Financial Times

Fear psychosis from tax hunt
Efforts by tax collectors from the Inland Revenue Department to get companies to pay arrears on indirect taxes has created what some businessmen say is a fear psychosis in the private sector and left many firms, especially small and medium enterprises, feeling harassed and threatened.

However, the Inland Revenue Department is defending its action on the grounds that these are taxes the private sector had already collected from consumers and owed to the government and that adequate notice had been given.

Businessmen are complaining that tax collectors suddenly appear on their doorstep and demand payment of arrears in an aggressive manner in what they say even amounts to bullying tactics. They also complain that the due process is not being followed in the latest collection drive with taxpayers who dispute the claims not being given a hearing to appeal.

"We are not against paying taxes," said a businessman who declined to be identified. "But it is just that the way these taxes are being collected is unfair."

The new collection drive has come as a shock to the private sector which is facing a host of new taxes with the withdrawal of the controversial tax amnesty given by the former regime, higher taxes on vehicle imports and the introduction of the economic service charge, the first instalment of which was due on Friday.

The private sector is complaining that the tax department has suddenly become aggressive in its effort to collect taxes because the government is desperate to fill its depleted coffers and the Treasury is putting pressure on the Inland Revenue to improve collections.

"This has put the government tax collectors in a spot, prompting them to walk into companies and demand they pay up amounts stipulated by them within a short time time," said a businessman. "A fear psychosis is being created and some tax payers have paid up out of fear." He said he knew of one businessman who promptly paid up Rs 2 million without disputing the claim.

The department is said to be bombarding tax payers with tax default and seizure notices while the Treasury is believed to be considering deploying private tax collectors if the latest collection drive does not bring in the desired revenue.

The total income tax collection target for this year is 43.5 billion. Commissioner General of Inland Revenue Kandiah Suseelar said the department is trying to collect Rs 3 billion in arrears under the GST and NSL before the end of December.

"These are indirect taxes, not income tax, and is money the private sector had already collected from consumers on behalf of the government and have to pay the government. They have no right to keep it so they can't complain."

Suseelar said that if there was any dispute about the amount payable tax payers had the usual right to appeal. He also said the department had given enough notice having advertised the need to pay the taxes. The monies being collected are those owed by tax payers under GST and NSL up to July 2002.

"Under the old tax amnesty we were asked not to collect this. That amnesty has been repealed. Now we have authority to collect all unpaid taxes. So that's why we're making some effort and offering concessions - if they pay before December 31 we'll consider waiving the penalty."

However, the private sector believes there is some doubt about the legality of the actions of the tax department because the arrears that are being demanded under the GST and National Security Levy had earlier been considered to have come under the tax amnesty.

Although that has now been repealed, the new law repealing the tax amnesty is yet to be certified by the speaker of parliament -- according to some trade sources - casting doubts about the legality of recovery action.

A business leader said that with the reversal of the tax amnesty SMEs are leading a "hand-to-mouth" existence. "Most of them are sick industries and they need time to pay up," he said, adding that there is a lot of damage done to this sector through collection of taxes in a haphazard manner.

He said bank credit lines for this sector had become very tight due to the Central Bank restrictions. "The costs have risen tremendously along with the interest rates," he explained, adding the SMEs cannot pass the interest rate costs to the consumer because they will be out pricing themselves in the market. He warned if the SMEs close up, there would be a lot of unemployment.

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