VAT being levied as penalty causes Rs 125 million loss to govt

By Saman Indrajith

The government suffered a loss of Rs 125.5 million owing to a mistake committed in levying taxes on coal imported for the Norochcholai Thermal Power Plant, says the Second Report of the Committee on Public Accounts presented to parliament on Wednesday by Committee’s Chairman Prof. Tissa Vitarana.

The report says: It was observed that, Sri Lanka Customs has conducted a customs investigation and Rs. 205 million of penalty had been imposed and recovered regarding under payment of Rs.187, 068,787/- in respect of under calculated and paid value added tax (VAT) due to non-calculation of transport and other costs in importing the coal required for the Norochcholai Thermal Power Plant by Lanka Coal Company (PVT) Ltd., as per the provisions of Gazette Notification No.1994/18 dated 23 November 2016.

“The Committee observed that only Rs. 61.5 million was credited to the Government Revenue and as a result the Government lost Rs. 125.5 million due to the fact that VAT has been levied as a penalty instead of being levied as an additional tax, 50% of the fine levied amounting to Rs. 102.5 million has been given as rewards to the officers and 20% amounting to Rs. 41 million has also been credited to the officers’ welfare Management and Compensation Fund.”

The Committee has observed that the Inland Revenue Department, one of the three major contributors to nearly 90% of government revenue, has a large unresolved tax arrears and the government incurs a huge loss due to the delay in settling the arrears.

“Out of the computer programs of the Inland Revenue Department in this regard, the amount of tax in arrears pertaining to the institutions identified with respect to the Legacy system as at 30 March 2021 is Rs. 18 billion. Out of this amount, only Rs. 424 million has been recovered in cash. The amount of Rs.10 billion had been settled in the form of suspensions, tax and penalty deductions, penalty cuts, journal transfers and tax refunds.

However, it was revealed that, the Special Unit set up to settle the tax in arrears related to the Legacy system has settled a large amount of tax and the outstanding tax balance of this unit as at 31.03.2021 is Rs.79 billion only,” says the report.

It says: “According to the RAMIS (Revenue Administration Management Information System) system, the tax in arrears on that day was Rs. 87 billion. Of this amount, only Rs 4 billion had been recovered in cash. The amount of Rs. 60 billion was settled in the form of suspensions, tax and penalty deductions, penalty cuts, journal transfers and tax refunds. The Committee drew its attention to the fact that taxes classified under the category of ‘Recoverable Taxes’ were not in a position to be collected without any actual problems and the Committee observed that an overestimation of the taxes that could be levied due to this does not indicate the true situation.”

Presenting the report to the House, its chairman Prof Vitarana said that the committee had probed accounts of 16 public institutions and he was shocked to see the findings of some investigations.

The committee has observed that there was a loss of ability to reduce the road accidents by half due to the shortcomings of the technical equipment required to the Police who play a significant role in road safety and the necessity to transform the National Council on Road Safety into a National Commission.

“It costs between Rs. 1 million and Rs. 10 million to treat a person subject to a road accident and it was revealed before the Committee that a National Council for Road Safety consisting of representatives from 17 Governmental and Non-Governmental Organizations have been appointed to work on establishing a safe road network for all. The Committee emphasized that there is an urgent need to transform this National Assembly into a Commission.

The Committee also stressed that the Sri Lanka Police was found to be lacking in technical equipment to prevent road accidents and that the relevant parties should take immediate action in this regard and provide the necessary items as soon as possible.”