Tax Week – a move to create friendly tax culture

By Lalin Fernandopulle

Tax experts and analysts hailed the Tax Week as a sound move to create a friendly and fearless tax culture and enhance revenue for development. The Inland Revenue Department launched the Tax Week from November 1-8 to build awareness and encourage more people to pay taxes.

Tax experts said that tax administrators should help people to get over the fear psychosis and realise the importance of paying taxes to enhance revenue for the Government. "A Tax Week will help create a conducive and favourable environment for taxpayers. The revenue authority should encourage people to pay taxes instead of playing only an administrative role”, a tax analyst said.

Tax expert and partner Gajma and Company Chartered Accountants, N.R Gajendran said that steps should be taken to create a compliance culture through a friendly environment which will encourage more people to pay taxes.

“Holding a Tax Week is a good move. The focus should be to get more people to pay tax and be a part of the compliance culture,” he said.

Commissioner General of the Inland Revenue Department, Mallika Samarasekera said that the aim of the tax week is to make people understand what taxation is and how important it is for the development of the country.

The 2012 Budget focused on the importance of holding a Tax Week. It focused on the importance of creating an investor-friendly environment through low bank interest rates. The 2011 and 2012 Budgets focused on tax holidays for small and medium scale enterprises. SMEs with an investment of Rs. 25 million are eligible to a tax holiday of four years.

“We want to make the tax administration a smooth organisation and ensure customer care to those who come to open a file,” Samarasekera said.

She said that the Tax Week will help people to interact with tax officials and pay tax without fear. “Our aim is to help people to get over their fear and take a positive approach towards paying tax”, she said.

“A change of attitude is essential to create a friendly tax culture in the country. We want to make people realise that paying tax is a duty and is vital for the welfare of all people,” Samarasekera said.

Currently Income Tax is 24 percent, VAT 12 percent and for companies it is 28 percent. Concessionary tax rates are given to selected sectors.

Samarasekera said that the banks financial VAT has been reduced from 20 percent to 12 percent to encourage banks to lend to the SME sector at low interest rates.

The revenue authority has planned to hold seminars and exhibitions in key cities across the country to create awareness and interact with people. He said that seminars will be held at district level from November 1 and handbills will be distributed. A ‘one stop shop’ will be set up for people to open a tax file and obtain advice.

Gajendran said that a friendly tax administration was created during the past few years with the help of the Inland Revenue Department to evolve a more conducive tax environment in the country.

He said that opening a VAT file has become a cumbersome process for taxpayers. For simplified VAT, endorsements from the Grama Sevaka and Divisional Secretaries are also required. Such procedures should be revisited simplify VAT. The documentation procedure for registered suppliers under simplified VAT should also be revisited. A system should be evolved where a VAT file could be opened within a few days.

“The simplified VAT scheme is a good move but it is a difficult process”, Gajendran said.

Sri Lanka's tax to GDP is not growing according to official data. Tax to GDP is currently around 15 percent whereas it should be 25 percent of the GDP to achieve macroeconomic stability in the country.

The total revenue target for this year is Rs. 1.126 trillion, which tax experts and economists say would be a huge challenge due to low economic activity in the country. The global economic tumult, the high interest rates and devalued rupee have impeded growth in trade. The revenue earned last year was Rs. 900 b. Around 95 percent of the country's tax revenue is obtained through compliance.

The tax revenue target for this year is Rs. 512 b, of which the Inland Revenue Department aims at collecting Rs. 336 b. The tax income target last year was Rs. 800 b of which the revenue authority targeted Rs. 400 b.