DEW proposes writing off irrecoverable taxes

by Saman Indrajith

Rehabilitation and Prisons Reform Minister D. E. W. Gunasekera yesterday proposed in Parliament that all irrecoverable taxes be written off.

Participating in the debate on Default Taxes (special provisions) Bill, the Minister said that total tax in default amounted to 134 billion rupees of which income tax amounted for Rs 88 billion.

"In addition to this, VAT in default amounts to 85 billion. There are so many dead taxes, obsolete taxes. Thus, irrecoverable taxes need to be written off. There is no need to carry forward this load of taxes in default which are irrecoverable," he said.

"Perusing the data made available by the Department of Inland Revenue, I find some negative trends relating to the tax administration," he said.

"Firstly, income tax accounts for 35 per cent of the total tax revenue of the Department of Inland Revenue. The biggest share is the VAT which accounts for 48 per cent. The other taxes account for the balance 17 percent. The importance of income tax as one of the main sources of government revenue is evidently clear. I find that income tax as a percentage of government revenue has dropped from 62 per cent to 50 per cent between 2005-2009. Secondly, I also find that income tax revenue as a percentage of GDP has come down from 8 per cent to 7 per cent, thus a decrease by one per cent. Thirdly, income tax collection as percentage of the department’s estimates is 92 per cent, thus a shortfall of 8 per cent. Fourth, income tax return compliance on the due date ranges between 37 percent and 49 per cent in the case of corporate tax payers and in the case of non-corporate tax payers between 28 per cent and 39 per cent. Non-compliance is thus a factor to be reckoned with.

"Fifth, income tax in default as a percentage of revenue has increased from 3.3 per cent (2007) to 5.7 per cent (2009), this is a disturbing trend.

"All these trends, if un-arrested will finally pave the way for increase in tax in default. To combat this disturbing trend the Ministry of Finance has proposed a new legislation, as a measure needed to keep the tax in default at the maximum level of 3 per cent.

Tax in default is not a new phenomenon. I can well remember the circumstances that compelled the Department of Inland Revenue to establish a new unit called Default Branch to arrest this trend. It was a success," he said.

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