• Rs. 35.77 m, Rs. 30 m, Rs. 11.93 m tax due from 3 companies written off
• Rs. 372.76 m in TRC dues uncollected
• Long-standing debts since 1976

A prominent telecommunications company in Sri Lanka has written off a substantial sum of Rs. 77.71 million in telecommunication tax dues as bad debts, according to the latest audit report by the National Audit Office (NAO) on the Telecommunications Regulatory Commission (TRC).

This amount, which includes taxes collected from three private companies under the said prominent company, was originally intended to be paid to the commission as part of telecommunication taxes.

According to the NAO, the breakdown of the amounts is as follows: Rs. 35.77 million, Rs. 30 million, and Rs. 11.93 million.

However, it has been revealed that the company has informed both the Treasury and the TRC that the total sum will not be settled, arguing that it had been written off as bad debts.

The NAO has strongly criticised the failure to recognise this debt as a telecommunication tax receivable in the financial statements, in line with Section 3 of Part I of the Telecommunication Levy Act No.21 of 2011.

The NAO has further urged that immediate steps should be taken to collect the outstanding telecommunication taxes, highlighting the serious implications of the company’s decision to write off these taxes as bad debts.

In its response, the TRC management had stated that the amount of Rs. 77.71 million, written off as bad debts from the debtors of the said company, had not been included in the financial statements as telecommunication tax receivable, due to a decision made as a result of the non-receipt of an explanation letter before the preparation of the financial statements for 2023. 

As a result, despite the letter sent by the Competition Division to the Treasury, the amount was not shown as a receivable in the financial statements. In addition, it has also been revealed that as of 31 December 2023, there was a balance of Rs. 372.76 million due from trade debtors.

According to the audit assurance provided by the NAO, although the total debit balance in the 2023 financial statements was classified as amounts owed by debtors existing for more than two years, it was noted that this balance included Rs. 15.10 million, which had been outstanding since 1976.

The NAO has highlighted that due to the lack of a formal system for recovering arrears from frequency income, this debtor balance could not be recovered.

Furthermore, the NAO has pointed out that Rs. 174.80 million (more than 46%) of the debtor balance is from another private company, outstanding since 1993. Moreover, Rs. 145.25 million (more than 40%) of the debtor balance is from the Sri Lanka Broadcasting Corporation, dating back to 1976. These amounts should have been received, but remain uncollected due to the absence of proper recovery systems.

Meanwhile, according to the ‘Budget, Economic, and Fiscal Position Report’ issued on 17 February, as of October 2024, the Telecommunication Levy (TL) has achieved 73.3% of its annual estimate, with a total revenue of Rs. 13.6 billion against the projected Rs. 18.5 billion for the year. 

This indicates a shortfall in revenue collection for the levy, with the actual achievement falling below the anticipated target by a significant margin. The realisation of this revenue will be closely monitored for the remaining months of the year to assess whether it will meet the estimate for the full year.

Revenue generated from the TL has marginally decreased by 9.8% to Rs. 13.6 billion in the first 10 months of 2024 from Rs. 15 billion in the same period of 2023.

The revenue from other taxes have increased by 34.6% to Rs. 106.4 billion, realising 106.4% of the annual estimate for 2024. This was mainly due to the cess having increased by 47.9% owing to the increase in imports and other taxes having increased by 39.3%. 

However, lower revenue generated from the TL had an adverse impact, as recorded in the report.

Nevertheless, when The Sunday Morning reached out to TRC Director General Air Vice Marshal Bandula Herath, he stated that he was unaware of the telecommunication tax issue mentioned in the NAO report. 

“I need to review the report before commenting,” he said. 

When questioned further by The Sunday Morning about whether the matter concerning the prominent telecommunications company had been discussed at TRC Board level, Herath confirmed that it had not.