Seeking short term revenue, a cash-strapped Government is to announce another tax amnesty in the 2011 budget to be presented by President Mahinda Rajapaksa in Parliament on November 22.
The proposed amnesty allows individuals or firms to pay previously unpaid taxes without being subject to some or all of the financial and criminal penalties that the discovery of tax evasion normally entails, a senior official of the Finance Ministry said. He said this initiative would grant people an opportunity to comply with their tax obligations vis a vis the due revenues to the country and to give them a deadline to comply with so that they may thereafter carry on as honest citizens.
He said another reason for this amnesty was the loss of tax files of a substantial number of tax payers due to the damage caused to the Inland Revenue Department (IRD) building in the LTTE air attack on February 20 last year and the misplacement of documents as a result of shifting IRD divisions to rented out buildings in Colombo. The other reason was to minimize tax evasion which was widespread among traders, businessmen and professionals, the official said.
Tax evasion took many forms such as non-filing of returns, under-reporting of income or over-statement of expenses and included transfer pricing. The coverage of taxpayers was narrow being less than 3% of the population, he said.
An IRD official told the Sunday Times that the department was opening fresh files for taxpayers whose files were misplaced or destroyed without considering their past tax dues, on orders from top authorities. This process would be regularized under the proposed tax amnesty.
He said around 50% of local companies of certain categories had failed to furnish tax returns and this was a serious matter, adding however that the big companies were in full tax compliance. The IRD was maintaining 24,278 tax files of resident and non resident companies and there were plans to widen the tax net to increase this number as there was a boom in the tourism, construction, transport, media, advertising and telecommunication sectors. There were a total number of 825,045 taxpayers.
He disclosed that the department had been able to collect Rs.111.2 billion for the first five months this year compared to Rs.105.6 billion in the same period last year. The department’s tax collection target this year was around Rs. 364 billion, up from Rs.353 billion last year, Rs .344 billion in 2008 and Rs.308 billion in 2007. The total operational expenditure of IRD was Rs. 2.7 billion.
In 2003, Sri Lanka enacted the Inland Revenue (Special Provisions) Act No. 10 of 2003 to grant a tax amnesty for tax defaulters with the aim of tackling tax evasion, the informal economy and black money. More than 28,200 declarations were received and this was the highest made under any one of the 10 amnesty laws enacted by Parliament since 1964.
However the United National Front government's tax amnesty including an across-the-board amnesty for Customs offences, came in for widespread criticism from the opposition--the present ruling party--on the grounds that the Government was encouraging wrongdoings and helping party financiers.