Income tax a necessary evil

Our front page lead story last Sunday, headlined “Cops join IRD to raise revenue,” scooped the news that the police has launched a new collaboration with the Inland Revenue Department (IRD) to track down unexplained wealth and chase black money. This, as our story explained, was a spin-off from the widely publicized cases involving Pastor (also called Prophet) Jerome Fernando who has still not returned to the country after the smelly stuff hit the fan and a lady named Thilini Priyamali, who had allegedly collected some Rs. 226 million entrusted to her for investment, no doubt at sky high interests rates. Her clients, including reportedly some yet unnamed politicians and others have not come forward to assist the investigation. This is most probably because they prefer not to discuss the sources of what appears to be black money.

Pastor Jerome, it has been reported, had spent as much as Rs. 12 billion on his miracle dome. This, by any standard, is very high expenditure involving big bucks. No doubt much of this cash was donated by well wishers abroad, whom he clearly does not lack. But such cash infusions are subject to various regulations and interest and other earnings from such funds, we believe, must be liable to tax. Thus it makes sense that while the police continue with criminal investigations as required, the Inland Revenue Department ensures that obligatory tax payments are made. Whether the two agencies have been hitherto sharing information with each other for the benefit of the tax exchequer, we do not know. But it is obvious that they should be. Our report referred to a “new collaboration” suggesting this was not part of the already established scheme of things.

It was reported last week that the parliamentary oversight committee for National Economic and Physical Planning examining the performance of the various agencies responsible for the collection of state revenue found they are way behind target. It is fairly well known that three departments, Inland Revenue, Customs and Excise are the big revenue collectors for the government. It is also known that corruption is widely prevalent in all three agencies.

Former Minister Mahindananda Aluthgamage who chairs the oversight committee went on record a few days ago saying that although a collection of over Rs. 3.1 billion this year had been set for these three departments, approximately only half this amount had been, collected up to now. Where the Inland Revenue Department is concerned, Aluthgamage made some startling disclosures, long suspected but without an official imprimatur. Among these he was reported in the state-controlled Daily News to have said that although there are over 105,000 companies in business, only 15,000 are taxpayers.

This is not all. The number of personal income tax files on the books of the IRD standing at 500,000 in a population of 22 million is dismally low. And of these only 31,000 pay personal income tax, it was claimed. The Daily News report said the number of personal tax files was down to 295,000 last year and this had further shrunk this year.

According to an Economy Next report we front page today there is just one taxpayer on the IRD books paying over Rs. 300 million annually as income tax. Most people would dearly love to know who this worthy is. That report also gave numbers of those taxpayers on the high end of the taxpayers list. Whether these figures are accurate or not, we do not know.. Hopefully the IRD will clarify.

It was not so long ago that the government announced that all persons above the age of 18-years must have a tax file. This is all pie in the sky. The IRD lacks the will, technology and the personnel to achieve this target – if it is indeed a target. Time was when the annual administration report of the Commissioner of Inland Revenue, now grandly titled Commissioner General, published a list of names of individuals penalized for tax offences. Several decades ago, one of these lists included the name of a lawyer who is now a cabinet minister! Administration reports issued annually by government departments now appear to be a matter of history. It would be a good thing if the practice of publishing such reports is revived.

A frequent complaint by the few taxpayers who meet their obligations is that the IRD has a weakness for squeezing already squeezed lemons – that is taxpayers already on file. While widespread evasion is rampant, people who are paying taxes are often harassed by the department. IRD once upon a time rewarded good taxpayers with privileges including the right to purchase a vehicle at reduced import duties.

Those goodies are now history. The Pay-As-You-Earn (PAYE) tax system and withholding tax (WHT) on dividends and interest was something which was easy to administer and must certainly have greatly helped collection. While steps have been taken over the years to raise taxable thresholds on individuals, these by no means have kept pace with inflation.

As is frequently said, the only certainties of life are taxes and death. Professionals have been stridently protesting about the recently increased income tax rates with some even claiming that this is part of the reason some of them are quitting the country. Lankans can legitimately say that the mileage they get for their tax rupees is not satisfactory. Income tax payers often think that they carry a vast tax burden that is not evenly distributed. That is not without truth but there is very little realization among well to do income tax payers that the poor pay a big part of the indirect taxes that flow into the state exchequer. As an old time editor of an English newspaper in then Ceylon once said, each time you strike a match or flush the toilet, you are paying a tax!