Tax travails

In this world nothing can be said to be certain, except death and taxes said Benjamin Franklin one of the founding fathers of the United States of America. Centuries later this stands true with taxes being the core of the Budget presentation a few days ago.

The reduction of taxes in several key areas has prompted many to hail the Budget as being “good” — an euphemistic term that is rarely used by the private sector; but in this instance genuinely applied. Despite the critique of a capitalist Budget aimed to assist the rich, the government seems to have at least made a start by addressing the many hurdles placed within the system hampering investment.  

The tax system of Sri Lanka is well known for its complicated structures — even though top accountants note that in its legal form it is exemplary — everyone acknowledges that when it comes to implementation chaos reigns. Tax thresholds have been lowered in this Budget but the collection, repayments and other processors have hardly begun to unravel themselves from their complicated knots.

The private sector has been urged by the government to meet the challenge presented by the Budget and realise the full potential of a post-war Sri Lanka. However what must be considered at this point is that the Budget proposals have to go beyond words and implement their changes within the system as well.

Over a year ago the Inland Revenue Department launched a programme to clear backlogged VAT payments for 18, 000 claims and so far managed to do 6, 000 cancellations with 7, 950 still in the pipeline. This state of affairs needs to be changed. Even though the tax filing system – especially for income tax has been simplified, it needs to be assisted by a unified system where all the different departments ease the process.

For example most of the VAT bottlenecks are created by the Customs Department and company numbers have to be crosschecked with the Textile Quota Board statistics as well. As a result 1,450 applications totalling Rs. 560 million were delayed. Over 3,800 that fall into the “no response” category are still languishing as the IRD tries to contact the companies that filed the claims – some years ago.   

 Three stumbling blocks exist for the backlogged payments with exporters whose numbers do not tally with Customs records having to re-file their claims. Currently there are over 2,700 such applications totalling Rs. 1.2 billion with the IRD and they have to be processed before 31 December. The deadline was extended from last September as most companies failed to file the complicated forms required.

This is just one instance of confusion and just plain waste of time that tax payments ensue in this country. No wonder most people prefer to slip through the tax net and officials prefer to keep the net narrow for the extra work that they would have to do. Increased tax payers would burden an already hopelessly encumbered system.

Even though the start is at the proposals much more needs to be done. Revamping the tax system has been outlined in the Budget but its implementation has to be overseen for real change to become reality. Company and individuals must also go the distance and assist the process by educating themselves on it and providing the right information. Trust is the best antidote to many problems.