, who are the bulk of the taxpaying public in Sri Lanka.

This is the first time in Sri Lanka that the Presidential powers of pardon have been used to intervene in the tax collection process.

It is not a good precedent and opens the floodgates to a multitude of possible future abuses.

I am of the view that, where the President invokes her prerogatives of pardon in respect of tax matters (a) she has acted ultra vires Article 134; and (b) she has no powers to "remit" (i.e. write off) the tax in respect of which the pardon was given.
My reasons are as follows:

(1) Article 34(1) of the Constitution refers to criminal cases. In the tax recovery method discussed, the tax is deemed to be a fine (i.e. by fiction of law).

The jurisdiction of the Court springs from the relevant revenue statute and the proceedings are not criminal in nature.

There is no penalty, as distinct from the tax payable; there is no forfeiture. The emphasis is more on the " defaulter" than on an "offender".

The imposition of imprisonment arises only on the default of the instalments ordered. The over-all purpose of this method of recovery is to not to make a criminal of a tax defaulter but rather enforce tax collections. Court recovery procedure is only a cog in the wheels of tax collection.

(2) "Power tends to corrupt and absolute power corrupts absolutely". So wrote Baron Acton in 1902. Article 34 of the Constitution confers on the President the sole powers of pardon.

However, I am of the view that though such power is discretionary, it is not absolute, untrammelled or unrestrained. Consultation is a necessary concomitant in the exercise of such powers.

In tax recovery matters, even if one has to accept the extreme situation, it is vital that the President obtains the advice either of the Attorney General and/or the Commissioner General, through the Minister of Finance, on this matter before granting a Presidential pardon.

One just cannot pluck tax defaulters out of thin air and start giving them tax pardons willy nilly. Where the tax recovery process has gone through two court processes, it is even more difficult to accept Presidential intervention.

(3) A pardon is not a private act of grace from an individual happening to possess power. It is part of the constitutional scheme.

When granted it is the determination of the ultimate authority that the public welfare be better served by inflicting less than what the judgment fixed.

(4) There must also be evidence made manifest to the public to demonstrate that public welfare will be better served by remitting the tax due.

(5) The effect of the pardon was to remove the criminal element of the offence named in the pardon but not to create any factual fiction or to raise the inference that the person pardoned had not in fact committed the crime.

A tax is imposed by means of an assessment, which is raised under the relevant statute, which, in turn, is a creature of Parliament and administered by the Commissioner of Inland Revenue.

There are no powers given to the President either in the Constitution or in any other law to remit these taxes.

The clear and cogent path legally laid out is the "write off" procedure discussed earlier or, perhaps, by the taxpayer concerned taking umbrage under the recent tax amnesty provisions introduced by the Inland Revenue (Special Provisions) Act No 7 of 2002.

One just cannot "pardon" a tax defaulter except by means of an "amnesty" statute passed by Parliament. I believe that despite the Presidential "pardon", the assessment giving rise to the tax is still valid and enforceable in case of default unless the taxpayer concerned has the benefit of the recent tax amnesty mentioned earlier. The worst-case scenario is that the Commissioner has "lost" of one of his recovery arms (i.e. recovery through the Magistrate/District Court process). The Commissioner still has his other recovery options such as seizure and sale of property through District Court, Garnishee Orders etc.

The fact that a previous President has granted a pardon for a criminal does not justify granting a tax pardon, whatever the merits of the case may be.

Not too long ago, President Clinton, before he quit office, gave a free pardon to one of his buddies who were evading arrest for tax default.

This is not a good example to follow either, however legal President Clinton's action may have been in the U.S.

* The writer was a Senior Assessor at the Department of Inland Revenue and one-time Commissioner's representative at the Tax Court. He had served in South Africa, Swaziland and Sierra Leone on UN and Commonwealth assignments.

Back to Top

Back to Columns

Copyright © 2001 Wijeya Newspapers Ltd. All rights reserved.
Webmaster