Tax reforms in progress

New Tax Appeals Commission:

Dharmadasa Rangalla- Deputy Commissioner Department of Inland Revenue

The constitution of the Democratic Socialist Republic of Sri Lanka establishes the concept of unity, sovereignty and territorial integrity: it has recognized the separation of power of the legislature, the executive and the judiciary, delineating the power of each legislature, executive and judiciary and directs these three organs to function within the specified subjects engrafted in the constitution. Division of power between the legislature, the executive and the judiciary is one of the basic features of the constitution of Sri Lanka. The legislature makes laws, the executive enforces them and judiciary interprets them.

The Parliament being the Law making authority, it makes laws for the requitement of the society and the country the executive is empowered to enforce laws enacted by the Parliament as legislator.

The executive should exercise of the power within the parameter and jurisdictions conferred on them.

The legislature is omnipotent in the exercise of the taxing prerogatives. The constitution of Sri Lanka empowers the Parliament to make laws in relation to state finance and accordingly the Parliament has made laws to raise revenue for the requirement of the country. Since these laws empower the executive to collect revenue by way of duties, levies, and taxes etc. The administration of the tax law is the responsibility of the executive power.

It is experienced and commonly accepted that when revenue laws are implemented, by exercising discretionary power by revenue officers in respect of issuing assessments, aggrieved parties have a legal right to make a petition of appeal to relevant administrative authority. The relevant appeal procedures and process of settling of such appeals have also been specified in the relevant fiscal legislation. In past few years, it was challenged to the independency of the hearing of appeals and there were lot of argument relating to guarantee of the fair hearing of appeals.

President Mahinda Rajapaksa on his budget speech in Parliament on Budget for 2011 expressed that "An Independent Appeal Commission" will be established comprising a team of legal, technical and operational l experts in handling any appeal made against the determination of the Commissioner General.

The present functions of the Board of review will be removed from the Relevant Acts administrated by the Commissioner General of Inland Revenue and will be brought under a separate Act. Apart from the Acts administrated by the CGIR the activities of the Commission will cover the appeals on the taxes in dispute under other statures namely, Custome Duty, Excise Duty etc.

Now the concept has become reality. Tax Appeals Commission Bill was passed by the parliament and Tax Appeals Commission Act No. 23 of 2011 has come into force an implementation with effective from April 1, 2011.

According to the newly introduced Tax Appeals Commission Act, there shall be established a Commission to be called and known as Tax Appeal Commission. The Commission is a separate independent institution and specially established for the hearing of all appeals in respect of matter relating to imposition of any tax levy or duty.

According to Appeal Commission Act, Commission has power to hear the appeals relating to tax matters of Income Tax (IT), Value Added Tax (VAT), Nation Building Tax (NBT) and Economic Service Charge (ESC). Appeals relating to excise duty and custom duty are not covered by new legislations as proposed in budget.

The Organization Structure

Commission is comprised with not more than three members. Member are appointed by the Minister of Finance. One member of the Commission will be appointed a Chairman of the Commission and members appointed from amongst retired judges of the Supreme Court of Sri Lanka and the Court of Appeal of Sri Lanka, who have wide knowledge of, and have gained eminence in the field of Taxation, Finance and Law. Every member of the Commission shall hold office be for a term and not exceeding three years and shall be eligible for reappointment.

In addition to Commission members, Minister of Finance appointed a penal of Legal Advisors. Panel comprises with not more that ten members, who have gained eminence in the field of Law. Panel should assist the Commission in the exercise, performance and discharge of powers duties and functions specified in the Tax Appeal Commission Act.

In addition to commission members and panel, the Minister of Finance appoints a Secretary to the Commission.

Functions of the Commission

Any tax payers (Appellant) who dissatisfied with reasons given in relating an appeal by Commissioner General have right to make an appeal to the Commission in respect of appeals relating to tax matters of IT, VAT, NBT, an ESC. Such appeal shall be heard by the Commission and make a decision within one hundred and eighty days from the date of commencement of the hearing of the appeal. The decision of the Commission shall be notified to the CGIR and Appellant in writing. Within thirty days of the receipt of an appeal, the Secretary to the Commission shall fix a date and time and place for the hearing of the appeal and shall give forth two days notice thereof both to the appellant and to the Commissioner General.

Three or more members of the panel shall be nominated by the Minister to attend the hearing of the Commission and assist in the progress of the appeal proceedings and any investigation if any before such Commission.

Such appeals are heard in Camera. Every appellant shall attend in person or by an authorized representative, on the day fixed for the hearing of appeals by the Commission. The Commission has the power to call appellant attend in person, if commission think it necessary to appellant attend in person.

The Assessor who made the assessment appealed against or a person authorized by the Commissioner General in that behalf, shall attend the hearing of the Commission at which such appeal is heard, in support of the determination of the Commissioner General.

More important aspect of newly introduced appeal process is any person who makes an appeal to the Commission, be required to pay 25 percent of tax assessed by CGIR in his determination; into a special account which is opened and operated the Commission. In this regard appellant can submit a bank guarantee for by the equivalent amount if money is not deposited.

Any party both Appellant or the CGIR dissatisfied with decision of Commission decision have right to make an application to the Commission to state a case to Court of Appeal on the question of law arising in the appeal. The provisions relating to appeal to the Court of Appeal and Supreme Court in the Inland Revenue Act are applied for on that regards.

Rules and Regulations

Rules and regulations relating to be the hear the appeals and determine such appeals to be made by the Commission in that behalf.

No More Board of Review

Before commencement of Tax Appeal Commission, there were thirty members Board called and known as Board of Review of inland Revenue. There were three legal advisors for the Board to assist the board members in relating to the legal matters and Secretary to the Board to assist for smooth administrative function of the Board. Appeals those of not commenced hearing or not hearing were completed as at 31.03.2011 before the Board of Review are transferred to the Commission and such cases to be heard and decisions to be given within two years from the date of 01.04.2011. Members of the Board of Review, legal advisors and Secretary to the Board were appointed by the Minister of Finance and Now BOR is discontinued.

All the functions vested to the board under the Inland Revenue Act up to 31 March 2011 now falls to the administrative preview of Tax Appeal Commission which is established as more independent institution.