‘IRD on dangerous and scary path’

• Tax experts accuse IRD of encroaching on policymaking, secretive legal interpretations and eroding Parliamentary intent
• CA Sri Lanka urged to make ‘a huge noise’ as practitioners warn of growing uncertainty, poor administration and mounting taxpayer disputes

Fresh from delivering record tax collections in 2025 and on course to exceed revenue targets again this year, the Inland Revenue Department (IRD) came under sustained criticism from leading private sector tax professionals at the CA Sri Lanka 5th Annual Economic and Tax Symposium over what they described as an expanding role in policymaking and tax interpretation.

The Department was accused of straying beyond its role as tax administrator by shaping policy, issuing opaque interpretations of tax laws, and fostering an administrative culture that undermines certainty for taxpayers. Speakers also pointed to poor taxpayer service, delayed refunds, and inconsistent administrative practices, urging the country’s premier accounting body, CA Sri Lanka, to press more forcefully for reform.

Their concerns extended beyond administrative shortcomings to what they saw as a broader institutional shift in the relationship between Parliament, policymakers, and the tax authority, warning that predictable administration, rather than even more legislation, would do more to improve compliance and strengthen Sri Lanka’s investment climate.

John Keells Group Head of Corporate Structuring, Strategic Tax and Social Entrepreneurship Nisreen Rehmanjee warned that policymaking was increasingly being delegated to the IRD, blurring the distinction between Parliament’s role in making tax law and the Department’s responsibility for administering it.

“That is a very dangerous journey we are going into because administration and policy has to be different. It has to be separate because administrators, for good or bad, their focus is going to be collection of taxes. Policy will have to set the framework within which they want it operating,” she said.

Rehmanjee argued that the problem extended beyond delegated powers. Policymakers, she said, had become increasingly reluctant to clarify legislative intent independently of the IRD, while the Department’s legal interpretations remained largely opaque.

“There is a huge secrecy behind how different provisions are interpreted because it allows them to interpret differently for different taxpayers,” she said, calling for the publication of anonymised private rulings, official interpretations, and the Department’s position on Court decisions to provide greater certainty for taxpayers.

She said the lack of accountability was also evident in the administrative review process, where legal grounds were sometimes altered after assessments had already been issued despite judicial rulings discouraging such practices.

“We have had instances where a source of income itself has been changed in the administrative review stage which was never an issue of contention when the assessment was raised,” she said.

Arguing that such practices went well beyond individual tax disputes, Rehmanjee urged CA Sri Lanka to take a stronger public position.

“I think the Institute has to make a huge noise about some of these things that are happening and bring it out into the public domain. It’s not only about the taxpayer who is not paying taxes and we have to obviously go and collect them. These kind of things are very scary,” she said.

Gajma & Co. Senior Partner N.R. Gajendran said Sri Lanka’s biggest weakness lay not in its tax laws but in how they were administered.

“We don’t want to change any laws. Our laws are good or bad, it’s okay. If you have bad laws, it has to be a good administration. End of the day, it’s the administration that will lead the way,” he said.

He also questioned the Government’s emphasis on record tax collections, arguing that higher revenues had come largely from imposing a heavier burden on existing taxpayers rather than widening the tax base.

“When taxes become excessive and unbearable, and it is not coming from the widening of the base, it is coming from the same taxpayer, it erodes expenditure capabilities, it erodes saving capabilities, and it erodes investment capabilities,” he warned, arguing that sustained over-taxation ultimately weakens consumption, investment, and long-term economic growth.

Gajendran said taxpayer protections deserved the same prominence as revenue mobilisation.

“Why don’t you have a session on broadening taxpayer rights and protection? Are we now only focused on tax collection? You have compromised everything else. Where is the growth?” he asked.

He was equally critical of the Department’s handling of refunds and dispute resolution, saying delayed refunds and an increasingly risk-averse administrative culture were fuelling unnecessary litigation.

“If there is a refund, first do the refund and then start doing it. No one makes a decision,” he said, arguing that officers conducting administrative reviews should be empowered to determine cases independently instead of allowing matters to become trapped in multiple layers of internal approvals.

Ranaweera Associates Managing Partner Athula Ranaweera said improving compliance begins with strengthening the tax administration itself.

Many taxpayers wanted to comply voluntarily, he said, but were often frustrated by inconsistent technical guidance from the Department.

“Most of the tax administrators are having lack of knowledge in technical things and the practical application of the law. If you go to two officials, those two may be having two different views,” Ranaweera said, urging the Government to invest part of its increased tax revenue in strengthening the technical capability of IRD officials while expanding taxpayer education through the Department and professional bodies.

Helakuru Founder and Bhasha CEO Dhanika Perera shifted the discussion from governance to reform, arguing that technology should simplify compliance rather than merely digitise existing bureaucracy.

He proposed a taxpayer-centric online platform enabling individuals to register, file returns, and make payments more easily, the integration of payment systems with existing point-of-sale infrastructure through open Application Programing Interfaces (APIs) instead of requiring businesses to invest in new systems, and wider use of artificial intelligence (AI) to strengthen taxpayer services and compliance monitoring.

Perera added that Sri Lanka already possessed the legal framework to support digital records and transactions, but administrative procedures had yet to catch up. Modernisation, he said, should focus on making tax compliance simpler, faster, and more transparent for taxpayers and the Department alike.