Fear not taxes, doubt not IRD

* Tax Week in November: Cash strapped government to engage public on the virtues of paying taxes

* Tax collectors say contribution to GDP on the decline


Sri Lanka will hold its first annual Tax Week from November 1 to 8 with the Inland Revenue Department organising a series of programmes across the country in a bid to alley fears and clear doubts harboured by the public, expose the new-look department and its services and build bridges with the public by creating awareness of the virtues of paying the ‘right tax at the right time’ top officials said yesterday (24).

"No one should fear the Inland Revenue Department (IRD) and no one should doubt us. The purpose of the Tax Week is to salute those who pay their taxes and to encourage others to do so," Commissioner General of the Inland Revenue Department Ms. Mallika Samarasekara told journalists yesterday at a special media briefing to announce the annual event.

"We hope people would realise the importance of paying taxes. The government must spend on so many areas the private sector would not invest in, such as health, education, irrigation, roads, ports and airports, if the country is to develop. If the government is to spend it needs revenue. For the government to have enough revenue those eligible to pay income tax should do so," Ms. Samarasekara said.

"We hope to attract around 50,000 or more new income tax payers during the Tax Week. But this is not the main intention. We don’t want to open tax files; all we want to do is to educate the public on the virtues of paying taxes.

"Those who have not paid their taxes although being eligible have nothing to worry because the law protects them. If they come forward they would only have to begin filing their taxes from the next year. Taxes are filed through a self assessment mechanism. We cannot and will not force anyone to pay taxes, this is not how we operate," the Commissioner General said.

During the past two months the Inland Revenue Department has been through a programme to change attitudes of all staff from top to bottom so as to instil a customer service oriented culture at the organisation. The department’s headquarters in Colombo boasts a one-stop-shop and the Commissioner General said this unit was geared to provide a friendly and efficient service to any one calling on the department in order to eliminate the from-pillar-to-post structures of many government institutions.

The department is also planning to install a hotline number to handle tax payer queries, complaints and recommendations.

"We are always ready to entertain complaints and queries. We even call for recommendations for the budget by way of newspaper advertisements, but we get a very poor response," Ms. Samarasekara said.

The Inland Revenue Department has been set a revenue target of Rs. 512 billion this year and up to end September has collected taxes worth Rs. 369 billion, eight percent higher than a year earlier. Accounting for around 50 percent of total government revenue, the department collected Rs. 328 billion in 2010 and Rs. 442 billion.

However, the income tax collection has not been able to keep up with economic group. Income tax as a percentage of GDP amounted to 8.6 percent in 2007 and has declined gradually since then to 6.9 percent in 2011.

"We have taken a hit due to the reduction in tax rates at the previous budgets and certain tax revenues were transferred to other government agencies," Ms. Samarasekara said.

The department said it had 897,000 active tax files.

Last year the agency had 1,736 cases pending in courts over tax disputes.

A recent study by the UNDP/Institute of Policy Studies showed that the government’s taxation policy was hurting the poor and preventing resources from going into critical areas of the economy which could significantly improve the standard of living in the country, with 80 percent of revenue coming from indirect taxes.

Tax collection a form of activism...

Last year, The Institute of Policy Studies organised a two day international conference on taxation and development which brought together top international experts on the subject. The conference theme was, ‘Pulling Ourselves Up: taxation, State-building, and Away from Aid’.

Mick Moore, Chair/CEO, International Centre for Tax and Development, Institute of Development Studies of the University of Sussex UK highlighted the growing importance of taxation as means of state-building. Apart from its functions of redistributing income, thereby minimising inequality, tax administration is also being seen as an integral unit in the fight against crime and an efficient tax system would also attract more investments.

For Sri Lanka, the idea that collecting taxes was actually ‘state-building’ would be key to future equitable development prospects of the country, he said.

"Sri Lanka has something of a world record. During a period of war the country has been able to sustain a period of growth. But tax revenues have been going down. Fiscal data over a 20 year period has shown that the proportion of tax revenue spent on salaries has increased and increased and increased. The government is employing a lot of people but they have very little tools to do anything.

"At one time Sri Lanka was leading on education and health indicators. Now, Sri Lankan figures are shocking. The country is the lowest spender in education (as a percentage of GDP) even lower than Bangladesh and Nepal (as a percentage of GDP). This bears down on the quality of the labour force and prospects for economic growth become poor," Moore said.

Another tax expert speaking at last year’s forum urged the women and men who collected taxes for the state to engage with the media and make noises about the inefficient manner in which tax rupees were being spent.

"The taxman is often questioned by rate payers as to why taxes should be paid when the state often misused the funds. The onus in on the tax collectors to make noises in the press and question the state, that the manner in which public funds were being spent was not good enough," Aidan Keanly, Senior International Relations Specialist, South African Revenue Service said.

"Collecting taxes in also a form of activism, for example, if a minister has several SUVs then questions must be raised. But this can only be done if you are consistent and keep your nose clean," she said.

Fiscal performance off track?

Data available for the first seven months of this year suggests the government is more likely to miss the 6.2 percent of GDP budget deficit target by the year’s end having reached 5.56 percent of GDP as at end July 2012.

Government expenditure growth raced ahead twice as fact as revenue growth, Central Bank data released earlier this month showed. Total revenue as at end July reached Rs. 564.4 billion, an increase of 12.85 percent from a year ago. Total expenditure reached Rs. 981.7 billion, increasing 25.13 percent from a year ago.

Tax revenue during the period January to July 2012 amounted to Rs. 490.4 billion, growing 11.93 percent from a year earlier.

This has resulted in the government having to borrow heavily to meet its expenditure requirements.

Total outstanding debt of the government reached Rs. 6,161 billion as at end July 2012, Central Bank data showed, growing by Rs. 1,027.6 billion during the seven month period this year. According to the 2012 budget, the government’s borrowing limit for the full year is Rs. 1,104 billion.



Commissioner General of the Inland Revenue Department Ms. Mallika Samarasekara

Pic by Saman Ranaweera

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