Tax avoidance – a serious offence liable for stringent punishment
Sri Lanka is making tax evasion a serious offence liable for imprisonment and heavy fines extending the range of civil penalties for taxpayers who avoid paying taxes.
The Inland Revenue Act (IRA) enacted in Parliament last year, stipulated heavy punishment for those convicted of tax evasion, Finance Ministry sources revealed adding that the Inland Revenue Department (IRD) has been directed to prosecute such offenders without delay.
The IRD also announced recently that any informant providing information on tax evaders to the department will be offered a reward of 10 per cent of the additional surcharge and total fine recovered from the defaulter.
According to the new Act, a fine of Rs. 10 million and /or imprisonment for up to two years, compared to the previous punishment of six months shall be imposed for tax evaders if found guilty of charges by a court of law, a senior Ministry official said.
A person who fails to comply with a request for information properly made under this Act, within the specified time, shall be liable for a penalty of an amount not exceeding Rs.1 million.
Before assessing a penalty for this offence, the IRD Commissioner-General shall issue a notice of warning, and no penalty shall be due under this section where the taxpayer complies with the warning notice within 30 days of service of the notice.
Expressing surprise on this provision in the IRA, an eminent tax expert told the Business Times that a taxpayer paying a tax of Rs. 10,000 annually may be ordered to pay a penalty of Rs. 1 million for not furnishing some information.
Thus, this provision, if arbitrarily enforced, may result in unfairly high penalties for a legitimate small taxpayer on charges of a minor lapse on his part, he added. Penalties for failure to furnish returns have been increased up to Rs. 400,000 under the new Act from Rs. 50,000 fine previously, he said, adding that this penalty provision was not enforced in most of the previous cases.
If a person is convicted for more than one offence under this Act, the maximum term of imprisonment imposed for the offences shall not exceed five years, he disclosed.
A person or an officer attached to IRD or other ministry or department who willfully aids, abets, assists, counsels, incites or induces another person to commit a criminal offence under this section of the Act shall be liable on conviction to the same punishment as if the offence had been committed by that person.
A person who willfully impedes or attempts to impede the IRD in the administration of this Act shall be guilty of an offence and shall be liable on conviction to a fine not exceeding Rs.1 million or to imprisonment for a term not exceeding one year or to both.
A penalty of up to 2 per cent of the total transaction value could be imposed on any Sri Lankan company that violates transfer pricing rules by not disclosing any information required for transactions between related parties.
The previous “Income Tax Ordinance” does not make the principal officer of a company chargeable out of his personal assets with income tax levied on the company’s assessable income, he disclosed.
If an entity fails to pay tax on time, every person who is or has been a manager of the entity is jointly liable with the entity and every other such person for payment of the tax. This inflates tax liability over diverse parties outside the actual tax defaulter.