Long haul ahead

In this hi-tech era nobody will dispute the fact that computers eliminate manual drudgery, doing in seconds, or nanoseconds what humans would take hours, days, weeks and even months to perform. It is therefore no cause for surprise that the Inland Revenue Department (IRD), responsible for collecting a large share of state revenue, decided to computerize. Better late than never, it can be said. The tax authorities some years ago bought an expensive Revenue Administration Management Information System (RAMIS) which was touted as something that would revolutionize tax administration in the country. It has been used since the beginning of 2017 and according to tax officials has proved more efficient than manual handling. Maybe so, but numerous problems have arisen as a result of the new system. Many taxpayers and accountancy firms handling tax matters for clients hold a different view on RAMIS performance and are constantly complaining of harassment and innumerable difficulties arising in their dealings with IRD post-RAMIS.

However that be, it has been revealed at the Committee on Public Accounts (COPA) an oversight body of the legislature, that though over a massive three billion rupees had been paid to a Singaporean company that developed the system, each time an amendment to the tax law is made – and these are frequent – a further four billion must be coughed out to incorporate it in the system. We do not know how much additional expenditure has been incurred in this regard since the system was first purchased and commissioned. The sensible suggestion has been made by a member of COPA that an agreement must be reached with the supplier/developer of the system on a one off payment basis for incorporating amendments to the tax law into RAMIS. That, of course, is commonsense. But whether such an agreement will be possible is something that remains to be seen. Selling a product cheap and thereafter making your money on essential spares and maintenance is not an uncommon business practice. Whoever was responsible for the purchase of the system, and there would have been many involved in such a costly procurement, should have foreseen the necessity of amendments to the tax law having to be accommodated in RAMIS and provided for this initially.

Treasury and Finance Secretary R.S. Attygalle has told COPA that a five-year, consistent tax policy has been proposed (promised?) in the 2021 budget. This would be a convenience for both taxpayers and tax collectors, he has said. Similar promises of a consistent tax policy have been made in the past too, but delivery has been painfully slow. According to data presented to COPA, 532 of the country’s 2,192 big taxpayers account for 70.2 percent of tax revenues. Collection from cash cows such as the highly taxed alcohol and tobacco industries will be relatively easy. But not so from the illicit liquor segment supplying much of the booze consumed nationally. Whether the bookies and casino operators pay their proper taxes are also matters that must be determined. It is very well known that tax evasion is rampant in the country and IRD’s performance in rounding up such evaders has been less than satisfactory with increased collections usually coming from existing files. There have been complaints over the years that the practice of trying to squeeze already squeezed lemons continues to be common practice at the tax office. While fictitious returns and attempted tax frauds cannot be condoned and must be diligently pursued, the taxman should be considerate to honest taxpayers and not load them with unnecessary queries and paperwork.

We run a story from our parliamentary reporter today about a Rs. 1.3 trillion deficit in the government’s tax revenue in 2018. This is before the Easter bomb or the Covid pandemic which necessarily impacted on State revenue. The situation must necessarily be worse since then. Officials have attributed much of the shortfall to many state institutions defaulting on their tax obligations. This is often because they are not in a position to make these payments according to independent assessments, COPA has been told. A full report on such institutions has been called for but whether this will yield the desired result is doubtful. The tax man can force a defaulting company into liquidation but not so government bodies. Apart from not meeting tax obligations, state undertakings are guilty of routinely failing in paying their suppliers. Thus there is a running debt most of the time from SriLankan Airlines to the Ceylon Petroleum Corporation which usually carries massive overdues from bodies such as the CEB. While an ordinary householder falling back on paying his domestic electricity or water bill risks disconnection, not so government institutions.

The Covid induced economic downturn will remain with us for a long time despite the many sunshine stories commonly spun on quick recovery. We are given different time frames by various concerned authorities on when such recovery is to be expected. But none of them are in a position to accurately predict when the pandemic will be brought under control. Even when that happy day dawns, return to normalcy will be hard and painful. Some businesses are limping on, but there are many others unable to do so. The government will have to live with the reality of revenue shortfall for a long time to come. If 2018 was as bad as has been stated, 2019 and 2020 must be necessarily worse. In such a context there must be a conscious effort in cutting the often profligate expenditure of state institutions. This something yet to be seen.