ECONOMYNEXT – Sri Lanka is struggling to meet its tax revenue target committed to the International Monetary Fund (IMF) this year due to inefficiency and corruption among the state officials at Inland Revenue Department (IRD), the Customs, and Excise Department, ruling party legislator Mahindananda Aluthgamage said.
Aluthgamage, the chair of the Parliament Sectoral Oversight Committee on National Economic and Physical Plans, said the government’s tax collection is far behind the target due to the lethargic attitude of the three main state revenue collecting institutions.
“The IMF is not happy about the government’s tax collection,” Aluthgamage told reporters at a media briefing in Colombo.
“So, the IMF has raised concern over this.”
The government has estimated a revenue target of 3.1 trillion rupees for this year, but as of September 26, the collection has been 1,64 trillion rupees.
Aluthgamage said the government is likely to face a 637-billion-rupee or 20.5 percent short fall in the revenue if the current collection trend continues.
“We believe that this is not an impossible target. Had we planned for this target with the Inland Revenue Department, The Customs, and Excise Department, we could have achieved this target,” he said.
The former cabinet minister for agriculture openly criticised the three-revenue collecting institution for the revenue short fall as they had failed to open new tax files, collect the overdue payments, and take necessary legal actions against defaulters.
LESS TAX FILES
The official data showed that only 161 Company Income Tax (CIT) files, 8,533 Individual Income Tax (IIT) files, 14 Partnership files, 104 Value Added Tax (VAT) files, and 2,094 Social Security Contribution Levy (SSCL) files have been opened in the eight month period through August 31 this year.
Aluthgamage said President Ranil Wickremesinghe had expected at least 1 million new tax files be opened by end of this year.
“Sadly, we have to state that the Inland Revenue Department with a capacity of 2,500 employees only collect taxes from 494 institutions. If we can address the irregularities, we can raise the tax by 500 billion rupees,” Aluthgamage said.
“We have identified the daily loss at the Customs is 1 billion rupees and 360 billion per annum. In the Inland Revenue Department, we lose 500 million rupees per day and 180 billion rupees annually. We lose this due to inefficiency and corruption.”
“If you take the Excise Department, the annual liquor production is around 540-600 million bottles. However, out of the total production, 40% of the bottles go out in a different way without being subject to excise tax. No government taxes paid on these bottles. The manufacturers sell these bottles in an illegal way and the government does not get taxes.”
He criticized Excise Department officials for the current counterfeit sticker scam.
“The government introduced a sticker in 2018 and in was properly implemented from 2022. When the implementation was started, we saw an increase in the taxes on liquor. But now, there are counterfeit stickers and the tax on liquor has fallen by 40 percent again,” he said.
“Until the Parliament Sectoral Oversight Committee asked the Excise Department officials, for one-and-half years, they did not do anything to stop these counterfeit stickers. Only after we advised the Excise Department, they have arrested 40,000 liquor bottles with counterfeit stickers.”
“So, if we can stop irregularities and corruption in these (three) state institutions, we can increase the tax revenue by 500 billion rupees.”
“Every time people find fault with the government and ministers. But the reality is that, this is due to the fault of the state officials in these institutions. This is due to inefficiency in the Inland Revenue Department, inefficiency in the Customs, and inefficiency in the Excise Department.”
Parliament Sectoral Oversight Committee led by Aluthgamage now recommended to establish a body to monitor and regulate all three state revenue collecting institutions.
“If we can have a proper monitoring mechanism of these institutions, we can raise the government revenue,” he said.
Citing the lethargic attitude of the Inland Revenue Department (IRD), the legislator said the IRD is struggling to recover defaulted tax of 904 billion rupees due to longer appeal process.
The appeal process for tax default involved for stages and each stage could take at least three years.
“This (IRD) is the only institution in the world where you can appeal four times and not pay the taxes for 15 years,” Aluthgamage said.
“This is a mafia by government officials. All accuse minsters and politicians. But the biggest corruption is among the government officials.”
Out of 904 billion rupees, 437 billion rupees has to be recovered from dispute cases and another 330 billion rupees could be easily recovered, but IRD officials are not recovering the money.
“If we collect them, we can get the 600-billion-rupee revenue deficit for this year,” he said.
“We urge the government and the President to establish a new unit to regulate these institutions.”
“We have only16 IRD branches in Sri Lanka. But Colombo itself needs 15 offices for each Colombo area,” he said addling that there is resistance within the IRD to open new tax offices.
“We have a voluntary tax payment system. In other countries, people receive the money after the tax deductions. So, we are considering enacting laws (to deduct tax before payments).” (Colombo/September 26/2023)