ECONOMYNEXT – Sri Lanka’s Supreme Court in a determination sent to the parliament suggested changes to a tax amnesty to be passed with simple majority, but largely dismissed petitioners’ claims that the bill was inconsistant with the country’s constitution.
The bill, once enacted, will allow a person, who had failed to disclose the taxable assets in the past, to invest in financial instruments such as purchase shares, treasury bills or treasury bonds, debt securities issued by a Sri Lankan company or buy any movable or immovable property in Sri Lanka.
The provisions of bill will come into effect on or after the date of commencement of the Act, but prior to December 31. On voluntary disclosure, a 1 percent nominal tax would be payable.
Eight petitions filed by opposition politician and a non-government organization were considered by a three judge Supreme Court bench. The petitioners argued that the bill was inconsistent with Sri Lanka’s constitution and thus needs to be passed with a two-third majority in the parliament.
“We have examined all the provisions of the Bill and determined upon the suggested amendments being effected, neither the bill nor any of the Clauses in the Bill are inconsistent with the constitution,” the Supreme Court said in its determination seen by EconomyNext.
“In the circumstances, the Bill can be passed by a simple majority in the parliament.”
Opposition petitioners have argued that The grant of tax amnesty would legitimise fraud on revenue perpetrated by those to whom the amnesty is granted while some clauses in the bill are discriminatory of taxpayers/citizens who have already made payment of the taxes.
“We observe that unlike in the previous legislation relating to granting of tax amnesties, the present bill contains stringent provisions to comply with all the laws that are in operation,” the Supreme Court said.
“Particularly, the Bill excludes the persons who have earned money illegally. Further, the Bill provides to secure international commitments which are arising from the conventions that Sri Lanka has ratified.”
“Hence, in the view of stringent safeguards embodied in the bill, it is necessary to provide substantial incentives to attract the persons who evade payment of tax, either in full or in part.”
The amnesty includes a range of taxes including value added or betting levies that had not been paid or there are arrears for the undisclosed income up to March 30, 2020.
It will not cover persons who are investigated or have been convicted under money laundering, terrorist financing, bribery law and narcotics or where assessments had already been made.
The new bill comes at a time when Sri Lanka’s foreign currency reserves have depleted to a critically lower level and the country has been struggling to attract foreign investments.
Petitioners have asked the court to increase the tax rate from a lower 1 percent. However, this request also was dismissed.
“….though the previous tax regimes charged a percentage of the taxable income, the Bill contains provisions to charge one percent of the total income declared or the market value of the movable or immovable property at the time of the declaration by the persons who were evasive of paying their taxes as required by the law,” the Supreme Court said.
“In this regard, imposing a higher rate of tax would deter such persons from participating in the scheme offered by the Bill and comply with the fiscal legislation in the future.” (Colombo/Aug18/2021)