Tax Amnesty:The other side

Those involved in campaigning against the 2003 tax amnesty given by the United National Party (UNP) wants it placed on record that there were legitimate concerns surrounding the 'infamous' amnesty scheme which directly violated provisions of the Constitution.

President's Counsel and Additional Solicitor General P.A. Ratnayake, President's Counsel's K. Kanag-Iswaran and Ben Eliyathamby, Attorney at Law Cyrene Siriwardane and chartered accountant Nihal Sri Ameresekere appeared before the Supreme Court in 2004 to record their submissions based on the Inland Revenue (IR) (Special Provisions) Act No. 10 of 2003 as amended by Act No. 31 of 2003. Ultimately, the Supreme Court found the tax amnesty to be unconstitutional and it was subsequently repealed in Parliament.

Arguments before the Supreme Court drew attention to the amounts due as arrears of taxes in respect of laws administered by the Commissioner General of the IR as at 31 December 2002.

The performance report of the Commissioner General of the IR for the year 2002 states that the taxes in arrears as at 31 December 2002 was Rs.68,723,222,261 which includes Rs.19,027,057,007 being Goods and Services Tax, Rs.10,299,012,135 as Turnover Tax and Rs.7,029,100,036 as National Security Levy.

This would reflect the loss of public revenue in relation to tax recoverable by the Commissioner General. No estimate was made of the losses resulting from the immunity granted in respect of custom duty, excise duty and other dues.

According to court documents, the Court was to decide whether the provisions contained in the Inland Revenue (Special Provisions) Act were inconsistent with Article 12(1) of the Constitution which requires all persons to be treated equally before the law. Court documents also question as to whether a pardon could be given by way of an Act such as Inland Revenue (Amendment) Act to a person who is guilty of an offense, whether there has been an alienation of judicial power and whether there has been misappropriation of public funds held in trust for the benefit of the people resulting in an erosion of the Rule of Law.

As stated in its title, the IR Special Provisions Act was introduced to enabled persons who have not furnished a return of income and assets prior to March 31, 2002 to make a declaration in respect of their income, to make provision for the grant of certain concessions to declarants and non-declarants and to indemnify such persons against liability to pay certain taxes and against liability from investigations; prosecutions and penalties under specified statutes with a view to securing the future compliance of such persons with the prevalent tax laws.

The Additional Solicitor General submitted that the tax amnesty which was granted was due to a serious deficiency of the present taxation system, in that it had only a few taxpayers.

Court documents further reveal that a large number of potential taxpayers had evaded the payment of tax over several decades and even some of the existing taxpayers had suppressed the correct income and had only disclosed a part of their income for the purpose of tax. According to the Additional Solicitor General, attempts over the past several decades to bring these tax evades to pay to the IR had been futile and even the previous amnesties offered to such tax evaders had not brought in the expected results.

Therefore, the rationale for Act No. 10 of 2003 was to bring those resorting to tax evasion to make a voluntary declaration of all their assets and income and by that, to increase the number of persons who could be made liable for future taxation purposes. It was also stated that a further objective of Act No. 10 of 2003 was to provide an incentive to the existing taxpayers so that they could make a complete disclosure of their income and assets.

The Additional Solicitor General said both the government and the community would be benefited and would increase the future tax revenue of the government as the number of people who are liable for taxation would increase. It was pointed out that to achieve this objective, it is necessary to offer sufficient incentives which are attractive to such defaulters.

However, court documents states that in doing so, a special class of persons have been created who would be entitled to benefits denied to others who had complied with the law and paid their dues. The Act No. 10 of 2003 makes provisions for persons who have not furnished a return of income and assets prior to March 31, 2002 to make a declaration.

The argument against the tax amnesty scheme is that an honest taxpayer who took pains to submit a tax return, elaborating his income and expenditure is treated differently from the person who now submits a declaration incorporating amounts which he decides that should be paid as taxes. With regard to an honest taxpayer, the amounts to be paid as tax are finally decided by the Assessor of the Department of the IR.

Moreover, the schedule to the Act includes the following Acts which could be considered as being pivotal to the country's revenue, public finance and fiscal control. They are the Customs Ordinance, the Excise Ordinance, the Turnover Tax Act, the National Security Levy Act, the Goods and Services Tax Act, the Stamp Duty Act, the Finance Act, the Save the Nation Contribution Act, the Exchange Control Act and the Import and Export Control Act. Court documents state that it is obvious that the immunity granted by Act No. 10 of 2003, although contained in a law that bears that title and includes time periods particularly application to the IR, is not restricted to the IR alone but brings in a number of other important areas such as Customs, Excise and even the Goods and Services Tax.

Some of the laws such as Customs attracts several other subject areas and therefore would include matters such as Revenue Protection Act and the Air Navigation (Customs Regulations). Additionally, this also includes Value Added Tax (VAT), Immigrants and Emigrants Ordinance, Board of Investment Act and the like.

The right to equality is statutorily enshrined in terms of Article 12 of our Constitution and is a component of the Universal Declaration of Human Rights and International Covenant on Civil and Political Rights (Article 2).

It provides for all persons to be equal before the law and to be entitled to equal protection of the law. This guarantee of equal protection of the law is an injunction issued by the Constitution to the Legislature against enacting discriminatory laws.

Supreme Court judgement

According to court documents, the Supreme Court comprising Chief Justice Sarath N. Silva and Judges C.N. Jayasinghe and N.K. Udalagama, gave a determination on August 23, 2004 stating, "It is our opinion, based upon the preceding analysis that, the provisions contained in the Inland Revenue (Special Provisions) Act No. 10 of 2003, as amended are inconsistent with Article 12(1) of the Constitution which guarantees to every person equal protection of the law in that it granted immunities and indemnities to persons who have contravened the laws that have been referred to and thereby defrauded public revenue, causing extensive loss to the State."

Nihal Sri Ameresekere argued that anyone who opposes the repeal of the infamous 'Income Tax Amnesty Law' is not only violating the Constitution and disrespecting the Supreme Court determination but is also acting to criminalize society by degrading social and moral values and colluding in the defrauding of public revenue, causing extensive losses to the state ( i.e. the poor people of this country) and blatantly contravening the directive principles of State Policy and Fundamental Duties enshrined in Chapter VI of the Constitution.

He stated that Section 3(3) of the tax amnesty law dealing with foreign exchange transactions and inward remittances after March 31, 2002 up to August 31, 2003 had been questionably deemed to have taken place prior to March 31, 2002, thereby having 'opened the flood-gates' for terrorist funds to have surreptitiously come into the country after Act No. 10 of 2003 had been enacted on March 17, 2003.

He further pointed out that as per Section 10 of the amnesty law, ample opportunity had been given for offences to be perpetrated even in the future because if any prosecution is not completed for future offences within a five year period, then no such prosecution can be maintained or continued with and criminal charges would have had to have been dropped by the State.

Ameresekere said it is against all norms in civilized society and against the Rule of Law but the UNP government not only granted pardon for such offenders but also encouraged the growth of such offenders and the continued perpetration of such frauds in the future, which would have led to the country being a 'banana republic' with rampant smuggling, gun running and drug peddling.

Ameresekere explained that indirect and direct taxes collectable by the government as at December 31, 2002 had amounted to Rs. 68.7 billion.

Customs duties defaulted to be collected was reckoned to have been Rs.120 billion. Together with fines imposed by the Controller of Exchange and the Excise Commissioner, the total dues or public revenue payable to the government or recoverable by the government as at December 31, 2002 was estimated to be over Rs.200 billion. Ameresekere stressed that these are disclosed public revenues in the books of accounts of the government and would therefore by deemed to be a part of the Consolidated Fund.

Ameresekere said that former Finance Minister K.N. Choksy told the public that the above mentioned public revenue could not be collected, a claim which was not confirmed by the relevant state authorities such as the IR Commissioner General, the Controller of Exchange, Director Generals of the Excise and Customs Department and the Auditor General.