call for tax ombudsman gets louder

The need for Sri Lanka to have a tax ombudsman came under fresh spotlight once again last week, as there is an increasing need to build trust between taxpayers and tax authorities. Reason being, it demonstrates a commitment to fairness, transparency and accountability in tax administration.

KPMG Sri Lanka Principal Head of Tax and Regulatory Suresh Perera addressing a forum by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) asserted the importance of establishing a tax ombudsman, thereby promoting awareness and understanding of taxpayer rights. 

“With Sri Lanka being in the midst of a financial crisis and mounting pressure on the tax authorities to meet their tax collection targets, the need for a tax ombudsman is now more urgent than ever before”
- Suresh Perera

Role of tax ombudsman

The governing body responsible for overseeing the administration of taxes is the Inland Revenue Department of Sri Lanka. It is inevitable that during the process of tax administration, conflicts, differences of opinion and grievances may arise between the tax authority and taxpayer. The establishment of the tax ombudsman office would provide an informal and expeditious avenue for taxpayers dissatisfied by decisions made by revenue officers to seek resolution for their issues, thereby ensuring equitable treatment of taxpayers.  

Taxpayers may seek the assistance of the tax ombudsman regarding the manner in which taxes are administered. However, it is important to note that interpretation of tax statutes, calculation of liabilities and other technical tax matters would not be addressed by the tax ombudsman but through the tax appellate procedure instead, said Perera.

According to him, there are several concerns that a taxpayer may encounter, which are administrative and not technical or interpretational in nature. For instance, delays in receiving refunds or arbitrary rejections of time extensions despite being requested in accordance with the statutes. Such issues discourage taxpayers and erode their trust in the tax authority. 

This is precisely why the role of a tax ombudsman is crucial in restoring the confidence of taxpayers in the tax system and encouraging them to willingly fulfil their tax obligations. The tax ombudsman will work towards fostering a culture of voluntary tax payment, ensuring a transparent and equitable platform for resolving disputes and addressing grievances, without resorting to the lengthy and expensive process of the court of law/tax appellate procedure. 

The Sri Lankan tax regime has provided safeguards to preserve the rights of the taxpayers by way of administrative review by the Commissioner General of Inland Revenue (CGIR), under Section 139 of the New Inland Revenue Act as well as the right to appeal to the CGIR, Tax Appeals Commission and thereafter to the Court of Appeal and Supreme Court. 

Nevertheless, due to lack of independence and limitations of scope, some taxpayer concerns may remain unattended. Appointing a tax ombudsman to address the concerns of the taxpayers will help enhance the degree of equity and fairness in tax administration.

The tax ombudsman will work towards fostering a culture of voluntary tax payment, ensuring a transparent and equitable platform for resolving disputes and addressing grievances, without resorting to the lengthy and expensive process of the court of law/tax appellate procedure

History and legal framework in Sri Lanka

The concept of tax ombudsman was introduced for the first time in 2004, by the then Finance Minister. In 2005, retired High Court Judge Justice Maxwell Paranagama was appointed as the first (and only) holder of the office. No successor was appointed upon completion of his tenure in 2008, thus exposing a limitation in the way the office was established. 

Since the office of tax ombudsman was not created by an Act of Parliament and was a Cabinet appointment with no underlying legal framework, it was vulnerable, with no proper continuity or succession plan.
On two occasions thereafter, Budget 2017 and 2023, it was proposed that the office of tax ombudsman be created by an Act of Parliament. However, two years have lapsed with no measures being taken to introduce this post.

Tax ombudsman in foreign jurisdictions

South Africa – the South African Office of Tax Ombudsman was set up in 2013 with clearly established roles and duties, accountability, reporting functions, taxpayer rights, entitlements and obligations as well as cases resolved by the office – a very transparent and successful system.

New Zealand – taxpayer grievances regarding tax administrative issues are reported to the Inland Revenue Department. If solutions are not satisfactory and complaints arise, they may be referred to a general ombudsman whose primary role is to investigate complaints against the government agencies. While Sri Lanka had a similar concept in place with the introduction of Section 139 of the New Inland Revenue Act (administrative review), where dissatisfaction with an administrative review of assessments or other decisions could be taken up with the Tax Appeals Commission, this provision was removed via the 2021 amendment.

Implementation of proposals 

It is proposed that a tax ombudsman should be established by way of Act of Parliament, with statutorily defined powers. Mandatory accountability should be maintained whereby the tax ombudsman would have to submit annual reports to Parliament regarding performance. The main methodology of dispute resolution would be through mediation and conciliation. Taxpayers should be able to make representations on their own, with no additional cost and through properly defined means of contact.   

“With Sri Lanka being in the midst of a financial crisis and mounting pressure on the tax authorities to meet their tax collection targets, the need for a tax ombudsman is now more urgent than ever before,” said Perera, reiterating that it would ensure the tax system continues to function in a smooth manner with a degree of equity and fairness in tax administration.