The default taxes of the Inland Revenue Department (IRD) have surpassed Rs. 1 trillion by the end of 2023 while 90 taxpayers owe over Rs.1 billion in taxes to the Government, the Committee on Ways and Means revealed.

According to the Second Report of the Committee on Ways and Mean, the three main revenue-generating institutions, IRD, Sri Lanka Customs and the Excise Department, have default taxes amounting to approximately Rs. 1,131.5 billion as of 31 December 2023.

Out of the total defaulted taxes owed to the Government, IRD has default taxes amounting to Rs. 1066 billion as of the end of 2023 where collectable default taxes amounted to Rs. 188 billion while the held-over default taxes amounted to  Rs. 878 billion.

“Since the collection of taxes by the IRD is a cumbersome and prolonged legal battle, taxpayers tend to evade the payment of taxes which is the main revenue source of the Government,” the report said.

The IRD defaulted taxes stood at Rs. 943 billion by mid-2023 which then surpassed the Rs. 1 trillion mark by the end of the year, a total of 4,479 taxpayers are responsible for the defaulted taxes, with about 700 of them owing over Rs. 100 million in defaulted taxes to the state, out of which 90 taxpayers owes over Rs. 1 billion.

“Self-assessment of the taxpayer spans for three years whilst 99% of taxpayers are disputing the Notice of Assessment issued by the IRD and initiating appeals,” the report said, adding that audit of the self-assessment which is a time-consuming process, is carried out by the officers of the IRD manually. 

It said that there are approximately 350 legal cases related to the settlement of default taxes currently under review in both the Court of Appeals and Supreme Court. Concurrently, there are 2,934 pending appeals within the Department and an additional 1,505 appeals within the Tax Appeals Commission.

The Committee said that despite numerous requests, the IRD has failed to provide the names of taxpayers who owe more than Rs. 100 million to the Department.

The report also said that Budget 2023 has set a target for the IRD to open 1.2 million tax files of which they managed to open about 1 million and that of tax files and that opening a tax file is a complex process in the IRD which consists of 20 parameters to be filled for the normal registration of a taxpayer. 

“Moreover, the process of inputting data into the Revenue Administration Management Information System (RAMIS) and initiating a formal tax file consumes significant administrative periods. Consequently, surpassing the threshold of opening tax files beyond 500,000 annually poses a considerable challenge for the Inland Revenue Department,” the Committee further said.