Sri Lanka’s tax collection in a major legal tangle
Even after the VAT revision was nullified by the Supreme Court on Monday, the Inland Revenue Department (IRD) continues to collect some other taxes revised or introduced in the 2016 budget without the parliamentary approval which could create further legal implications and confusion, legal experts warned. Apart from VAT and NBT which the court has taken objection too, five other items – Income Tax, Corporate Tax, Economic Service Charge (ESC) and Betting and Gaming levy as well as ‘Surtax’ on Tobacco, Liquor and Casinos have been implemented since April are yet to get parliament though the bills were presented about 2-3 months ago.
Since April, these five tax streams have netted over Rs.600 million for the IRD. Legal experts say that Sri Lankan taxpayers are complying with the tax revisions made in the 2016 budget without considering its legality as previous governments have had a habit of levying the tax first before passing it in parliament later. Since none of these bills has approved as yet, taxpayers are not obliged to pay any taxes or levies as they have not valid in law, a veteran tax expert explained. In Monday’s verdict, the Supreme Court observed that in accordance with Article 148 of the Constitution, the tax or levy shall not be imposed without Parliament approval.
Experts said the IRD should seek legal advice from the Attorney General’s Department immediately – before someone else, using the VAT example, challenges in court the continued imposition of taxes not approved by parliament. Such a situation could create chaos and confusion in the tax collection system. The administrative decision taken to collect such taxes on changed rates amounts to an abrogation of fiscal powers of the Parliament, legal experts added. But the government is taking a strong view on the court ruling with Prime Minister Ranil Wickremesinghe saying the decision contravenes a previous ruling by late Speaker Anura Bandaranaike.
He told Parliament on Monday, after the Speaker Karu Jayasuriya announced the ruling of the court, that a large number of bills were passed and became law during the last decade in the same procedure which has been followed in respect of the Value Added Tax (Amendment) Bill, although the latter had been treated differently. He requested the Speaker to discuss with party leaders and deliver a ruling on those laws passed. (Also see Page 2 editorial on the same issue)