IRD back-tracks reforms leading to revenue shortfall in 2024 despite 1Q gains
The Sri Lanka Inland Revenue Department (IRD) has been back-tracking the implementation of reforms leading to a revenue collection shortfall this year although it has exceeded the 2024 first quarter target by 13 per cent.
State Finance Minister Ranjith Siyambalapitiya said that the IRD has collected to Rs. 430 billion compared to the target of Rs.381 billion in the first quarter of 2024.
Considering the achievement of higher than the target in the first quarter of this year and the revenue pattern, the 2024 will become a year in which the revenue targets can be achieved, he said.
But the Parliamentary Committee on Ways and Means in its recent report following an in-depth study stated that the IRD is not in a position to achieve the 2014 tax revenue target as it has so far failed to implement its recommendations aimed at increasing tax revenue collection by 50 per cent.
For the year 2024, the Treasury has set the target of revenue collection at Rs. 2024.44 billion and it is more than half (53 per cent) of the estimated tax revenue of Rs.4164 billion for the year 2024 indicated in the budget 2024.
The budget for the year 2023 had proposed the IRD to open 1.2 million of tax files within the year 2023. However, the IRD succeeded in opening only 368,455 number of tax files in the year 2023 making the total of 997,858 tax files as at 31.12.2023.
The Committee observed that the IRD has default taxes amounting to Rs.1066 billion as at 31.12.2023 under the two categories of collectable default taxes – Rs.188 billion and held over default taxes – Rs. 878 billion.
Since the collection of taxes by the IRD is a cumbersome and prolonged legal battle, taxpayers tend to evade the payment of taxes which is the main revenue source of the government.
Despite eight years having elapsed, the recommendation made by the Committee on Public Accounts (COPA) in 2016 regarding the integration of information technology systems among key institutions responsible for collecting government revenue remains unimplemented to date.
As proposed by the International Monetary Fund (IMF), Wealth tax and Inheritance tax are to be introduced in the year 2024 but no methodology was introduced by the Ministry of Finance, or the IRD to be utililised to calculate and assess the wealth of a person.
Some professionals are hesitant to submit their information and therefore, it has become difficult to capture and regulate the unregulated financial market of the country.
The unregulated market can be captured and regulated only by successfully implementing the integrated revenue management system
COPA has recommended that the measures be taken to implement the Integrated Revenue Management System which could potentially boost the tax revenue of the IRD by 50 per cent, excluding the need to raise any existing taxes.
It has recommended devising a mechanism to find out the actual income earned by the private schools, large scale private tuition classes, private hospitals, health channelling centres, surveyors, engineers, law firms and television and radio advertisements.
This could be done with the assistance of Grama Niladharis using a mobile app with the purpose of capturing and regulating the unregulated financial market.