New Inland Revenue Act
It was proposed in the 2016 budget that a new Inland Revenue Act was needed to address severe deficiencies in the present legislation, chief among which the arduous and complex positions which has slowed down operations. It was also proposed that the new act would contribute to making the process simpler and efficient.
The government although has moved ahead with plans to implement the new act, has been met with severe criticism. Key among which the concerns raised by Commissioners of the Inland Revenue Department who voiced their displeasure over the new act, saying it was not a necessary measure with existing laws being sufficient to enforce a strong taxation regime supplemented only by a few amendments. They also voiced their concern if this measure was only done to appease the international players such as the IMF.
Another point that was made is the existing RAMSIS system which is based on the present legislation. The system had been developed with assistance from the Singaporean Government with the ultimate aim to “ integrating the automated systems of the Inland Revenue Department, Sri Lanka Customs and Ministry of Planning to optimize revenue and fiscal efficiency and accountability” This was to be achieved via integration with over 26 other government agencies and if new legislation was to be adopted the entire process would be a waste of money, time and significant effort and resources according to the Commissioners of the Inland Revenue Department.
The government has been under significant pressure by the IMF as adoption of a new inland revenue act was one of the primary conditions put forth by the IMF when it granted the extended loan facility in 2016 for an amount of US$ 1.5 Billion. As stated in the IMF Country Report No. 16/371; “new Act should: broaden the tax base by removing excess tax incentives; modernize rules related to cross-border transactions to address base erosion and combat tax avoidance; reduce complexity through an improved principles-based drafting style; and strengthen and clarify existing powers of the Inland Revenue Department to improve enforcement”.
The new act is expected to remove some of the excessive tax holidays and exemptions that had been granted and is also expected to contribute towards positively impacting the Income to tax ratio of Sri Lanka. The figure is currently at 2% and is expected to rise to 4% by 2020 with the legislation. A key feature in the new legislation is that it will include a capital gains tax of 10%, though it is yet unclear on exactly what areas this will be implemented.
Despite the disparity between the commissioner’s stance and that of the government both parties seem to agree on the notion that it is paramount that the tax base of the country increases and this is a fact indicative of the direction of the government as it is expected to continue with adopting strong taxation measures in place to this effect.
Many in the private sector too are divided over the new act. However, there is some positive support towards the act as it’s expected the Act will be more certain in its provisions as opposed to the existing regulations which requires tax payers to possess a sufficient degree of expertise and sometimes a reliance on case of law UK cases to fully understand the effects. This is likely to be prevented by a more robust set of provisions in the new act. However, the private sector has also raised concerns that some businesses will be affected heavily due to certain tax benefits being taken away.
The new Inland Revenue Act is likely to be enacted despite any opposition as the government holds a secure majority in the legislature and as it has to honor the commitments made to IMF. Therefore, when the new Inland Revenue is enacted significant debate can be expected particularly in the area of capital gains taxes and especially this is likely to cause some doubts in the stock markets as there is concern the government might to choose to include the stock market within the scope of the capital gains taxes as well.
However, the new Inland Revenue act does boast a considerable number of things which are going to make a positive impact in ensuring a wider taxation base and steps towards preventing tax avoidance and erosion which will help the government raise more revenue in the long term.
|Article Code :||VBS/AT/14062017/Z_2|