IRD blames former FinMin officials for turning blind eye to tax evasion

• Says previous govt. instructed IRD to rely only on tax documents filed by taxpayers for tax collections
• Says IRD wasn’t consulted before implementing sweeping tax cuts in 2019, which resulted in govt. losing billions of rupees in taxes

By Nishel Fernando 
The Inland Revenue Department (IRD) officials yesterday blamed top Finance Ministry officials under the former regime for turning a blind eye to tax evasions and preventing them from performing their duties under the law.

“Although, IRD has been given sufficient powers and provisions under the Inland Revenue Act of 2017 to pursue measures to collect taxes, the government instructed IRD to rely only on tax documents filed by taxpayers for tax collections. 

So, our IRD officials were unable to conduct field visits and obtain additional documents to verify information provided by taxpayers in accordance with the provisions of the Act. The Ministry of Finance tied arms of our officials in performing their duties. Therefore, no one cannot blame IRD for the current state of tax collections,” an IRD official revealed yesterday during State Minister of Finance Ranjith Siyambalapitiya’s visit to
IRD headquarters.

His remarks came as a response to the recent criticism leveled by several MPs on weak tax collection by the IRD. The taxes collected by IRD reached Rs.1, 025 billion in 2019 making up 54.22 percent of State revenue as a result of the new IRD Act that came into effect in 2017. He noted that adhoc tax policy changes in late 2019 caused tax collections by IRD to decline to Rs.623.83 billion in 2021. 

“Despite we being experts in the field, we were never consulted before these changes in the tax policy. The policymakers who raised their hands in favour of these policy changes must take the responsibility now,”
he stressed.

Siyambalapitiya noted that a detailed report would be submitted to parliament on the decline of State revenue.
Meanwhile, the state minister noted that IRD would have to open around 2 million new PAYE tax files to reach medium term fiscal targets, which requires improving State revenue to 15 percent of GDP.

Following the removal of mandatory PAYE income tax, the number of income tax files fell to around 39,000 last year from 1.1 million in 2019. Commenting on cooperate taxes, the state minister acknowledged that it might be difficult to reach targets due to the contracting economy where many firms are making losses. On a positive note, as of 30th of August, IRD had met 60 percent of its revenue collection target set for this year.