Rule of law in taxation: Rights before revenue – Part 3

Every taxpayer has the right to be treated with respect in all interactions with tax officials

If taxpayer rights are to be meaningful, they must be recognised not as privileges granted at the mercy of officials, but as enforceable guarantees safeguarded by the law. This requires not only enlightened leadership at the top but also vigilance by civil society, tax professionals, and taxpayers themselves. Silence and indifference in the face of corruption and abuse only deepen the culture of impunity

Parts 1 and 2 of this article highlighted two fundamental rights of taxpayers: the Right to Know the Legal Basis for Taxation, and the Right to Know the Reasons for an Amended or Additional Assessment.

It must be reiterated that when taxpayer rights are violated, the resulting official actions—and in particular tax assessments—stand to be nullified and set aside, for taxpayer rights take precedence over the taxing power of the State agencies, be it the Inland Revenue Department (IRD), Customs Department and others. Unfortunately, many taxpayers remain indifferent to their rights. Equally regrettable is the fact that numerous tax advisors and consultants are either unaware of these rights or reluctant to educate their clients about their significance for various reasons.

Scope extends beyond the IRD to all revenue-earning agencies

As reiterated in the previous parts the scope of this discussion is not confined solely to the IRD. The terms tax, taxpayer, tax officials, and related expressions used herein are intended to extend beyond the IRD. As emphasised in Part 1:

“Since IRD-collected taxes cover a wide portion of the population and account for the largest share of government revenue, both taxpayers and tax officials of the IRD have been taken as the primary focus for illustration.”

Therefore, readers are respectfully requested to interpret “tax” and “taxation” in a broader sense, encompassing not only the IRD but also the Departments of Customs and Excise, depending on the context.

The right to fair and honest treatment

Another fundamental right of taxpayers, recognised both locally and internationally, is the Right to Fair and Honest Treatment in all dealings with the tax authority. This right reflects the principle that taxation must be administered with integrity, impartiality, and accountability, ensuring that taxpayers are treated not merely as sources of revenue but as citizens entitled to dignity and justice.

Every taxpayer has the right to be treated with respect in all interactions with tax officials. Investigations and inquiries must be conducted professionally and lawfully, without intimidation, harassment, or abuse of authority.

This fair and honest treatment is not only a fundamental right of taxpayers but also a crucial obligation of every state official dealing with the public. That is why the Constitution has enshrined this right as a Fundamental Right under Article 12(1), which states:

“All persons are equal before the law and are entitled to the equal protection of the law.”

Unfair treatment and arbitrary actions by public officials—particularly those of the IRD, Customs, and Excise—undermine this principle. Since these authorities handle matters of state revenue, which is highly sensitive, their relationship with the public often turns into a constant tug-of-war: officials striving to maximise revenue collection while taxpayers naturally seek to minimise or avoid excessive burdens.

Addressing public perception and rebuilding trust in hearings of the CGIR and TAC

This article would be incomplete without acknowledging – reluctantly – a bitter truth of a growing concern among taxpayers and stakeholders: the perception that seeking redress from the Commissioner General of Inland Revenue (CGIR) and even the Tax Appeal Commission (TAC) is ineffective. 

A belief is emerging that both institutions are biased in favour of the state, often at the expense of clear violations of tax law and taxpayers’ fundamental rights. If this public perception is not corrected, it could erode trust and confidence in both institutions, creating a fertile environment for corruption and bribery to flourish.

Official act: Good faith and bad faith

The term good faith means actions taken honestly, sincerely, and with a reasonable belief that such actions are lawful and within the scope of one’s official duties, even if they later prove to be mistaken. 

In contrast, bad faith arises where an act is performed dishonestly, maliciously, fraudulently, or with knowledge of its unlawfulness, often driven by personal gain or improper motives. 

Accordingly, where a public official acts in good faith in the discharge of official functions, the law shields such official from personal civil liability; however, this protection does not extend to acts done in bad faith, willful misconduct, or gross negligence.

Section 97(3) of the IR Act reads as follows:

“The Commissioner-General or an officer of the Department authorised by the Commissioner-General to perform any functions under this Act shall not be personally liable in civil proceedings in connection with any act done by the person in good faith in the discharge of those functions.” 

Further, the Constitution too in four different occasions clearly says that no suit or prosecution shall be initiated against a public servant if any official act or thing done in good faith. 

However, the opposite is equally important. When a public officer acts in bad faith—that is, with dishonesty, arbitrariness, or in violation of rights guaranteed by law—he or she loses this protection. In such cases, the officer can be sued and held personally accountable for the consequences of those actions.

Only last month, in July, the Supreme Court delivered a judgment holding a public officer—the former Officer-in-Charge (OIC) of the Hasalaka Police Station—personally liable and imposing a fine for acting in bad faith. His conduct, carried out under the guise of duty, was found to have violated the fundamental rights of a woman who had been arrested and detained merely for wearing clothing bearing a ship’s wheel, mistakenly construed as a depiction of the Dhammachakra.

Any public officer from the state revenue agencies is yet to be personally sued for any official act done not in good faith. I wish some public interested parties and individuals should come forward to prosecute such public officials who evidently acted not in good faith, violating rights of the taxpayers, holding them personally liable in civil proceedings as a deterrent lesson. 

Readers are respectfully requested to read “Preventing corruption at bureaucratic level” published in Daily FT on 31.12.2024. The link: https://www.ft.lk/columns/Preventing-corruption-at-bureaucratic-level/4-771168

Proactive measures taken by the CGIR for the protection of taxpayer rights

It is heartening to note that former Commissioner General of Inland Revenue Department D.R.S. Hapuarachchi had taken four major bold pre-emptive steps to eradicate corruptions at IRD by tax officials and taxpayers alike.  

1. Taxpayer Charter (22.06.2023) https://www.ird.gov.lk/en/publications/SiteAssets/Taxpayer_Charter_Final.pdf?menuid=1509 

2. Prevention of Corruption in the Inland Revenue Department (PN/OT/2023-01, dated 24.08.2023)https://www.ird.gov.lk/en/Lists/Latest%20News%20%20Notices/Attachments/528/PN_OT_2023-01_24082023_E.pdf 

3. Instruction to issue additional or amended assessments (CGIR/2023/3-1 (ins & Cir) 15 dated 22.06.2023 (This is yet to be published)

4. Scope of the Administrative Review (CGIR/2023/3-1 (ins & Cir) 14 dated 22.06.2023 (This is yet to be published)

First two documents have been uploaded to the IRD web portal while the next two documents are yet to be published, despite the fact that the note beneath the respective two documents says that “in order to ensure transparency and fair play, this circular is published in the official IRD website.”

 It is indeed encouraging that the IRD has taken such bold and proactive steps to foster a fair, transparent, and taxpayer-friendly environment. Yet, it is regrettable—if not tragic—that so few taxpayers, tax consultants, and tax agents are truly familiar with these documents or take the initiative to educate their clients, often choosing instead to collude in malpractices alongside black sheep officials

Some features of the four milestone documents published by the CGIR

I. Taxpayer Charter

It is worthwhile to reproduce here the observations made by the CGIR in the foreword of the Charter. “We recognise that paying taxes is an obligation, but it is our duty to make the process as simple, efficient, and equitable as possible. The Taxpayer Charter reflects our commitment to ensuring that our tax administration is streamlined, accessible, and responsive to your needs. It emphasises our responsibility to provide clear and timely information, deliver efficient services, and treat every taxpayer with fairness and impartiality.”

Chapter 03 of the Taxpayer Charter sets out the following rights of taxpayers:

a) The right to fair and honest treatment

b) The right to professional service and assistance

c) The right to redress

d) The right to representation

e) The right to privacy and confidentiality

f) The right to access information

g) The right to assistance

h) The right to reasons and review

i) The right to simple and user-friendly access

II. Prevention of corruption in the Inland Revenue Department

The bold initiative taken by the CGIR is both unique and unprecedented, as it is rare for the head of a government department to take such a decisive step to root out corruption within their own institution.

The public notice issued by the CGIR begins with the following powerful statement:

“Corruption at a revenue administration corrodes the moral fabric of society, rewarding dishonesty, punishing integrity, and ultimately leading to a breakdown of trust and social cohesion.”

The notice proposes several proactive measures aimed at preventing both tax officials and taxpayers alike from engaging in bribery and corruption. Key measures include:

a) Zero tolerance – Parties are encouraged to collect prima facie evidence of bribery or corruption and lodge complaints with either CIABOC or the CGIR.

b) Clear complaint procedures – The notice sets out the modes of submitting complaints.

c) Protection of complainants – The safety and security of complainants are assured, safeguarding them from retaliation or reprisals by officials.

d) Suspension of audit proceedings – Audit proceedings against a complainant will be halted immediately if prima facie evidence supporting the allegation is established.

e) Transparency and Accountability: As a way forward of combatting corruption and for ensuring transparency and accountability, all the instructions, circulars and guidelines of the CGIR, which are related to affairs of the taxpayers – such as assessments, administrative reviews, rights and obligations – shall be made available at the website of IRD. 

The notice concludes with the timeless words of Martin Luther King Jr.:

“The indifference and silence of the good people are the most dangerous weapons in the arsenal of wrongdoing.”

III. & IV. Instructions on Additional or Amended Assessments and the Scope of Administrative Review

The documents titled “Instruction to Issue an Additional or Amended Assessment” and “Scope of the Administrative Review” were issued for several reasons, including compliance with the Extended Fund Facility (EFF) requirements of the IMF. These documents incorporate long-awaited reforms and guidelines, such as:

• Auditing as an exception, not a rule – No audit of a tax return may be initiated without prima facie or material evidence.
• Prior written approval – Any proposed audit must be supported by a report containing material facts and obtain prior written approval from the Commissioner of the Unit.
• Time limits for audits – An audit must be initiated at least 10 months before the statutory time bar for issuing an assessment.
• Finalisation of amended assessments – Any amended assessment must be completed at least two months before the time bar lapses.
• Special approval from the CGIR – If a tax official cannot comply with the above instructions, special authorisation must be obtained from the CGIR to proceed.

The “Scope of the Administrative Review” is intentionally limited, focusing mainly on verifying whether the instructions outlined in the “Instruction to Issue an Additional or Amended Assessment” were duly followed, along with a few other specified considerations.

The way ahead: A call for action for other revenue agencies

It is indeed encouraging that the IRD has taken such bold and proactive steps to foster a fair, transparent, and taxpayer-friendly environment. Yet, it is regrettable—if not tragic—that so few taxpayers, tax consultants, and tax agents are truly familiar with these documents or take the initiative to educate their clients, often choosing instead to collude in malpractices alongside black sheep officials.

The public perception of revenue-collecting agencies, particularly Sri Lanka Customs, is far from encouraging. It is widely alleged that without paying kickbacks at almost every level—whether to security guards, Shroff, or even executive-grade officers—the clearance and release of imported goods cannot be secured.

The extensive discretionary powers vested in Customs officials to collect cross-border taxes and levies are said to be frequently abused by dishonest officers. Genuine importers, as well as government efforts to curb these malpractices, often face retaliation in the form of deliberate delays in clearing goods or false portrayals of such interventions as political interference to release illicit cargo—as seen in the recent saga involving 343 containers. 

The greater tragedy lies in the unsolicited and blind support extended by opportunistic opposition politicians, which only helps perpetuate these corrupt practices. For further details, the readers are requested to read another article of this author: “Inefficient State and corrupt bureaucrats taking taxpayers for a ride” published on Daily FT on 24.02.2025. The link is: https://www.ft.lk/columns/Inefficient-State-and-corrupt-bureaucrats-taking-taxpayers-for-a-ride/4-773400.  

I firmly believe, and wish to emphasise, that other departmental heads—particularly those of state revenue-collecting agencies—should also introduce similar, yet distinct, proactive measures to eradicate prevailing malpractices and to ensure a fair, transparent, and conducive environment for delivering better public service.

Conclusion

The rule of law in taxation cannot be reduced to a mere contest between revenue collection and taxpayer resistance. It is, above all, a question of fairness, integrity, and accountability in governance. The Inland Revenue Department, under recent leadership, has demonstrated that bold and principled reforms are possible when there is both vision and courage. Yet the same spirit must urgently be extended to other revenue-collecting agencies—particularly Customs and Excise—where discretionary powers and opaque practices continue to erode public trust.

If taxpayer rights are to be meaningful, they must be recognised not as privileges granted at the mercy of officials, but as enforceable guarantees safeguarded by the law. This requires not only enlightened leadership at the top but also vigilance by civil society, tax professionals, and taxpayers themselves. Silence and indifference in the face of corruption and abuse only deepen the culture of impunity.

Therefore, the way forward demands a dual commitment: the State must institutionalise taxpayer rights across all its revenue agencies, and citizens must be prepared to assert and defend those rights. Only then can taxation in Sri Lanka evolve from being viewed as an adversarial burden into a fair and transparent process that strengthens both public confidence and national progress.

(Concluded.)

Part 1 of this article can be seen at https://www.ft.lk/columns/Rule-of-law-in-taxation-Rights-before-revenue-Part-1/4-779983 and Part 2 at https://www.ft.lk/opinion/Rule-of-law-in-taxation-Rights-before-revenue-Part-2/14-780385

(The writer is a retired Deputy Commissioner General of IRD. He can be reached at [email protected].)