Twice promised, never delivered: Tax Ombudsman Sri Lanka still needs

Budget day is when the nation listens for numbers, revenue targets, new rates and new reliefs. Behind those numbers lies a quieter but equally important question. How fairly will the State collect the taxes that fill its coffers?

Over the past few years, Sri Lanka has tightened tax administration considerably, and rightly so. Revenue mobilisation has been central to our recovery. The Inland Revenue Department has expanded its use of data, third-party information, digital filing, risk-based audits and stronger enforcement.

But enforcement is only one side of the social contract. When the State’s powers to assess, audit, recover and penalise grow, the taxpayer’s ability to seek fair redress must grow with them. As the net tightens, the scales must stay balanced. That is the case for an independent Tax Ombudsman.

Power needs a counterweight

Tax laws give administrators wide discretion. They can issue assessments based on estimates, call for information, conduct audits, impose penalties and interest, and recover tax through coercive measures. Most officers use these powers professionally and in good faith. Still, every tax system, however well run, will sometimes see actions that fall short of what the law intends.

Around the world, these issues tend to follow familiar patterns:

• refunds delayed well beyond reasonable timelines
• assessments finalised without full consideration of the taxpayer's submissions
• recovery steps taken while an appeal is still pending
• correspondence that does not receive a timely response
• the same provision interpreted differently from one taxpayer to another

None of these is necessarily a dispute about the law itself. They are about how the law is applied in practice, and that is where a dedicated avenue for redress adds the most value.

Gap in our current framework

Sri Lanka has formal dispute resolution mechanisms: administrative review within the Department, the Tax Appeals Commission and ultimately the courts. These deal with the amount of tax. They are legalistic, time-consuming and often expensive, and for a small business owner, a salaried employee or a pensioner they are usually out of reach.

More importantly, these forums are not designed for complaints about conduct and process. Unreasonable delays, procedural unfairness, failure to follow published guidelines and disproportionate recovery action are not “appealable” in the conventional sense. Yet these shape a taxpayer’s experience of the system and, with it, their willingness to comply.

The idea is not new to Sri Lanka. A Tax Ombudsman was appointed in 2005, but the office was abolished in 2008. Establishing the office was again proposed in Budget 2017 and in Budget 2023, but neither proposal has been implemented. The lesson is clear, an office without a statute behind it does not last.

Why this matters for revenue, not just fairness

Some may see a Tax Ombudsman as a luxury Sri Lanka cannot afford. I would argue the opposite.

Tax morale, a citizen’s intrinsic willingness to pay, is one of the most powerful and least costly drivers of revenue. The OECD’s work on tax morale highlights the role of trust between taxpayers and tax administrations in encouraging compliance. When taxpayers feel powerless against the administration, compliance becomes grudging and avoidance becomes rationalised.

A Tax Ombudsman also helps the administration itself. Recurring complaints expose weaknesses in systems and procedures. Seen this way, an Ombudsman is a quality-assurance mechanism, not an adversary of the Inland Revenue Department.

Many countries have recognised that strong tax administrations need equally strong safeguards. Pakistan, South Africa, the United States, the United Kingdom and Australia have all set up independent offices where taxpayers can raise complaints about how they are treated by the tax authorities. The models differ, but the principle is the same, an efficient administration and a protected taxpayer are not in conflict. They reinforce each other.

What a Sri Lankan Tax Ombudsman should look like

1. Independence. A statutory office should be established by way of an Act of Parliamemt, independent of the Inland Revenue Department, with secure tenure, its own budget and reporting to Parliament.

2. A clear mandate. Maladministration, including delays, procedural unfairness, refund delays and disproportionate recovery action, without duplicating the Tax Appeals Commission’s role on the merits of assessments.

3. Accessibility. A simple, digital and free complaint process. A taxpayer should not need a lawyer or consultant to be heard.

4. Teeth. Power to call for records, recommend remedial action and require a written response within set timelines.

5. Transparency. An annual report to Parliament on complaint trends and systemic issues, so individual grievances lead to institutional reform.

Data, digitalisation and trust

Tax administration is becoming increasingly data-driven. Third-party data, information exchange and integration with banking and other systems give the State unprecedented visibility into citizens’ financial lives. This is necessary, but it raises legitimate concerns about data privacy, accuracy and use.

When a taxpayer believes their data has been mishandled, or that an automated risk flag has unfairly targeted them, where do they go? An Ombudsman provides that outlet and helps ensure that digitalisation builds trust rather than erodes it.

Budget signal worth sending

Budgets are statements of intent as much as statements of numbers. Announcing a Tax Ombudsman alongside continued revenue reforms would send a powerful message: the State expects every citizen to pay their fair share, and every citizen can expect to be treated fairly in return.

Sri Lanka has asked much of its taxpayers, and many have responded. The next step is to build a system that taxpayers trust, not merely fear. A strong tax administration collects revenue. A fair one sustains it.

The views and opinions expressed in this article are those of the author in her personal capacity.