Financial Times

Concerns over new tax drive
By Duruthu Edirimuni and Akhry Ameer
While the government tax collector is sprucing itself up to meet the budget's ambitious revenue targets, doubts have arisen about the practical difficulties involved in implementing the new taxes. One of the most scrutinised taxes in the revenue proposals is the one on personal income tax.

Under this individuals satisfying four out of five criteria stipulating monthly residential electricity and telephone bills each exceeding Rs. 10,000 (net), incurring a monthly credit card bill exceeding Rs. 25,000, purchasing an air ticket for personal travel abroad and owning a car must declare their income to the Commissioner General of Inland Revenue each year.

Analysts said the government's efforts to increase the tax base is commendable, but raised serious doubts as to how Inland Revenue plans to implement the ambitious proposal. "This is a challenge for the Inland Revenue and we are prepared to make a lot of efforts in collecting the taxes," R. P.L. Weerasingha, Commissioner, Large Tax Payer Unit, Department of Inland Revenue told The Sunday Times FT, adding the number of tax files are as low as 200,000 in a country where four million people are in the work force.

He said the department will embark on an education campaign for the general public. "We will be appealing to the people who will fall into the tax net to come out and register with us."

Weerasingha said currently the Inland Revenue is being revamped where the department will be computerised and have links with key government departments such as the Customs, Ceylon Electricity Board (CEB) and Sri Lanka Telecom from which it can get information.

"With these links in place, we will start to open the tax files," he added. However, he said Inland Revenue would not be calling for "general information" pertaining to credit cards from the banks. "If we come to know that an individual satisfies three criteria, we will check the remaining two to find out if he can be roped into the tax net," Weerasingha said, adding credit card details will be looked into in this instance.

When asked if this means the Inland Revenue will ask banks for an individual's credit card details, he said," We will treat it as specific information and call for details." However, a banker said the Banking Act supercedes the Inland Revenue Act, where no authority can tap into a bank's customer details. He said the Inland Revenue does not have the right to call for customer details without a court order.

He said there have been about 50-60 inquiries from customers regarding this issue, which is still a gray area. Weerasingha denied this and said the Inland Revenue can call for information from any entity in Sri Lanka. Weerasingha said a taxation cluster comprising tax professionals, private sector representatives, tax officials and various other regulatory agencies has been set up and amendments to tax laws will be made by the Ministry of Finance after going through this consultative process in order to ensure wide acceptability.

However, a senior official of a leading bank said the alarm about the new tax laws was unwarranted. "It's a voluntary thing. If you meet four out of the five criteria the government requests you to open a tax file. This is based on the assumption that if you meet this criteria you are spending about Rs. 40,000 a month and so you should have a tax file.

They are not asking for information from the banks. Banks are governed by the Banking Act that includes privacy clauses and we cannot release blanket lists." The official added that a similar request was tested in the recent past when the Commissioner wrote to the banks requesting for information on those having deposits of over Rs. 1 million. The banks fought back based on the privacy clauses and the request was dropped.

According to him information can only be requested if they are investigating a particular person. "So even if you split your credit card transactions we still can trace them through the NIC number if requested."

He also said the Inland Revenue Department would need an "extremely good" system if it is to implement these proposals. Dialog GSM CEO Dr Hans Wijayasuriya said the mobile phone industry was still confused about the new law. "It is still not clear. We have not been told anything. In any case it would have to come with necessary legal backing. We are yet to study the legal implications. Currently mobile operators are governed by the Telecom Act and the privacy clauses within it."

Mobile phones taxed under luxury items
Contrary to the general belief that mobile phone units were spared in the budget, the instrument has been classified as a luxury item and would be charged a total of 14 percent in taxes, including a 10 percent excise duty.

"We are taking this up with the Treasury," said Dr. Hans Wijayasuriya, the head of mobile operator Dialog GSM. He explained it would affect the use of telecommunications as an enabler of social-economic growth. "From now on, the growth segments are among the less affluent and meeting their aspirations is crucial," he added.

The telecommunications market has changed from what it was five years ago and has experienced a ten-fold growth during this period with a 100,000 new consumers buying mobile phones every month. Wijayasuriya predicts a 30 percent mobile penetration potential within the next three years in the country with the local market currently accounting for 2.5 million mobile phones.

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