Out of more than 250,000 tax files maintained by the Inland Revenue Department, only three per cent gets audited each year. As a result, 97 percent of taxpayers pay only the tax that has been self-assessed and declared, with no detailed auditing carried out.
“It is through detailed auditing that we uncover whether the tax payer has given us a faulty statement,” said H. A. L. Udayasiri, general secretary, Inland Revenue Services Union. “Detailed auditing is carried out by officers through interviews and field visits. They can thus uncover hidden incomes and bring them into the tax paying net. What we have now is a self-assessment system that is suited for a country with an advanced tax culture.”
However, according to Inland Revenue Commissioner General Mahinda Madagoda, in cases where it is felt an additional tax could be generated, the relevant files would be audited by the officers. “There is no country where all tax payers’ files are audited,” he said. “In our case, we audit those files we think can generate an additional income. Besides, we are now carrying out a work study to see what type of additional staff is needed to support the work being done now. Once the study is completed, we will recruit the needed cadres.”
Mr. Udayasiri said individual or corporate tax files should be audited at least once in three years. But this does not happen in Sri Lanka, because the tax department lacks the human resources to do so. “We have only 750 assessors, the majority of whom are assigned to branches and collection activities. As a result, 800 to 1,200 files are assigned to one officer. This makes it impossible for any one officer to do a proper job,” Mr. Udayasiri said.
However, speaking to the Sunday Times, Mr. Madagoda said even though one officer had to process more than 1,200 files, not all the files required meticulous probing. “Not every case needs the same amount of attention,” he said.
According to the latest performance report for 2007, the default tax is over Rs. 158 billion. “This is a 697 per cent increase in default taxes over the figure for year 2000. The reason is that the tax department does not have proper tax collection procedures. We should have a proper department, like a specially trained task force,” Mr. Udayasiri said.
When the private sector was establishing itself in 1974, there were 308 cadres in the department. Now, 35 years later, when the private sector is thriving, there are only 750 officers. “It is clear we have a human resources problem. Since 2007, 118 tax officers have left,” he said.
Graduates are recruited to two positions, and this has created a disparity among the graduates, resulting in many officers leaving the service.
“There is no job satisfaction for graduates who are recruited as tax officers, as they have no promotion prospects. They remain tax officers till they retire. This should change. We are requesting that the service constitution be revised to suit the times,” Mr. Udayasiri said.