The need for having discussions on the proposed Inland Revenue Act was highlighted at the Inland Revenue Department AGM held in Colombo last week.
President Maithripala Sirisena, who was present at the meeting said, he is aware of the shortcomings in the proposed Act, and that it should be discussed with all stakeholders and sorted out.
The Commissioners of the Inland Revenue Department however criticized the proposed Act saying that it only fulfils obligations of international donors.
Commissioners of the Inland Revenue Department (IRD) say, there is no need for a new Inland Revenue Act as the existing Ordinance with certain amendments will be adequate to implement a sound tax administration in the country.
Speaking at the 16th Annual General Meeting of the IRD Commissioners’ Association held last week in Colombo, the Commissioners said there are many shortcomings in the proposed new Act and that it only fulfils obligations of international donors which is not beneficial to the revenue collection mechanism in the country.
 Tax expert and consultant, Partner Gajma and Company, N.R. Gajendran |
The IRD Commissioners’ Association President, Mahinda Gunaweera said, there is no need for a new Act as it will lead to several issues which will not help tax administration in the country.
“ Certain amendments to the existing law will help improve tax administration and revenue collection in the country,” Gunaweera said.
However, President Maithripala Sirisena who was the first President to attend the AGM of the Commissioners’ Association of the IRD said, he acknowledges there are certain shortcomings in the proposed new Act which should be discussed with all stakeholders.
“I accept there has not been recruitment to the IRD for a long time and that there are shortcomings in the new Act. Let us discuss all these issues after the New Year,” the President said.
IRD Commissioner General, Kalyani Dahanayake said, tax revenue grew by 157 percent as at March this year. A revenue of Rs. 470 billion has been recorded now, compared to Rs. 418 billion recorded in 2014.
“The Revenue Administration and Management Information System (RAMIS) has helped link administrative units of the IRD and 23 government institutions, enabling better tax administration. The interest among the public to pay taxes has increased. We will take into account the request by taxpayers to simplify the tax system in the country,” Dahanayake said.
She said, education on taxation is at the top of our agenda. We have launched a Masters’ in Taxation and already 60 have completed the program and another batch will commence the program soon, at the Sri Jayawardenepura University.
“Training in legal aspects and technology in taxation is vital, as tax administration is a big challenge due to the rapid changes in this sphere taking place the world over,” Dahanayake said.
Tax expert and consultant, Partner Gajma and Company, N.R. Gajendran opined, improving the administration in the State sector is more important. A new Act alone will not suffice to enhance efficiency in tax administration.
 National Chamber of Exporters President, Ramal Jayasinha |
“There has to be an attitude change in the public sector. The focus should be on improving and reforming state sector administration. Bureaucratic lethargy is a big obstacle to improve efficiency in administration. Employees of state institutions should be motivated to make quick decisions and be efficient in their service,” Gajendran said.
He said, our laws are good, there is nothing wrong with them. It is the administration that is not up to mark. There is no doubt that we need to modernize legislation to keep pace with changes across the globe, but, if there is no improvement in administration, new laws will be of no use.
A partner of Nithya Partners, Neomal Goonawardene said:
“From the point of the business community the main advantages are that the provisions of the new Act are more explicit and therefore give more certainty in respect to the position of a taxpayer. Unlike the previous Act, it is easier to read and understand, whereas in the old Act one needed to know some general principles of tax, mainly from case law in the UK, to be able to understand the correct position,e.g. capital gains.
“The other advantages are, more taxpayers may be able to read the Act and manage their tax affairs on their own, than under the old Act; the argument that the old Act was based on sound English Law based principles does not hold good any more, since England itself has moved away from an Income Tax Act which is based on our model. Furthermore, there is hardly any noteworthy tax decision given by our Courts in the recent past, with the result that the statutory provisions in Sri Lanka have not converted into solid principles upon which, both, the Revenue and the taxpayer could rely on.
“The disadvantage to the business community is that the new Act has taken away certain benefits and concessions under the tax law, which are in the nature of policy decisions rather than wording in a statute. Even though the Budget never announced Government policy changes on these matters, the new Act has included these matters in a manner disadvantageous to taxpayers who are entitled to such benefits. As in any change, there is always a process of re-learning, which Sri Lankans in general seem to hate doing!
“The advantage to the Inland Revenue is that they would be working with a relatively modern statute (irrespective of where it has come from). This should enable IRD officials to grapple with modern terms used in tax statutes and enable them to interact better with global and regional policy makers, and understand the trends in tax law.
“After the initial glitches which are inevitable in anything new, they would have much more certainty with respect to the legal position on various aspects of income tax, dealt with in the statute.
“They have the opportunity to correct certain statutory provisions being reproduced in the new statute, which may not be possible at present, in view of legal uncertainties.
“The disadvantage to the Revenue is that they have to go through a process of re-learning which everybody seems to hate! I presume, the Inland Revenue computer systems, may require some changes. There will be some glitches initially, but none that I believe will affect government revenue adversely”.
The Ceylon Chamber of Commerce in its recommendations and observations said, given the wide implications of a new Act governing the Inland Revenue regime, on business operations and investor confidence, the chamber believes that consultations with the private sector is important, prior to finalizing a new statute. The end of mission press release of the International Monetary Fund released on 7 March, also stated, “…advancing the legislative process for the new Inland Revenue Act, with effective public consultations, is a critical step towards rebalancing the tax system toward a more predictable, efficient and equitable structure”.
The Chamber fully supports efforts to modernize the tax system – both in terms of tax policy, tax law, and tax administration. We look forward to an early opportunity to engage with the authorities to discuss our suggestions and concerns and hope that the Ministry of Finance and the Inland Revenue Department open up this space.
National Chamber of Exporters President, Ramal Jayasinha said:
“The Chamber has not seen a draft of the proposed Act as at date. However, we are hopeful that the Act would be export friendly with facilities such as, favourable taxation. The service sector which is an integral part of exports which enjoyed tax concessions should be retained, particularly in light of this sector being deemed as an emerging sector”. Candor Holding Group Director and Stock Brokers’ Association President, Ravi Abeysuriya said, the final draft of the proposed Act must be in the public domain for the public to express views, for or against the law.
“What I know is that it is a cut and paste job of the Income Tax Act of Ghana and early drafts have major issues,” Abeysuriya said.
Prime Minister Ranil Wickremesinghe addressing the Bar Association Convocation recently stated, the Government hoped to introduce new laws to replace archaic ones and while Sri Lanka can be proud of having an old legal tradition in Asia, the country was behind others in the region when it came to enacting modern laws.
However, he said, the proposed new Inland Revenue Act is a copy, chapter and verse of the International Monetary Fund’s (IMF) model law – for Ghana. Not to discredit a fellow Commonwealth member-state.