PROGRESS IN TAX REFORMS PROMOTES NEW ECONOMIC VISION

THE Taxation Cluster of the National Council for Economic Development has been successful in facilitating the implementation of the tax proposals outlined in the National Budget 2005, aimed at overall tax reforms in the country well on target.

These reforms include statutory amendments. The VAT amendment already approved by the Parliament, will make far reaching reforms through the introduction of a four band VAT structure and the removal of the VAT from import of project related capital goods, agricultural seeds and plants, shrimp feed, leasing of three-wheelers, locally manufactured sold in duty-free shops and financial services share sales (natural and corporate persons).

Further, supplies provided to services provided by garment buying offices registered with the Textile Quota Board will be zero-rated. Local supplies of exportable products to export companies registered with the Textile Quota Board and for finished goods supplied to the BoI registered trading houses for export by registered manufacturer will also be zero-rated. For the purpose of calculation of VAT, the value of imported goods has been enhanced by 5 per cent and the Port and Airport Development Levy has also been added to the tax base.

Amongst other tax reforms, a social responsibility levy of 0.25 per cent of the proceeds of tax revenue other than the withholding tax and the divided tax and a share transaction levy of 0.2 per cent on all buying and selling of shares, will be introduced with the enactment of the Finance Act 2005, which too has been approved by Parliament.

With the Revision of Fines Act, which has also been approved by parliament coming into operation, the outdated fines structure contained in key revenue statutes will be revised.

This was a long-felt need in the country since most of these fines have not been revised for well over 25 years. A part of consequential revenue would be spent to equip the Police Force with communication and other equipment essential for law enforcement and towards upgrading and maintaining the infrastructure of the judiciary.

With effect from February, 2005, dedicated tax courts have been set-up in Gampaha, Kandy, Galle and Anuradhapura which would give priority to the speedy dispensations tax related cases including tax recovery and compliance cases. Till then only the District Court of Colombo had this mandate. This move is expected to reduce laws delays in the area of tax litigation, thus facilitating tax reforms.

To create a culture that is taxpayer friendly, an appeals unit has been setup in the Department of Inland Revenue to deal with settlement of appeals made by tax payers against assessments sent by assessors.

Further, an information centre is now in operation at the Department of Inland Revenue to collect and analyse information on tax evaders to strengthen the surveillance mechanism.

A committee of tax commissioners has been setup, to certify and expedite tax refunds. A Code of Conduct has been circulated to all employees of the Inland Revenue and a Tax Charter aimed at rebuilding a healthy taxation community is being finalised. Public views have been called on the Tax Charter to ensure that consultative process is adopted for the same. The Tax Cluster is currently studying the possible functions and considering the feasibility of setting up an independent Tax Ombudsman who would facilitate fair and expeditious settlement of taxpayer grievances and it is also finalising the ways and means of incentivising honest taxpayers. A codified version of the Inland Revenue Act is proposed to be published for easy reference for users.

In the coming weeks, suitable amendments will be introduced to the Inland Revenue Act and the Betting and Gaming Act to widen the tax base as envisaged in the National Budget 2005.

The Inland Revenue has been successful in achieving its targets for 2004 and they are well in control of this year's targets as well.