Inland Revenue Bill 2026 challenge before Supreme Court

Dr. K. Kanag-Isvaran PC

By a Special Correspondent

In SC (SD) No. 16/2026, a constitutional challenge was filed before the Supreme Court of Sri Lanka against several clauses of the Inland Revenue (Amendment) Bill 2026, which sought to amend the Inland Revenue Act No. 24 of 2017. 

The Petitioner, P.A. Nadeeka Suranjana, a chartered accountant and senior tax partner at Nihal Hettiarachchi and Company, brought the application in his own right and in the public interest under Article 121 read with Article 120 of the Constitution. 

Legal team led by 

Dr. K. Kanag-Isvaran PC

The legal team representing the Petitioner comprised Lakshmanan Jeyakumar Esqr., Nagalingam R. Sivendran Esqr., Attorneys-at-Law, and Dr. K. Kanag-Isvaran, President’s Counsel, who settled both the Petition and the post-hearing Written Submissions filed on 3 April 2026.  They were instructed by Sinnadurai Sundaralingam & Balendra Attorneys-at-Law & Notaries Public

Clauses withdrawn – Cabinet Paper

Before the post-hearing Written Submissions were filed, the Attorney General informed the Court that Clause 28(2) , which had sought to exclude from judicial and Tax Appeals Commission proceedings any document or information not submitted to the Commissioner-General within specified time limits would be deleted in its entirety at the Committee Stage of Parliament. A Cabinet Memorandum dated 27th March 2026 confirmed that amendments deleting Clauses 4, 9, and 28 would also be moved at the Committee Stage, reflecting the Government’s acknowledgment that those provisions were problematic. 

The post-hearing submissions accordingly confined themselves to the remaining contested provisions, Clauses 31(4) and 34.

The Constitutional framework argued

The Written Submissions began by advancing a broad jurisdictional and jurisprudential proposition: that the test of constitutionality under Article 120 is not confined merely to the Fundamental Rights Chapter but extends to the Constitution in its entirety. 

The Petitioner submitted that the inalienable sovereignty of the People, enshrined in Articles 3 and 4, carries with it the inherent requirement of proportionality as a constitutional standard. 

Legislation that imposes restrictions disproportionate to its stated objective offends the sovereignty of the People and is violative of the Rule of Law. Reliance was placed on the Canadian Supreme Court’s landmark decision in R. v. Oakes and on the Indian Supreme Court’s decision in Modern Dental College and Research Centre v. State of Madhya Pradesh, which together establish a proportionality framework requiring that legislative measures be rationally connected to a legitimate objective, impair rights as little as possible, and strike a proper balance between the severity of the measure and the importance of its objective.

Clause 31(4): Criminalising tax default

The central challenge concerned Clause 31(4), which proposed to introduce new subsections 163(4A) to 163(4H) into the principal enactment. 

Under this mechanism, the Commissioner-General could submit a certificate to a Magistrate’s Court against a tax defaulter, whereupon the Magistrate would summon the defaulter to show cause. If the defaulter failed to satisfy the Magistrate, the tax in default would be deemed to be a fine imposed by the Magistrate for an offence, potentially triggering imprisonment under the Code of Criminal Procedure Act. 

The Magistrate was also empowered to require bail as a condition precedent to allowing time to show cause.

The Petitioner’s submission was unambiguous: this was a criminalisation of what had always been, and what Parliament had expressly and deliberately made, a civil debt recovery process. 

The principal enactment as it stands treats unpaid tax as a debt to the Government, recoverable only by civil proceedings in a court of competent jurisdiction. The Legislature, when enacting the Inland Revenue Act No. 24 of 2017, had consciously departed from the criminal recovery mechanism that existed under the earlier Inland Revenue Act No. 10 of 2006. 

This was not accidental; it reflected a principled shift toward equity and fairness in tax administration. Tax default is not an offence under the current Act, and no deeming provision can manufacture an offence where none exists without offending the Rule of Law and basic guarantees of fair procedure. The requirement of mens rea, a cornerstone of criminal liability, was simply obliterated by the proposed deeming mechanism.

Commissioner-General’s certificate

The submissions painted a coherent picture of a Bill that, in its remaining contested clauses, weaponised the tax administration apparatus against the citizen in a manner fundamentally incompatible with constitutional governance

The Petitioner further challenged the additional constitutional dimension: proposed sections 163(4C) and 163(4H) stripped the Magistrate of any judicial power to examine the correctness of the Commissioner-General’s certificate, even while an appeal against the assessment remained pending. The Magistrate was reduced to a rubber stamp, incapable of questioning the basis on which a citizen was being dragged before a criminal court. 

This, it was submitted, constituted an alienation of the judicial power of the People in violation of Articles 3 and 4(c), drawing on the Supreme Court’s own ruling in the Nineteenth Amendment case that sovereignty is inalienable and cannot be transferred. 

The danger was further compounded by the bail requirement, which the Petitioner characterised as extortion through the threat of incarceration.

The State’s argument that similar provisions had existed in earlier statutes was met with the response, grounded in the Court’s own Twentieth Amendment decision, that constitutionality must be judged against the Constitution as it stands today and not by the legislative history of previous regimes.

Clause 34: Criminalising routine compliance failures

The Petitioner similarly assailed Clause 34, which sought to introduce a new Chapter XVIIA containing section 185A. 

Fine of up to Rs. 400,000 or imprisonment of up to six months or both

This provision would criminalise a range of administrative failures, including failure to file an annual statement, a return of income, or a tax return, failure to register with the Commissioner-General, or failure to appear before him — by making them offences punishable with a fine of up to Rs. 400,000 or imprisonment of up to six months or both. The thirty-day compliance window following a notice did little to dilute the draconian nature of the provision.

The Petitioner pointed out that the existing law already provided an effective mechanism in section 190, which criminalises wilful impeding of the Inland Revenue Department’s administration — a provision which requires proof of mens rea and which carries in fact heavier penalties. 

The Inland Revenue Department did not even invoke that provision in practice. The State’s reference to criminal sanctions in the VAT Act was rebutted by demonstrating that VAT is a collection-agency relationship involving third-party funds held for the State, which is categorically different from direct income tax liability. The proposed section 185A, in criminalising even inadvertent or technical non-compliance without any requirement of wilfulness, was submitted to be arbitrary, disproportionate, and violative of minimum standards of fair procedure that a legal system governed by the Rule of Law must respect.

Conclusion of the submissions

The post-hearing Written Submissions concluded by urging the Court to determine that Clauses 31(4) and 34 are violative of Articles 3, 4(c), 4(d), 12, and 14(1)(g) of the Constitution, and that, being violative of Articles 3 and 4(c) and 4(d), they cannot be enacted without a two-thirds majority and a referendum of the People under Article 83. 

The submissions painted a coherent picture of a Bill that, in its remaining contested clauses, weaponised the tax administration apparatus against the citizen in a manner fundamentally incompatible with constitutional governance.​​​​​​​​​​​​​​​