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Colossal loss to state from Tax Amnesty, says Jeyaraj

by Bharatha Malawaraarachchi and Ranil Wijayapala

The Inland Revenue (Regulation of Amnesty) Bill was presented in Parliament, seeking to withdraw amnesties granted with regard to indirect taxes.

Presenting the Bill on behalf of the Finance Minister, Chief Government Whip and Minister Jeyaraj Fernandopulle said this tax amnesty given by the previous UNF regime had caused an enormous loss of revenue to the State.

"The Tax Amnesty given by the previous regime had greatly affected State revenue.

"Rs. 68,000 million to the State while loss to the Custom Department is yet to be determined," the Minister added.

"He said all successive Governments in the country had given tax amnesties. "But this was an unprecedented tax amnesty which resulted in loss of millions of Rupees to the Government through indirect taxes. This is a severe mistake," added the Minister.

Fernandopulle said the Bill which was presented today would provide provision for the repeal of the Inland Revenue (Special Provisions) Act, No. 10 of 2003 and thereby withdrawing any amnesty granted with regard to indirect taxes such as Customs Duties, Excise Taxes Fines, Exchange Control Fines/Forfeitures, Import and Export control Fines/Forfeitures, Turnover Taxes, Goods and Services Taxes, Stamp Duty etc.

After presenting the Bill, Minister Fernandopulle said the Bill will be taken up for debate on a later date.

Earlier, presenting the Bill, Minister Fernandopulle further said:

"Inland Revenue (Special Provisions) Act, No. 10 of 2003 was enacted to grant amnesties on income tax and also on certain indirect taxes such as Customs Duties, Excise Taxes/Fines, Exchange Control Fines/Forfeitures, Turn Over Taxes, Goods and Services Taxes, Stamp Duties etc. There has been a practice of granting amnesties on income tax, in order to encourage tax evaders to voluntarily comply with tax laws.

However, granting amnesties on indirect taxes is something totally unacceptable as the consumers have already paid the above indirect taxes when they obtained goods and services as the tax is built into the price. When goods are sold or services are provided, such indirect taxes are collected by the providers of goods and services and payable to the Government.

By virtue of the amnesty granted by the said legislation, the indirect taxes collected by those who provided goods and services were retained by themselves. In view of the obnoxious features of the draft law it was challenged in the Supreme Court before it was enacted by Parliament.

However, it was rejected as the Court did not have jurisdiction to entertain a challenge by a member of the public after a seven day period stipulated in the Constitution.

In the absence of any objection by the Supreme Court, the legislation to grant amnesty was enacted by Parliament despite the vehement objection raised by the members of the then opposition and the Bill was enacted as Act, No. 10 of 2003.

On being appraised of the undesirable features of this Act, H.E. the President forwarded a note to the Cabinet of Ministers suggesting to suspend forthwith the operation of the Act and to repeal the Amnesty Act.

The former Cabinet of Ministers disregarded H.E. the President's advice and instead went on to extend the closing date for the receipt of declaration to qualify for the amnesty by a further period of two months from 1st July, 2003 to 31st August, 2003.

Prior to the previous closing date of the 30th June, 2003, only 16,860 declarations had been received and during the extended period of two months up to 31st August, 2003, a further 34,945 declarations had been received by the Commissioner General of Inland Revenue.

The Act No. 31 of 2003 which was enacted to extend closing date for receiving declarations under the Tax Amnesty Act from the closing date 30th June, 2003 to 31st August, 2003 was certified by the Hon. Speaker of Parliament only on 22nd August 2003, almost two months after the extended closing date. There was no law operative for the extended two month period.

The provisions of the Inland Revenue (special provisions) Act enacted to grant amnesties, prohibited and made inactive the collection and other enforcing activities of the departments of Inland Revenue, Customs, Excise, Exchange Control and Import and Export Control.

According to the report of the Commissioner General of Inland Revenue, around Rs. 38 billion indirect taxes such as Turn Over Tax, Goods and Services Tax, Defence Levy, Stamp Duty were outstanding as at 31.12.2002.

The outstanding amount of Income Tax and surcharge on Income Tax was Rs. 30 billion.

The Department of Inland Revenue was not able to take action to recover some of these taxes as per amnesty granted by the Amnesty act.

The Inland Revenue Department and other 4 departments had to accept the declarations submitted by the declarants and withdraw the cases filed in courts and other activities to recover outstanding taxes/fines and also suspended investigation work carried out.

This position eroded the compliance of the tax paying public who paid their taxes/fines in time. When the Amnesty act was referred to the Supreme Court by H.E. the President, a 5 member Bench of the Supreme Court pronounced an unanimous judicial opinion that the provisions of the Tax Amnesty Act had condoned the misappropriation of public funds collected from the public on behalf of the State and the public revenue held in trust for the people cannot be denied of its benefits to them.

In order to plug leakages of revenue, it has become necessary to repeal the Inland Revenue (Special provisions) Act No. 10 of 2003 by the Inland Revenue (Regulation of Amnesty) Bill which is before parliament.

By this Bill, it is proposed to withdraw amnesties granted with regard to indirect taxes such as Customs Duty, Excise Taxes/Fines, Exchange Control Fines/Forfeitures, Imports Export Control Fines, Goods and Services Taxes, Stamp Duties etc., while retaining provisions to grant amnesty to certain income tax payments as follows:

In terms of the provisions of the Bill, a declaration furnished before 31st August, 2003, to the Commissioner General of Inland Revenue, disclosing his liability of additional liability to the payment of income tax with the details of assets and sources of income as at April 1, 2002 which assets and sources of income had not been declared at any time prior to March 31, 2002, is entitled to income tax amnesty.

The Commissioner General shall examine and extend the amnesty only in respect of declarations which contained the above information.

The provisions included in the Bill will provide certain concessions to the declarants who have made valid declarations.

Accordingly no prosecutions or investigations will be carried out for the imposition of income tax and payment of income tax on disclosed of undisclosed income or assets, for the period ending on or before March 31, 2002.

The Bill provides provision to the Commissioner General or any Authority administering the collection and recovery of any tax, levy or penalty etc. to revive, restore and continue with such proceedings, investigations or inquiries which have been stopped, suspended or withdrawn in terms of the Amnesty Acts enacted in 2003.%

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