Shocking low tax compliance

• Sectoral Oversight Committee reveals meagre 31,000 pay personal income taxes from 500,000 personal income tax files
• Startling 82% of tax revenue comes from just 382 of 105,000 registered limited enterprises 
• Committee Chief MP Mahindananda Aluthgamage says concentration of tax contributions from small fraction need for broader tax compliance, fairer distribution of tax burdens

The Sectoral Oversight Committee (SOC) on National Economic and Physical Plans Chairman Mahindananda Aluthgamage shared yesterday concerning statistics regarding tax compliance in the country. 

He highlighted that out of the 500,000 personal income tax files in the country; only a meagre 31,000 individuals are honestly paying taxes. Despite having 105,000 registered limited companies in the country, a staggering 82% of tax revenue is derived from just 382 companies. 

“This revelation raises serious questions about tax evasion and the effectiveness of revenue collection. This concentration of tax contributions from a small fraction underscores the need for broader tax compliance and a fairer distribution of tax burdens among individuals and businesses,” he pointed out.

Aluthgamage expressed his concerns about the Inland Revenue Department’s failure to collect tax revenue and reassured that positive improvements were being made to address this issue. 

The committee also discussed the collection of a substantial sum of Rs. 904 billion in arrears owed to the Inland Revenue Department. 

He said discussions are ongoing with the Justice Minister to amend the Inland Revenue Act and improve tax collection mechanisms and tackle these challenges.

Highlighting the significance of maintaining stable economic factors, Aluthgamage emphasised the importance of keeping inflation, reserves, and State revenue in optimal conditions as these factors will play a crucial role during the second review by the International Monetary Fund (IMF) and in determining the country’s eligibility for future loans. 

In light of this, the Chairman announced that his committee would engage in regular discussions with Sri Lanka Customs, the Excise Department, and the Inland Revenue Department to explore avenues to boost State revenue.

The chairman also pledged his utmost assistance in filling existing employee vacancies within the Inland Revenue Department, acknowledging the crucial role a well-staffed and efficient department plays in tax administration.

The Inland Revenue Commissioner-General Ranjith Hapuarachchi expressed gratitude for the support received from the Sectoral Oversight Committee on National Economic and Physical Plans. He acknowledged the committee’s efforts in helping to enhance the efficiency of his department’s operations.