Plight of the Sri Lankan taxpayer
The Department of Inland Revenue ( IRD) has introduced a high tech system called RAMIS which has been in operation for a few years now. However this is full of defects and cannot accommodate a simple requirement to set off overpayment of taxes against taxes due even after establishing genuine over payment. There is no facility to set off the overpayment against the under payment of the previous month.
With the introduction of RAMIS the IRD has suddenly woken up and has gone back as far as 1990s and has amassed millions of outstanding or default taxes. This has been the case with many clients and taxpayers as well as corporate entities. Taxpayers cannot imagine from where the Assistant Commissioners, Deputy Commissioners, Commissioners and Senior Commissioners have found these default taxes. What the tax officers were doing from 1990s keeping these outstanding taxes without informing the taxpayers is something to be concerned about.
It has been a fact that tax payers in the past – individual and corporate - have been visiting the tax department regularly to meet their respective Assessors handling the files.
Assessment notices are issued, queries are raised and explanations given by the taxpayers then and there and things sorted out either by paying additional taxes or the IRD waving off taxes and penalties. In this context how are taxes outstanding for over 25 years? Some taxes are shown as outstanding for over 10 years, 15 years, 20 years and so on. How come these were outstanding for so long? Is it possible?
Assessors come and go. They handle a file for a few years and hand over to another. Assessments notices are raised and explanations called for. On many occasions we have found that though the IRD computer system showed Assessment Notices have been issued, in reality it has not been sent to taxpayers or companies or simply not taken the print outs. On one occasion a heap of old Assessment Notices were found inside the drawer of a lady Assessor handling a tax file.
These issues are normally settled then and there paying additional taxes and penalties or by waiving off the taxes and penalties after submitting Appeals or Objections. Assessors agree to feed the computer system with the necessary adjustments. But some of these have never happened. We were made to understand that these adjustments were done by the Data Processing Unit (DPU) after respective Assessors send it to the DPU. We expected them to make the necessary adjustments but that has never been done.
The normal procedure is that when an Assessment Notice is issued, it gives either 30 days or 60 days to appeal or to raise an objection. If no action has been taken by the taxpayer a red notice follows threatening legal action within a stipulated period.
If that is the case, how come these taxes are outstanding for more than 20 years? I have been visiting the IRD for the last 40 years providing book keeping and tax services to clients. Once it was for seven years, again it was eight years and then became 10 years. There is controversy surrounding it. Once an Assessment Notice is issued in the computer, the IRD has a hold on to it, they say. But the tax payer does not know whether a notice has been issued in the computer.
These long outstanding default taxes do not appear in some of the Interim Default Tax notices issued in between. Is it ethical to send Default Tax Notices after a lapse of 10 years, 15 years, 20 years and 25 years?
During these 40 years most of the Assessors with whom I have dealt with and who handled tax files have become Deputy Commissioners, some Commissioners, some Senior Commissioners, some Additional CG and one became the Commissioner General of Inland Revenue. Most of them have all retired and I think are responsible for this debacle. There were only a handful of good people.
Many taxpayers are affected by this situation. Now even a separate unit for default tax has been formed. Poor innocent individuals when threatened that legal action will be taken, somehow try to pay by mortgaging their properties and other assets without checking whether these figures are correct.
Probably many of these figures are wrong and I will tell you why. One day last year I came to Unit 4 headed by a Commissioner, a very rude lady indeed. An accountant from the corporate sector brought a Default Tax list sent to him to meet this lady and as he was coming to her table, the woman rudely said: “All what is there you will have to pay. If you do not have money to pay now we will give you installments to pay. All the figures mentioned there are correct.” The accountant explained that most of the figures were wrong and that he brought some of the records to prove. One such mistake was that an Assessor has negligently and carelessly recorded Rs. 8,900 as Rs. 89,000. The accountant was very tough and he used a bit of rough words saying all the other figures mentioned in the Default Tax Notice were wrong. A normal ordinary person would have paid that money under pressure from the Commissioners. The rude officer did not utter a word and kept her mouth shut! How many errors like this occur? Almost all the figures may have been wrong. How is one to check the figures 20 years, 15 years old as we do not keep the records that long?
Now the burden has fallen on the present Commissioners and Officers of the default Tax Units to sort these out and in the absence of documents taxpayers have to face the ugly situation of arguing. Tax payers have to pay for the sins of the IRD officials of yesteryear, some of them may have been Commissioners today.
In one case earlier, the IRD filed legal action against several taxpayers at the District Courts Colombo with the head of the legal section not there but one of his juniors being present. Taxpayers did not agree with the VAT figures claimed by the IRD and the District Judge wanted the figures explained. But there was no responsible officer from the IRD. The learned judge was visibly angry and quite correctly threw the files and the cases away and reprimanded the legal officer of the IRD for not being there and for the absence of someone responsible to explain the figures.
Taxpayers have no confidence in the IRD. They keep harassing existing taxpayers squeezing them to achieve targets. There are a lot of people who have become rich recently during the last 10 years and have acquired properties, estates, built commercial buildings, apartments, bought many vehicles buses and lorries and even have properties abroad. Maybe they have made money through good business and some others through drug trafficking and money laundering. Many of them have not opened tax files. There is no fairness in this entire process of tax collection.
Assessment notices issued and taxes and penalties charged on thousands of taxpayers and companies may not be accurate. The IRD holds the taxpayer to ransom threatening to sue the parties after many, many years. So many innocent individuals surrender under pressure and threats and pay massive amounts assessed by the IRD after selling their assets because they fear reprisals from the IRD.
One major hassle of the RAMIS is if a buyer claims a VAT input in his VAT Return and if by chance the supplier either purposely or by mistake does not include the same VAT element as output VAT in his VAT return, then RAMIS will reject the buyers claim for input VAT after comparison. What can the buyer do? The supplier should be penalised for non-payment of output VAT and not the buyer. Every month buyers will have to hang around at the IRD to check what has been disallowed from the list and then go to the supplier’s offices and this way the IRD is using the buyers to collect output VAT for them! In this instance we are paying VAT twice: First to the supplier and secondly to the department with the penalty when it is disallowed, just because of a supplier’s mistake or cheating. Heaps of appeals are piling up at the IRD and one cannot imagine how the department is going to cope with the situation.
Can the Commissioner General Of Inland Revenue explain to the public why such long outstanding taxes are appearing now and not reflected in Default Tax notices sent earlier?
Private accountant of a taxpayer