IRD tax expenditure management to be streamlined

Sri Lanka’s Inland Revenue Department (IRD)’s tax expenditure management will be streamlined to enhance government revenue, Finance Ministry sources said.

Tax expenditure (exemptions, tax holidays, concessions) management is disjointed due to non-coordination between relevant department's paving the way for corruption due to lack of oversight, a high official of the ministry disclosed.

The ministry has advised that all exemptions are communicated to the IRD via the Board of Investment (BoI) emphasising the need of gazette publishing as there was no clarity or process for information, he added.

IRD has no apparent system to record and track tax exemptions, per se, other than within individual taxpayer files.

At present there is no way to quantify tax exemptions, and IRD has no consistent approaches, and to ensure that these exemptions are permitted according to the parameters such as the expiry dates, concessions apply to, and persons entitled to get them.

It has been found that some BoI approved firms used to sell up to 20 per cent of their production into the local market but subject to nonconcessional tax treatment (VAT, CIT on portion of profits attributed to local sales).

Effective fiscal analysis and tax policy formulation is undermined by unnecessary restrictions (unjustly determined by IRD) on the sharing of taxpayer data by IRD with the Finance Ministry’s Fiscal Policy Department.

The ministry will oversee IRD performance constantly to monitor revenue and compliance outcomes to identify causes of revenue leakage, he added.