Tuition masters come under the tax net

By Sunil Karunanayake

Modernization of the Inland Revenue is long overdue and is also the dream of taxpayers. Deputy Commissioner General Tax Administration E. M. M. Meddegoda told a stunned audience recently that the country’s premier revenue collecting agency is yet working with the officer cadres of the 1970s comprising 100 Assessors and 370 tax officers though the tax structure has taken many turns and swings over this near four decade period, the revenue giant has remained static in its key resources. However he had his share of good news too to the public when he elaborated the initial steps in the “Modernization” comprising a new administration structure and specialists in HR & IT and engaging software consultants etc.

Children as young as these too now seek the aid of tuition masters

Meddegoda was addressing the seminar organized jointly by the Tax Faculty and the taxation committee of the Institute of Chartered Accountants of Sri Lanka.

He said modernization is a dire need for all stakeholders such as the government, IRD, taxpayers, etc and the funding is from the government as well as the donor agencies.

Though tax revenue did improve in 2005; it is still at 52 % of the government revenue and this collection is inadequate. He attributed this shortfall to administration lapses, tax exemptions and also corruption. IRD is currently working towards broadening the base, simplifying the process and procedures, identifying non-filers as well as registered taxpayers who fail to furnish tax returns. Elaborating the measures taken to broaden the base, Meddegoda explained that the information has now being gathered of all professionals like lawyers and doctors and the high revenue earners such as tuition masters.

The IRD has already appointed 5 Deputy Commissioner Generals to strengthen the higher structure, set up a code of ethics for the IRD employees and also established one stop service centres to assist taxpayers.

The government is looking at reaching an ambitious target of 75% revenue collection, which will raise the income tax to 4 % of GDP. Administratively IRD will for the first time focus the emphasis on the human resource aspect a feature sadly lacking in the state sector. Considering the taxpayer convenience metro offices have been moved to Jawatta and Navam Mawatha and new regional offices have been set up at Maharagama, Matale, Gampaha and Ampara.

Though the electronic filing process is yet in nascent form 100 VAT files have already been selected for e-filing.

J.M.S. Britto, Managing Director of Aitken Spence, expressing the private sector view requested that the tax structure be simplified to improve compliance and lower the rates to widen the base. He also expressed dissatisfaction on some of the recent measures like over taxing on the credit card payments by way of the debit tax and the re-introduced stamp duty. Commenting on thin capitalization, he suggested that this be extended to recognize group tax concept.

N. R. Gajendran, Vice President of the Tax faculty made a presentation on the recent changes on the Inland Revenue Act. He made a detailed analysis on proposals in the budget that were implemented as well as the implementations outside the budget proposals.

Statutory provisions not arising from the budget 2006 were miscellaneous exemptions from income tax, exemptions from income tax of certain interest received, deductions for bad debts in ascertaining profits and income, restriction on allowable qualifying payments and the removal of certain restrictions on information, records and interviews.

Lakmali Nanayakkara Chairperson of the Taxation committee of the ICASL made her presentation on the Economic Service Charge (ESC) an advance minimum tax which ran in to certain controversies with the tax payers. She explained some of the recent IRD rulings on this new tax legislation in Entrepot trading- turnover is gross income and not commission, approval to pay ESC as per different accounting years if such changes have been approved by the Tax chief, and non recoverability of ACT against ESC. In winding up she raised the issues of liability of dividend income and profit on sale of shares in ESC, rectifying errors in the current quarter return, exclusion of bad debts on turnover incurred prior to imposition of ESC, and the position of a taxpayer whose turnover exceeds Rs 10 million in only in one quarter.

It was also pleasing to hear that overseas training is now being provided to IRD officers on a continuing basis as asserted by the Treasury Secretary during the post budget seminars and that the IRD aiming to be a partner in nation building.

What’s most important to bear in the minds of the IRD officials is that it’s the taxpayers who generate revenue and the function of the IRD is to provide the mechanism by acting as an intermediary between the revenue seeking-government and the revenue earning taxpayers.

To play this smooth transition role or pass the ball down the line correct attitudes that should be developed in the minds of the IRD officials to win the confidence of the public, a great majority of the taxpayers are honest and it’s only a minority who create mischief. Confidence building should be a high priority for the newly set up HR division of the IRD.

With continuing professional development, high ethical standards and correct attitudes IRD will undoubtedly be able to play a significant role in the much-treasured nation building process.