Parliament watchdog, the Committee on Public Accounts (COPA) has observed that the Inland Revenue Department, one of the three major contributors to nearly 90 per cent of government revenue, has a large unresolved tax arrears and the government incurs a huge loss due to the delay in settling the arrears.
Out of the computer programs of the Inland Revenue Department in this regard, the amount of tax in arrears pertaining to the institutions identified with respect to the Legacy system as at 30 March 2021 is Rs. 18 billion. Out of this amount, only Rs. 424 million has been recovered in cash. The amount of Rs.10 billion had been settled in the form of suspensions, tax and penalty deductions, penalty cuts, journal transfers and tax refunds.
However, it was revealed that, the Special Unit set up to settle the tax in arrears related to the Legacy system has settled a large amount of tax and the outstanding tax balance of this unit as at 31.03.2021 is Rs.79 billion only.
According to the RAMIS system, the tax in arrears on that day was Rs. 87 billion. Of this amount, only Rs 4 billion had been recovered in cash. The amount of Rs. 60 billion was settled in the form of suspensions, tax and penalty deductions, penalty cuts, journal transfers and tax refunds.
The Committee drew its attention to the fact that taxes classified under the category of “Recoverable Taxes” were not in a position to be collected without any actual problems and the Committee observed that an overestimation of the taxes that could be levied due to this does not indicate the true situation.
As a solution to this, the Committee recommended that the tax in arrears that can be collected without any problem would be categorized under the category of ‘collectable tax’ and the arrears of unresolved issues will be categorized under the category of ‘Not finalized’.
Thus the tax classification categories should be limited as much as possible and categorized under the main categories and action should be taken to recover the arrears in taxes as soon as possible and the Committee also recommended that the provisions of the Inland Revenue Act be amended as soon as possible to expedite the long pending judicial proceedings regarding the collection of arrears and to collect taxes more efficiently