Inland Revenue Department, now a people-friendly institution

(Speech of Commissioner General of Inland Revenue, A. A. Wijepala, at the Key Persons Forum held on July 25.)

INLAND REVENUE: The strength of the income tax paying community in Sri Lanka was 350,000 upto July. The aim of the Inland Revenue Department is to raise this amount to 500,000 by 2008.

The Statistics Department details reveal that there are 760,000 taxable people in Sri Lanka and their income level per year is more than Rs. 300,000 in 2002.

By this year this figure would have gone up to one million. One million having an income level of Rs. 300,000 or more per year means that they must be tax payers. If the agriculture sector is not exempted from tax at least 900,000 should have been tax payers.

There are certain shortcomings at the Department. However, currently a streamlining process is underway followed with a three-year plan to increase the number of tax payers.

Under this plan, the Department will convert to a customer-friendly one. Newcomers to the tax net will be encouraged and treated as friends. The department now has decided to refrain from querying from the new entrants about the accounts of previous years, payments or other past details. The new tax payers today can freely walk into the department and can pay a reasonable amount of tax depending on his income.

Digging for the past accounts of the tax payers has proved futile because they can always easily evade the payment. There are experts in preparing bogus accounts.

If any tax payer wants to hide his past accounts, he can easily consult such a person and prepare bogus accounts. The tax payer will pay Rs. 25,000 to that consultant and will get prepared accounts to pay only Rs. 500 to the department. Therefore, the department had realised that requesting the new tax payer to submit the past details will not serve any purpose.

The officials in the department had been instructed to help the tax payers to their best and requested them to go to the extent of helping to fill the forms or any other documents that should be perfected by the tax payer. People are scared of paying tax, but it is not that so.

For example, a person with a net income of Rs. 500,000/- will have to pay only Rs. 10,000/- as income tax which is only 5% of the total amount.

Today the services of the Inland Revenue Department is transformed to a service-oriented institution. As a result, 15,400 new tax payers have registered to the tax paying community.

The department had also taken steps to acquire several new locations to set up branches of the department to make matters easy for the tax payers. The necessity had arisen to shift few important sections of the Department to spacious and convenient locations with easy parking facilities.

A vital section of the department will function in the future at Jawatte CWE super market building which is located in a two acre land. Bank facilities are also available in-house enabling customers to make payments then and there.

The renovation for the buildings are now in progress. The department had also taken a building used by the State Trading Corporation at Navam Mawatha and another building in McCallum Road CWE complex. All metro branches which are considered to be very important arms of the department such as branch offices in Colombo South, Colombo city, Central and North will be located in the Jawatte new complex.

This office will be a modernised one which will provide all the facilities to the tax payers and it will have ample parking facilities. Navam Mawatha Branch will cater to the private sector only. It will offer all the facilities and ensures a satisfactory service.

In this premises 85 vehicles could be easily parked. McCallum road Branch will also be modernised. Tax payers of any level can approach these places easily and make their payments. It is expected to complete the renovations within two months.

Facilities to obtain car permits are also now available. Those who are eligible to obtain car permits can apply now and the department is ready to issue them after usual scrutiny.

Delay in refunds is another issue people talk about. Dues, in whatever form, if delayed that person will naturally become angry. Expediting the payments of refunds and protecting the rights of the tax payer had become a major issue to pay attention.

With the introduction of the VAT, the Department of Inland Revenue had to write 20,000 cheques pertaining to VAT refunds and also other private cheques amounting to 2,400 for a year. The 2000 cheques per month involved Rs. 12 billion.

The Department is releasing this money from the consolidated fund. Issuance of a large number of cheques valued at a large sum of money is not a child's play. The lack of staff to cope up with this work was the main problem. There are only 40 persons to deal with this subject.

A visit to the Unit 03 has revealed that they had written 2,700 refund cheques with a lean staff of 15 officers and six or seven Assessors. The same staff had to collect revenue, go through the returns and attend to the refund matters.

When a refund application is processed another problem arises from both ends that is from the applicant as well as from the department officers.

Submitting incorrect or incomplete applications or returns especially for VAT refunds the officials have to undergo many problems.

The department anticipates correct and complete applications tallying with the import details and export details to the last cent.

If not, the officials have to take pains to rectify those applications which consumes more time. When our officers need some details the claimant takes time to furnish them and that is also a contributory factor for delays.

The other difficulty is when the officers go for field audit inspections they find it difficult to trace necessary documents. Sometimes the documents are not in order or they are not in the proper places.

Therefore very often the officers have to visit those places not once but several times to accomplish one single piece of work.

Another factor is the outdated computer system in the department which has seen installed in 1990 coupled with a shortage of staff. However, as a result of the steps taken by the department in the recent past, it is expected to recruit an additional 1,200 suitable persons to reinforce the staff.

With this the staff strength will be doubled and thereby the staff, the problem could be eliminated, after some training.

The problem of the outdated computer system will also be solved with the introduction of the new desktop development planned to carry out with the assistance of the Asian Development Bank.

The next step is setting up a computer laboratory. Officers below the rank of Deputy Commissioners will undergo a training for one week to obtain a basic knowledge in computer literacy. The department expects to train the entire staff with computer skills which will enable to maintain correct details.

With the VAT scandal last March, under instructions of the Auditor General, many experienced officers had to be transferred from the VAT Unit. Since the new officers appointed to replace them were not acquainted with the subject, a delay caused expediting the refunds. Transferring officers to VAT Branch to fill the vacancies, therefore, had become a problem. And the other problem was that the new officers who were lacking in experience hesitate to sign the cheques.

The department commenced a system with the last Budget announcements to open bank guarantees from exporters.

It's like in the Customs. Under this system the department can issue cheques within 15 days pending the auditing process. There are 206 big time exporters registered already.

The VAT files are with the income tax files. The department plans to instruct the officers to write the cheques in their respective Branches and to send them to VAT Branch which could be sent to Accounts Branch.

It has also been planned to commence a Green Channel system for good tax payers, like the blue return system operating in Japan.

Then for good tax payers under the proposed Green Channel system, refund cheques, could be issued with only a random checking. However, if anybody is caught with misappropriation or fraud or a wrong-doing, his name will be scrapped from the Green Channel list.

The Department pays attention on corporate tax statistics also. There are 4000 Corporations located outside the Colombo District. The department is seeking avenues to open a separate Branch, namely Corporate Tax Branch to deal with the said 4,000 Corporations.

Then six or seven Branches in Colombo can deal with the Corporations in Colombo and the Branch proposed to be set up in the future, can handle outstation Corporations. There were complaints from outstation Regional offices. When there is a big individual business they get advice to convert to a limited liability which will never audit.

There are 24,000 corporate tax files here. The outstation files are from small firms. Then what happens is officers normally do not handle those files and this means they get a chance to escape. That is one of the reasons to open a separate Branch to deal with the outstation Corporations.

When payments are made to Banks, a problem arose having queues.

As a result of the discussion had with the Chairman of the Bank of Ceylon, expanding the network enabling the payees to deal with the transaction smoothly was possible. Also payments could be made in outstation commercial towns like Galle, Kandy, Matara etc., It has also been decided to urge the officers in the Department to pay tax. They all have to declare their income. This is applied for Customs officers, Excise Department officials, BOI, RMV and also all the Secretaries if they are to pay tax for additional income they accrue.

Their tax commitment may be small according to their income but they must come under the net. In Unit 3 there are 16,000 taxpayers and the department expects to increase it for 25,000 by the end of this year.

As far as the facilities given to the taxpayers the returns are changed to make matters easy. The paying slip is now converted to carbonised set, although the printing costs were high, enabling the tax payer to fill only one copy. It has also been decided to introduce a new postcard to be used for acknowledgement purposes and this new postcard could be easily filed.

The Department is pleased that with the changes made so far, the people have started to commend and appreciate the work we do. As expected by the Govt. IMF and the ADB the sole intention of the department is to modernise and to make it a service-oriented and a customer-friendly institution in Sri Lanka.

(This is the 4th FORUM of 2006 jointly organised by the Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL) and Small & Medium Enterprise Developers (SMED). SMED is the SME arm of the FCCISL, which was established by Friedrich Naumann Stiftung (FNSt.) in 1989.)