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IRD under fire for sitting on Rs. 290 billion in defaulted taxes and unpaid penalties
The Inland Revenue Department (IRD) was sitting on more than Rs 290 billion in defaulted taxes and unpaid penalties last year and the arrears are rising every year, the Auditor General’s Department (AGD) has warned.
The unclaimed taxes by mid-2019 were more than the Government’s total expenditure on education that year — Rs. 198 billion, according to a report by the Committee on Public Enterprises (COPE) regarding that year’s budget. Spending on health was even lower, at around Rs 188bn.
The total amount of “collectable” taxes and penalties — the balance with respect to which there are no appeals by defaulters — was Rs 290.812 billion by June last year, says the AGD’s Special Audit Report on Taxes and Penalties in Default to be Recovered from taxpayers. More than 90 percent of unpaid levies were value added tax (VAT) and income tax.
Billions worth of VAT is routinely collected from third parties such as retail customers. But despite towering amounts having been deducted by retailers and others from the people, large sums have not gone into State coffers and are absorbed by the vendors.
Taxes are administered by the IRD through two systems: the legacy software system up to the end of December 2015 and the Revenue Administration Management Information System (RAMIS) thereafter. And in just the three-and-half-years since the new database was introduced, more than Rs 163 billion in collectable unpaid taxes and penalties piled up, the report shows.
The Yahapalana administration hiked the VAT, among other levies. But this shows that, even as collection rose, so did the defaults and penalties or their value.
Taxes are paid monthly or quarterly and reports must be presented on specified dates. If the payment made is less than what is shown in the report, it is considered a tax in default and the IRD must recover it together with a penalty.
Under the legacy system, too, the arrears was Rs 127.7 billion in collectable taxes and penalties by June last year. But the total balance — including defaulted payments in respect of which there were ongoing appeals including court action — was more than Rs 309 billion for the same period, an increase of 61 percent when compared with the amount in December 2012. At least 41 percent of deficit is recoverable; that is, not tied up in the appeals process.
The total deficit under the RAMIS system, the report states, had risen by 190 percent by June last year when compared with 2018. Even if a portion of the deficit is settled annually, more defaults and penalties add to it each year. This means that unless a focused effort is made to reduce the sums owed, the total will keep snowballing.
Analyses of the timeframe of the defaulted payments show that the IRD has not acted “in a timely manner” to recover even the sums that are collectable, the AGD says. Between 2012 and 2017, around 90 percent of total unpaid taxes and penalties in the legacy database were held over whilst just 10 percent was shown as collectable.
In 2018, the IRD set up two divisions to recover unsettled dues recorded in the legacy software. By December, the balance as against 2017 decreased by nearly Rs 120 billion or 40.75 per cent. The recoverable balance went up 279 percent or more than Rs 89 billion. The divisions kept up this performance last year. But there still remains hundreds of billions in arrears.