The Inland Revenue Department (IRD) plans to prioritise its drive against tax evasion running up to over billions of rupees and promote voluntary compliance with the aim of boosting revenue collection at a time of unprecedented economic crisis this year.
The majority of tax avoidance has been identified in the 15 percent direct tax payers including the corporate sector, a senior official of the IRD said.
The government has foregone massive amount of over Rs.515.15 billion during the past six years due to tax avoidance by several companies and the department is still continuing the recovery process and legal procedures against those tax evaders.
“These tax evaders were making use of the loop holes in tax net specially, regulations, taxation complexity, weakness in tax administration as well as official collection procedures and corruption”, chairman of the Inland Revenue Commissioners association and senior commissioner Sarath Abeyratne said.
Tax revenue has come down OVER rs.1.2 trillion due tax reductions and abolition of certain taxes since 2019 up to last year.
The 2019 reforms included the reduction of tax rates of Value Added Tax (VAT), Personal Income Tax (PIT) and Corporate Income Tax (CIT), and narrowing tax bases of VAT and PIT, while introducing a plethora of tax incentives, such as tax exemptions for agriculture and Information Technology (IT) and enabled services, tax deductions and tax holidays.
This caused an annual loss of around Rs 600 billion – Rs. 800 billion in tax revenue to state coffers per year.
At present, the situation has aggravated to a very critical level where the General Treasury has to increasingly obtain Central Bank financing to make the government expenditures, including a substantial part of interest, salaries and wages, pensions and Samurdhi payments etc.
This is clearly unsustainable and hence the implementation of a strong fiscal consolidation plan is imperative through revenue enhancement as well as expenditure rationalization measures in 2022 and beyond to ensure macroeconomic stability to support the medium to long-term economic growth objectives of the country.
Majority of the tax officers are well qualified, experienced and honest persons but there are few officials alleged of being involved in mal practices he said.
He added that allegations of corruption against the department could be minimised by giving official protection to whistleblowers and eliminating the involvement of tax consultants by simplifying taxes and official procedures.
The IRD expects to embark on a range of tax administration measures to strengthen revenue mobilisation through digitalisation while ensuring improvements in tax compliance, and risk-based tax audits.
Mandatory payment of taxes by an electronic tax filing system is expected to expand to the non-corporate sector which will improve efficiency and reduce opportunities for corruption.
Leveraging technology such as electronic registration facilities and electronic payments will provide a platform for revenue collecting agencies.
The IRD will simplify taxpayer compliance by identifying unregistered businesses by the use of third-party information while strengthening its audit and investigation unit and further digitisation of tax administration.
On the tax compliance monitoring front, taxpayers are to provide additional ways including the use of a taxpayer registration database to carry out tax transactions and improve service delivery.
The IRD plans to speed up complaints handling and further promote digital tax-filing providing a single source of taxpayer information, he disclosed.