Business Times

Tax Dept. dilemma on revenue targets

By Bandula Sirimanna

Inland Revenue Department (IRD) officials are facing a daunting task in meeting the revenue target of Rs. 400 billion this year owing to a drop in revenue from Value Added Tax (VAT) and due to a sudden decline in imports following the depreciation of the Rupee, IRD sources said.

The government's decision to reduce the VAT from 22 % to 12 % has also contributed towards the decline in revenue. Revenue from VAT on domestic sources fell marginally in 2011 and it is expected to further come down due to concessions given in the 2012 budget, a senior IRD official, who wished to be anonymous, told the Business Times.

He noted that the government cannot tackle the sky rocketing prices of essential commodities and other items through the reduction of VAT or other taxes for a long period because the VAT reduction cannot be sustained for long. The government move to reduce VAT clearly indicates a drastic reduction in tax revenue for 2012.

The government has introduced a simplified VAT scheme aimed to address some of the complexities of the system, but this has resulted in a lot of paper work for companies. This is an obstacle for VAT collection, he said.

VAT refund claims have been reduced to 2,000 from 20,000 in 2009, he said. The department, in a bid to streamline the VAT administration process, is to discontinue the files of 1725 VAT payers (companies) who failed to furnish monthly or quarterly returns and those who have not made claims for refunds amounting to several millions of rupees over a considerable period. There are many procedures that need to be followed when making these payments, he revealed.

When contacted the head of the VAT department assigned to provide information to the media under new guidelines by the Finance Ministry on public interest issues, said that he cannot divulge anything connected to state revenue to media institutions.

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