Net in the big fish

According to Director General Inland Revenue Department Mallika Samarasekera the Department has targeted a revenue of Rs.512 billion for 2012, an increase of Rs.70 billion over the previous year. She also said the IRD contributes more than 50 percent towards government revenue. Hence the pre-eminent role played by the IRD as the government's chief revenue collector cannot be overemphasized. Considering its importance the Department should be provided with all the facilities and manpower to expand revenue collection in a more efficient and systematic way particularly in the context of the post war Sri Lanka where the country needs all the revenue it could lay its hands on to carry out the mammoth development tasks undertaken.

Importantly the IRD should also be geared to go after the big time crooks and tax dodgers who live on the fat of the land but fail to pay their dues to the state. Tax recovery has been a perennial problem facing all governments who in most instances are reluctant to wield the big stick on big time defaulters for various reasons chief of which is political patronage. A close follower of the on going US Presidential campaign would observe how Republican candidate Mitt Romney is been dogged by a tax evasion scandal in connection to his own company Bain Capital.

In mature democracies tax evasion is a serious issue and defaulters promptly come under the public microscope as Romney is learning to his cost.

Here too the authorities should go after the big fish without let or hindrance and expose the culprits before the general public. This would not only bring other defaulters in line but also considerably add to the government's revenue coffers.

According to our main story in yesterday's Business page the IRD Director General says they are hoping to widen the tax net and woo 500 new taxpayers next year. She also claims to have taken legal action against 1,736 defaulters to claim around Rs.15 million and bring them to the paying community. One is inclined to ask why not throw the dragnet wider to net in the vast ocean of tax defaulters when one considers the riches and opulence one encounters all around us. The Director General say they are handicapped by not having a computerized system like in developed countries to open new files and is adopting a friendly approach to ensure compliance. It is left to be seen how this friendly approach is going to pay tax dividends. Nothing short of a direct approach and stringent laws is going to yield results.

Surely Sri Lanka today has a wider tax base than say a decade ago, with the end to the conflict and mushrooming of enterprises and new business ventures. The IRD can also find ways to go after the new rich who have hidden their wealth in devious ways.

The government should extend an amnesty for such defaulters in its upcoming budget and even offer other incentives to ensure compliance. The state should lend its assistance and strengthen the hands of the IRD to collect much more than the 50 percent it collects for its coffers, through the enactment of tough tax laws.

Above all it should allow a free hand to the IRD to carry out its work impartially and without hindrance. It is also as truism in this country that the IRD only goes for the small fry and let the big fish slip through the dragnet. One cannot blame the larger masses for entertaining such a notion especially when they are taxed on most of their basic necessities. It is only natural that these segments feel cheated when they hear and read how the crooks get off easily without paying taxes. There is also a need to clean up the Augean stables at the Inland Revenue Department. The massive swindles and billion dollar scams will not inspire would be taxpayers.

True, the state depends on taxes for its revenue which in turn is recycled for development and public welfare and it is inevitable that the poor get taxed.

However the state should ensure that taxes are levied in proportion to people's income or wealth to ensure the have-nots are not asked to subsidize for the rich. Today it is a well known fact that the rich, wealthy and big business are adept at exploiting the loopholes in the tax laws and denying the state of its due revenue. It is important that tax laws are tightened to ensure proper compliance.

The government should also pay attention to the black economy which is operating parallel to the mainstream economy eating into its vitals. Here too amnesties and incentives are called for to divert this vast financial resource into the mainstream economy. Such incentives we recall have been attempted before this with little results. Hence there is a need to adopt more effective measures to 'whiten' the black economy.

While the efforts of the Inland Revenue Department to collect more tax revenue for the government by spreading the tax net should be lauded the government on its part should take steps to rationalize the country's tax regime to banish inequalities while ensuring the maximum revenue collection.