Tax avoidance - a serious offence liable for stringent punishment

Sri Lanka is making tax evasion a serious offence liable for imprisonment and heavy fines extending the range of civil penalties for taxpayers who avoid paying taxes.

The Inland Revenue Act ( IRA) enacted in Parliament last year, stipulated heavy punishment for those convicted of tax evasion, Finance Ministry sources revealed adding that the Inland Revenue Department (IRD) has been directed to prosecute such offenders without delay.

The IRD also announced recently that any informant providing information on tax evaders to the department will be offered a reward of 10 per cent of the additional surcharge and total fine recovered from the defaulter.

According to the new Act, a fine of Rs. 10 million and /or imprisonproperly made under this Act, within the specified time, shall be liable for a penalty of an amount not exceeding Rs.1 million.

Before assessing a penalty for this o f f e n c e, the IRD Commissioner-General shall issue a notice of warning, and no penalty shall be due under this section where the taxpayer complies with the warning notice within 30 days of service of the notice.

Expressing surprise on this provision in the IRA, an eminent tax expert told the Business Times that a taxpayer paying a tax of Rs. 10,000 annually may be ordered to pay a penalty of Rs. 1 million for not furnishing some information.

Thus, this provision, if arbitrarily enforced, may result in unfairly high penalties for a legitimate small taxpayer on charges of a minor lapse on his part, he added.

The biggest worry is that it would negatively impact on the industry, coming at a time when the FTA signed between the EU and Vietnam and Indonesia would become increasingly competitive for Sri Lanka’s exports. “With 50 per cent of our exports being to the EU, if we lose GSP + due to the death penalty then it would have a serious impact on the industry,” he said.

The EU in its statement released on Thursday stated that the bloc “will continue to monitor Sri Lanka’s effective implementation of the 27 international conventions relating to the GSP+ commitment, including the International Covenant on Civil and Political Rights.” They stated that ending the 43 year moratorium on death penalty “would directly contradict Sri Lanka’s commitment taken at the 73rd UN General Assembly in December 2018 to maintain the moratorium.”

The tourism industry noted that even as Virgin Airlines chief and social activist Richard Branson has also reacted to this move by the Sri Lankan government it could have a negative impact although they were not sure to what extent.

“When we are trying to recover why do you want to create another negative connotation – we need to bring in positive not negative discussion,” Sri Lanka Association of Inbound Tour Operators ( SLAITO) President Harith Perera said adding that “knowing the perception of the Europeans this may not go down well with them.”