Performance Report 2006 - Department of Inland Revenue
Performance Report 2006 - Department of Inland Revenue
Performance Report 2006 - Department of Inland Revenue
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<strong>Performance</strong> <strong>Report</strong><br />
<strong>2006</strong><br />
DEPARTMENT OF INLAND REVENUE<br />
SRI LANKA
<strong>Department</strong>’s Mission<br />
“To collect taxes in-terms <strong>of</strong> relevant tax and other related<br />
laws, by encouraging voluntary compliance while deterring tax<br />
evasion and tax avoidance, and<br />
To enhance public confidence in the integrity and efficiency <strong>of</strong><br />
the tax system administered by the <strong>Department</strong> <strong>of</strong> <strong>Inland</strong><br />
<strong>Revenue</strong> by administering relevant tax and other related laws<br />
in a fair, friendly and expeditious manner and thereby<br />
facilitate a beneficial tax culture.”<br />
Strategic Goals<br />
To improve voluntary compliance by taxpayers with the tax<br />
laws through programmes which encourage and assist that<br />
and detect those who do not comply and, where necessary,<br />
take appropriate corrective action.<br />
To improve the effectiveness <strong>of</strong> the <strong>Department</strong> by; the<br />
applications <strong>of</strong> efficient work methods, technology and better<br />
utilization <strong>of</strong> available resources.<br />
To enhance the productivity and pr<strong>of</strong>essionalism <strong>of</strong> the staff<br />
through management and technical training, work experience,<br />
and thereby to enable them to contribute more effectively<br />
towards the fulfillment, by the <strong>Department</strong>, <strong>of</strong> it’s mission.<br />
i
Regional Office Network<br />
Regional Office Code Nos Regional Office Code Nos<br />
Kalutara 02 Ratnapura 21<br />
Kandy 03 Kegalle 22<br />
Matale 04 Negambo 23<br />
Nuwara Eliya 05 Gampaha 24<br />
Galle 06 Maharagama<br />
Matara 07,08 Colombo West 28<br />
Jaffna 09 Colombo East 29<br />
Anuradhapura 10,11,14,17,18 Jawatta<br />
Batticaloa 12,13 Colombo Central 25<br />
Kurunegala 15,16 Colombo City 26<br />
Badulla 19,20 Colombo South 27<br />
ii
PRINCIPAL OFFICIALS<br />
Mr. A.A. Wijepala<br />
Commissioner General <strong>of</strong> <strong>Inland</strong> <strong>Revenue</strong><br />
Mr. S. Angammana<br />
Deputy Commissioner General<br />
Tax Surveillance, Risk Management and International Affairs<br />
Mr. E.A.S. Edirisinghe<br />
Deputy Commissioner General<br />
Tax Policy Planning & Development, Legislation, Rulings & BOI<br />
Enterprises<br />
Mr. R.K.H. Kaluarachchi<br />
Deputy Commissioner General<br />
VAT and Information & Communication Technology<br />
Mr. E.M.M. Medagoda<br />
Deputy Commissioner General<br />
Tax Administration<br />
Mr. H.M. Herath<br />
Deputy Commissioner General<br />
Human Resource Management<br />
iii
Mr. V.D.G.P. Ubesiri<br />
Senior Commissioner - Large Taxpayer Unit<br />
Mr. P. Wickramasena<br />
Senior Commissioner - Internal Audit<br />
Mr. K.M.S. Kandegedara<br />
Senior Commissioner- Zone 1<br />
Mrs. A. Seneviratne<br />
Senior Commissioner-Zone II<br />
Mr. H.A. Somapala<br />
Senior Commissioner-Zone III<br />
Mrs. M. Samarasekera<br />
Commissioner-Large Taxpayer Unit<br />
Mr. K.L.S. Silva<br />
Commissioner-ICT II<br />
Mr. H.B.A. Seneviratne<br />
Commissioner - Strategic & Operational Planning, Tax Policy & Rulings<br />
Mrs. D.M. Nandawathie<br />
Commissioner-Information and Non filers & Stop Filers<br />
Mr. A.A. Amararatne<br />
Commissioner-Value Added Tax<br />
Mr. W. Tilakaratne<br />
Commissioner-Internal Audit<br />
Mr. R.K. Premadasa<br />
Commissioner-Tax Payer Services<br />
Mr. H.M. Abesinghe<br />
Commissioner-Human Resource Management<br />
Mr. P.D. Premaratne<br />
Commissioner-Investigation and Legal<br />
Mr. H.M. Premaratna Banda<br />
Commissioner-Corporate Tax and Audit<br />
Mr. S.T.Gobalasingham<br />
Commissioner-PAYE and Zone III<br />
Mr. K.A.P. Kaluarachchi<br />
Commissioner-ICT I<br />
iv
Mrs. W.B.S. Shanthikumar<br />
Commissioner-Employee Services<br />
Mrs. L Ramanayake<br />
Commissioner-Human Resources Development<br />
Mr. W.M.W. Kumarasiri<br />
Commissioner-BOI Enterprises and Stamps<br />
Mr. W.M. Mendis<br />
Commissioner-Zone I<br />
Mrs. R.A.M.A.K. Herath<br />
Commissioner-Appeals and Economic Research<br />
Mr. W.A.Fernando<br />
Commissioner-Procurement and Supplies<br />
Mr. A.L.A. Sirisena<br />
Commissioner-Procurement and Supplies<br />
Mrs. H.M.C.I. Gunasekera<br />
Commissioner-Collection<br />
Mr. W.V.P. Karunaratne<br />
Commissioner-Assessment Control “B”<br />
v
CONTENT<br />
Organisation Chart<br />
<strong>2006</strong> - A Year Of Many Achievements<br />
CHAPTER 1- HUMAN RESOURCES 1<br />
1.1 Approved Cadre, the number in post and vacancies 1<br />
1.2 Training 2<br />
1.2.1..Overseas Training 2<br />
1.2.2..Overseas Training provided through the Fiscal Management Reform Program 3<br />
1.2.3..In-house Training 3<br />
1.3 Promotions 4<br />
1.4 Deaths 5<br />
1.5 Retirements 5<br />
CHAPTER 2 – REVENUE COLLECTION 7<br />
2.1 Total <strong>Revenue</strong>- <strong>2006</strong> 7<br />
2.2 Number <strong>of</strong> Tax Files 10<br />
2.2.1 Number <strong>of</strong> Income Taxpayers 10<br />
2.2.2 Income Tax Return Filing compliance 2001/02 to 2005/06 11<br />
2.3 Income Tax Collection 11<br />
2.3.1 Corporate and non corporate Income Tax 12<br />
2.3.2 Source wise Analysis <strong>of</strong> Income Tax Collection in <strong>2006</strong> 13<br />
2.4 Economic Service Charge 13<br />
2.5 Value Added Tax Collection 14<br />
2.6 Stamp Duty Collection 16<br />
2.7 Betting and Gaming Levy Collection 16<br />
2.8 Debits Tax Collection 16<br />
2.9 Share Transaction Levy 17<br />
2.9.1 Collection <strong>of</strong> Share Transaction Levy in <strong>2006</strong> 17<br />
2.10 ..<strong>Inland</strong> <strong>Revenue</strong> Collection 2002 to <strong>2006</strong> 17<br />
2.11.. <strong>Inland</strong> <strong>Revenue</strong> Contribution to the Government <strong>Revenue</strong> and Gross Domestic Product 18<br />
CHAPTER 3 – EXPENDITURE AND PRODUCTIVITY RATIO 20<br />
3.1 Comparison <strong>of</strong> the total expenditure incurred in the year <strong>2006</strong> with that <strong>of</strong> Years 2004 and 2005 21<br />
vi
3.2 Analysis <strong>of</strong> the Recurrent Expenditure in <strong>2006</strong> 22<br />
3.3 Productivity Ratio 22<br />
CHAPTER 4 – TAXES IN DEFAULT 26<br />
CHAPTER 5 – INTERNATIONAL RELATIONS 26<br />
5.1 Double Tax Treaties 26<br />
5.2 Participations at International Taxation matters abroad 28<br />
CHAPTER 6 – LEGISLATION 29<br />
6.1 Legislation enacted during the year 29<br />
6.2 Rulings given during the year 29<br />
6.3 Approved charities declared during the year 30<br />
CHAPTER 7 – AUDITS, ADDITIONAL TAX COLLECTION AND APPEALS 31<br />
7.1 Particulars <strong>of</strong> Audits and Additional Tax Collections 31<br />
7.2 Appeals 31<br />
7.3 Board <strong>of</strong> Review 31<br />
vii
Organisation Chart<br />
(As at 31-12-<strong>2006</strong>)<br />
Board <strong>of</strong> Review Commissioner General /<br />
Chairman - <strong>Revenue</strong> Board<br />
Ombudsman<br />
Secretary to the <strong>Revenue</strong> Board<br />
Senior Commissioner: Internal Audit<br />
Commissioner: System & Finance Audit<br />
Senior Deputy Commissioner<br />
General<br />
Commissioner:<br />
Procurement & Supplies<br />
Commissioner:<br />
Appeals<br />
Deputy Commissioner<br />
Chief Accountant<br />
Building Engineer<br />
Deputy<br />
Commissioner<br />
DCG:<br />
Tax Administration<br />
• Commissioner:<br />
Taxpayer Services<br />
[TS]<br />
• Commissioner: Audit<br />
[Aud]<br />
• Commissioner:<br />
Collection &<br />
Enforcement [C&E]<br />
• Commissioner:<br />
Returns & Payment<br />
Processing [R&PP]<br />
DCG: ICT<br />
[Chief Information Officer]<br />
• Commissioner: ICT I<br />
[ICT Manager,<br />
Developments & Reforms]<br />
• Commissioner: ICT II<br />
ICT Manager, Projects &<br />
Engineering]<br />
• DC: Application &<br />
Database Development<br />
Unit [Team Leader]<br />
• DC: Network Operations<br />
Centre [Team Leader]<br />
• DC: ICT Reforms<br />
• DC: Special Projects<br />
DCG: HRM<br />
• Commissioner:<br />
Human<br />
Resources<br />
• Commissioner:<br />
Human<br />
Resource<br />
Development<br />
• Commissioner:<br />
Employee<br />
Services<br />
• HR Specialist I **<br />
• HR Specialist II<br />
DCG: Tax<br />
Surveillance & Risk<br />
Management and<br />
International Affairs<br />
• Commissioner:<br />
Investigation<br />
• Commissioner:<br />
International<br />
Affairs<br />
• Commissioner:<br />
Information &<br />
Non Filers & Stop<br />
Filers<br />
Deputy<br />
Commissioner<br />
DCG: Tax Policy<br />
Planning &<br />
Development,<br />
Legislation, Rulings<br />
& BOI Enterprises<br />
• Commissioner:<br />
Strategic and<br />
Operational<br />
Planning, Tax<br />
Policy Planning,<br />
Legislation , and<br />
Rulings<br />
• Commissioner:<br />
BOI & Investment<br />
Promotion<br />
• Commissioner:<br />
Research &<br />
Policy<br />
• Policy, Planning & **<br />
Standards Guidance<br />
• Database Administrator<br />
• Application Developer<br />
• Hardware, Network &<br />
System Administrator<br />
• Cyber Security & Risk<br />
Administrator<br />
• Data Centre Administrator<br />
• e-Government<br />
• Emerging Technology<br />
• Intranet/Web Developer<br />
• S<strong>of</strong>tware Engineering & QA<br />
• IT Helpdesk<br />
• ICT Competitive<br />
Outsourcing<br />
Training Centre<br />
Deputy<br />
Commissioner<br />
• Tax Policy **<br />
Analyst<br />
• Fiscal Policy<br />
Expert<br />
• Economist<br />
• Financial Analyst<br />
• Legal Officer<br />
• Research<br />
Assistant<br />
• Statistician<br />
Senior Commissioner: Tax<br />
Administration - Zone 1<br />
Senior Commissioner:<br />
Tax Administration - LTU<br />
Senior Commissioner:<br />
Tax Administration -<br />
Zone 2<br />
Senior Commissioner:<br />
Tax Administration -<br />
Zone 3<br />
• Commissioner: Colombo<br />
Regional Offices, VAT,<br />
Stamp Duty, Unit 3 and ESC<br />
• Commissioner: LTU,<br />
Corporate Tax & Debits<br />
Tax<br />
• Commissioner: South<br />
Region<br />
• Commissioner: North<br />
Region<br />
Deputy Commissioner<br />
Deputy Commissioner<br />
Deputy Commissioner<br />
* Until the Senior DCG is appointed, all <strong>of</strong>ficers required to report to the Senior DCG will report to the CGIR<br />
** Positions yet to be established<br />
ii<br />
Deputy Commissioner
<strong>2006</strong> – A YEAR OF MANY ACHIEVEMENTS<br />
The <strong>Department</strong> <strong>of</strong> <strong>Inland</strong> <strong>Revenue</strong>, established as far back in 1932, has been<br />
entrusted with over the years the administration <strong>of</strong> a variety <strong>of</strong> revenue measures and<br />
has from time to time undergone several organizational changes. During the year<br />
<strong>2006</strong>, the <strong>Department</strong> administered 8 types <strong>of</strong> taxes viz: Value Added Tax<br />
(65 %), Income Tax (28 %), Economic Service Charge (3.5 %), Debits tax (2.5<br />
%), Stamp Duty (0.6 %), Share Transaction Levy, Social Responsibility Levy and<br />
Betting & Gaming Levy.<br />
• <strong>Revenue</strong>: In the year <strong>2006</strong>, the total revenue collection <strong>of</strong> the <strong>Department</strong><br />
reached Rs.253.3 Billion. This quantum <strong>of</strong> collection is particularly noteworthy<br />
as it surpasses the year’s target by Rs.6 Billion and represents an increase <strong>of</strong><br />
27.7 % over that <strong>of</strong> the previous year, despite the fact that the <strong>Department</strong> had<br />
to function with a considerable shortage <strong>of</strong> operational staff. Further, this total<br />
revenue collection <strong>of</strong> the year formed 53.07% <strong>of</strong> the total Government’s<br />
revenue* and represented 10.2% <strong>of</strong> GDP* at current factor cost prices.<br />
(* Figures were taken from the statistics published in the Central Bank <strong>Report</strong> – <strong>2006</strong>)<br />
• Modernization Process: The process <strong>of</strong> restructuring and modernizing the<br />
<strong>Department</strong>, with a view to create an efficient and effective tax administration<br />
and thereby raising revenue while providing a qualitative service to taxpayers,<br />
was successfully progressing during the Year achieving many such objectives.<br />
• New Recruitments: All arrangements have been made to recruit Assessors and<br />
Tax Officers to fill the existing vacancies. Assessors 256 in number have been<br />
selected on the basis <strong>of</strong> examinations and interviews and the procedure was<br />
half a way completed as at the end <strong>of</strong> the year to recruit 544 <strong>of</strong> Tax <strong>of</strong>ficers.<br />
The shortage <strong>of</strong> staff in these grades had been a major problem.<br />
• Opening up New Regional Offices: 2 new Regional Offices (Maharagama<br />
East and West) at Wijerama Juction, Gangodawila and a Regional Office at<br />
Matale were opened to concentrating closely on existing and potential<br />
taxpayers in those areas and also to facilitate the taxpayers in the respective<br />
areas in discharging their obligations.<br />
vii
Arrangements were also made to open in the following year, the next Regional<br />
Office at Gampaha. (Opening <strong>of</strong> a Regional Office at Wattala is also in the<br />
schedule).<br />
• Opening up New Branches: Having considered the contribution to the<br />
revenue from the financial sector, and with a view to monitoring closely and<br />
comprehensively, a separate Unit “The Banking and Insurance Services Unit”<br />
was established. Further, a Special Information Branch to strengthen the<br />
process <strong>of</strong> expanding tax base, a Research Unit to study several sectors, Unit 12<br />
to deal with certain company files and Stamp Duty Branch were also established.<br />
• Shifting Colombo Offices: In order to avoid congestion in the head <strong>of</strong>fice<br />
and non availability <strong>of</strong> parking facilities to taxpayers therearound,<br />
arrangements have been made to shift metro branches and some service units<br />
currently located in the head <strong>of</strong>fice to two new premises taken over by the<br />
<strong>Department</strong>, one at Jawatta road, and the other at Nawam mawatha. These<br />
new locations with ample parking spaces and bank as well as post <strong>of</strong>fice<br />
facilities would be much convenience to tax payers. Offices will be with modern<br />
facilities.<br />
• Taxpayer Services Unit: The Taxpayer Service Unit housed in the ground<br />
floor <strong>of</strong> the <strong>Inland</strong> <strong>Revenue</strong> Building has been made facilitated for the<br />
taxpayers and the public to access conveniently. The Unit is equip with Officers<br />
to assist every person seeking help or information. Relevant enactments,<br />
departmental publications, paying-in-slips, forms etc. are available in this Unit.<br />
In order to avoid possible delays and inconveniences, arrangements have been<br />
made to issue Taxpayer Identification Numbers (TINs) and temporary VAT<br />
Numbers at this Unit.<br />
• Issuing privilege Cards to good Taxpayers: The process <strong>of</strong> issuing<br />
privilege cards to good (individual) taxpayers to recognize their contribution (to<br />
the Government <strong>Revenue</strong>) and to make them entitled to certain moral benefits<br />
such as preferential treatments at the Government Agencies, continued with<br />
added modes.<br />
viii
• Publishing the “Code <strong>of</strong> Ethics and conduct” for the Officers: To ensure the<br />
ethical behavior and proper conduct <strong>of</strong> <strong>of</strong>ficers <strong>of</strong> the <strong>Department</strong> as required<br />
under Establishment Code, Financial Regulations etc, a “Code <strong>of</strong> Ethics and<br />
Conduct” was prepared and issued to the Officers <strong>of</strong> the <strong>Department</strong>. This was<br />
made available to the public for their information.<br />
• Taxpayer Education: Seminars and lectures are being organized with a View<br />
to educating Taxpayers as well as the staff <strong>of</strong> the <strong>Department</strong>. Several such<br />
seminars were organized out side Colombo as well. (viz. Kurunegala, Kandy,<br />
NuwaraEliya, Galle, Badulla, Anuradhapura)<br />
• Enacting a New <strong>Inland</strong> <strong>Revenue</strong> Act: New <strong>Inland</strong> <strong>Revenue</strong> Act. No 10<br />
<strong>of</strong> <strong>2006</strong> was enacted to replace the Act No. 38 <strong>of</strong> 2000, effective from April 1,<br />
<strong>2006</strong>. It is more or less a consolidation <strong>of</strong> the <strong>Inland</strong> <strong>Revenue</strong> Act, No.38 <strong>of</strong><br />
2000 and the six amendments made thereto but with those provisions (subject<br />
to a few exceptions), which are not applicable to any year <strong>of</strong> assessment<br />
commencing on or after April 1, <strong>2006</strong>, have been deleted therefrom. It also<br />
incorporates provisions designed to give legal effect to the income tax proposals<br />
announced in the Budget <strong>2006</strong>.<br />
• Setting up <strong>of</strong> a Grievance Settlement Committee: A Committee to handle<br />
grievances <strong>of</strong> Officers has been appointed. The procedure and guidelines in this<br />
regard are in place.<br />
• Computer Training Center: The provision <strong>of</strong> computer training facilities was a<br />
long outstanding requirement <strong>of</strong> the <strong>Department</strong>. This has now been fulfilled<br />
with the setting up <strong>of</strong> the “Computer Training Center”. Now Officers are being<br />
trained in batches.<br />
• Provision <strong>of</strong> Overseas Training: With a view to provide the Officers a<br />
foreign exposure on tax policies, a scheme has been drawn up for sending<br />
Officers abroad for shorter periods. Accordingly 3 batches <strong>of</strong> Officers were sent<br />
to India and 2 batches <strong>of</strong> Officers were sent to Singapore for training during<br />
this year. This programme is continuing.<br />
ix
CHAPTER 1<br />
HUMAN RESOURCES<br />
1.1fApproved Cadre, the number in post and vacancies.<br />
The following Table shows the approved Cadre <strong>of</strong> the <strong>Department</strong>, the actual<br />
number in post and the vacancies, as at December 31, <strong>2006</strong>.<br />
Post<br />
Approved In Post Vacancies<br />
Cadre<br />
Commissioner General 01 01 -<br />
Senior Deputy Commissioner General 01 - 01 *<br />
Deputy Commissioner General 05 05 -<br />
Senior Commissioner 05 05 -<br />
Commissioner 22 21 01 **<br />
Deputy Commissioner 90 90 -<br />
Senior Assessor and Assessor 750 394 356 ***<br />
Assessor (Supernumerary) 78<br />
Senior Tax Officer and Tax Officer 1000 237 763 ***<br />
System Manager 2 2 -<br />
System Analyst 06 01 05<br />
Accountant 06 06 -<br />
Engineer 01 01 -<br />
Combined Service 326 303 23<br />
K. K. S. 294 289 05<br />
Others 40 26 14<br />
Total 2550 1459 1169<br />
*<br />
This post was not filled, as the recrument procedure had not been finalized.<br />
** Vacancy arose due to a year- end retirement.<br />
*** Vacancies existed through out the year in these Grades <strong>of</strong> Assessors and Tax Officers. The process <strong>of</strong><br />
recruitments to these Grades was commenced, but could not be completed during the year. Therefore,<br />
the Deputy Commissioners <strong>of</strong> the respective Units had to cover up duties <strong>of</strong> Assessors as well.<br />
Necessary action was taken to appoint 256 Assessors with effect from January 01, 2007.<br />
x
1.2hjTraining<br />
1.2.1jkOverseas Training<br />
The <strong>Department</strong> is alive to the need to expand the horizons <strong>of</strong> the staff by<br />
exposing them to the advances made in other countries to maintain a level <strong>of</strong><br />
pr<strong>of</strong>essionalism <strong>of</strong> their <strong>of</strong>ficers as tax administrators. Accordingly, arrangements<br />
were made for several <strong>of</strong>ficials to participate in training programmes, seminars or<br />
workshops held abroad. Details <strong>of</strong> such <strong>of</strong>ficials and overseas training<br />
programmes, etc they participated are as follows:<br />
Name & Designation<br />
<strong>of</strong> the<br />
Officer<br />
1. Mr. A.A. Wijepala –<br />
CGIR<br />
2. Mr. R.K.H.<br />
Kaluarachchi- DCG<br />
3. Mr. H M Abeysinghe<br />
– CIR<br />
4. Mr. P D Premaratne –<br />
CIR<br />
5. Mr. H M Premaratne<br />
Banda- CIR<br />
6. Mr. W M W<br />
Kumarasiri – CIR<br />
7. Mr. H H Ranjith<br />
Somasiri – DC<br />
8. Miss D G P W D<br />
Gunathilake – DC<br />
9. Mr. K Dharmasena –<br />
DC<br />
10. Mr. W S K de Costa -<br />
DC<br />
11. Mr. J A A Parakrama<br />
– DC<br />
12. Mr. A G Sumanadasa<br />
– DC<br />
13. Mr. R M Jayasinghe –<br />
DC<br />
14. Mr. K D M<br />
Ratnakumara - Senior<br />
Assessor<br />
Name <strong>of</strong> the Programme<br />
Country <strong>of</strong><br />
Training<br />
Duration<br />
Home Coming Seminar at the<br />
OECD Multilateral Tax Centre<br />
Korea 06.11.<strong>2006</strong>-<br />
09.11.<strong>2006</strong><br />
Seminar on Financial Taxes Singapore 11.09.<strong>2006</strong>-<br />
15.09.<strong>2006</strong><br />
Seminar on Financial Taxes Singapore 11.09.<strong>2006</strong> -<br />
15.09.<strong>2006</strong><br />
Principles <strong>of</strong> International and Netherlands 21.08.<strong>2006</strong> -<br />
Comparative Taxation<br />
01.09.<strong>2006</strong><br />
Principles <strong>of</strong> International and Netherlands 21.08.<strong>2006</strong> -<br />
Comparative Taxation<br />
01.09.<strong>2006</strong><br />
Principles <strong>of</strong> International and Netherlands 21.08.<strong>2006</strong> -<br />
Comparative Taxation<br />
01.09.<strong>2006</strong><br />
Workshop on Taxation <strong>of</strong> Malaysia 07.08.<strong>2006</strong> -<br />
International Transactions<br />
25.08.<strong>2006</strong><br />
Seminar on Financial Taxes Singapore 11.09.<strong>2006</strong> -<br />
15.09.<strong>2006</strong><br />
International Tax Aspects <strong>of</strong> Netherlands 13.09.<strong>2006</strong> -<br />
Permanent Establishments<br />
14.09.<strong>2006</strong><br />
Annual Seminar on VAT and the Germany 23.11.<strong>2006</strong> -<br />
International Market<br />
24.11.<strong>2006</strong><br />
Interpretation and Application <strong>of</strong> Netherlands 06.03.<strong>2006</strong> -<br />
Tax Treaties<br />
08.03.<strong>2006</strong><br />
Introduction to European VAT Netherlands 13.03.<strong>2006</strong> -<br />
16.03.<strong>2006</strong><br />
Master's Programme on Korea's Korea 01.02.<strong>2006</strong> -<br />
Economic Policy<br />
31.01.2007<br />
Tax Analysis and <strong>Revenue</strong> USA 18.06.<strong>2006</strong> -<br />
Forecasting Programme<br />
14.07.<strong>2006</strong><br />
2
15. Mr. T M J N Bandara<br />
- Senior Assessor<br />
16. Mr. N M M Mifly -<br />
Senior Assessor<br />
17. Mrs. U H M Irangani<br />
– Assessor<br />
18. Mr. V R Dharmasiri –<br />
Assessor<br />
19. Mr. M K P J S S<br />
Perera - Assessor<br />
Advancing Management<br />
Potential<br />
Principles <strong>of</strong> International and<br />
Comparative Taxation<br />
Commonwealth tax Inspectors<br />
Course<br />
International Seminar on<br />
Taxation (General Course) II<br />
Master's Degree Programme on<br />
Korean Economy and Business<br />
UK 21.07.<strong>2006</strong> -<br />
15.09.<strong>2006</strong><br />
Netherlands 21.08.<strong>2006</strong> -<br />
01.09.<strong>2006</strong><br />
UK 21.07.<strong>2006</strong> -<br />
15.09.<strong>2006</strong><br />
Japan 28.08.<strong>2006</strong> -<br />
12.11.<strong>2006</strong><br />
Korea 27.12.<strong>2006</strong> -<br />
18.02.2008<br />
(Details <strong>of</strong> training abroad provided through the Financial Management Reform Programme, are<br />
given separately)<br />
1.2.2hjOverseas Training provided through the Fiscal Management Reform Programme.<br />
(FMRP)<br />
A remarkable improvement could be achieved in the training <strong>of</strong> Officers through<br />
arrangements made by the FMRP. Under the auspices <strong>of</strong> FMRP, 30 <strong>of</strong>ficers were<br />
participated in the special training program held in Singapore and 3 <strong>of</strong>ficers in the<br />
training programme held in the Netherlands. Name <strong>of</strong> these Officers are given in<br />
the Annexure 1. Further, Several batches <strong>of</strong> Officers, 250 <strong>of</strong>ficers in total were<br />
provided opportunity to participate in training course on “Practical Issues <strong>of</strong> Tax<br />
Policy & Tax Administration in Developing Countries” held in India. Each <strong>of</strong> these<br />
batches included a Commissioner and Officers selected from all other grades<br />
below the grade <strong>of</strong> Commissioner.<br />
1.2.3 In-house Training<br />
Training Branch <strong>of</strong> the <strong>Department</strong> conducts training courses and examinations<br />
regularly, for Assessors and Tax <strong>of</strong>ficers. This is aimed at enhancing knowledge<br />
and improving analytical skills particularly in taxation and accountancy.<br />
Emphasis is given on courses that fulfill various service requirements <strong>of</strong> <strong>of</strong>ficers<br />
for their confirmation in the respective grades. Details <strong>of</strong> personnel trained and<br />
the examinations conducted during the year are as follows:<br />
1). Training for Assessors -<br />
I. 17 Assessors in Class II Grade II were trained for the First<br />
<strong>Department</strong>al Examination (Recruited on 20.06.2003).<br />
II.<br />
68 Assessors in Class II Grade II, were trained for the Second<br />
<strong>Department</strong>al Examination.<br />
3
III.<br />
106 Assessors in Class II Grade II, were trained for the Final<br />
<strong>Department</strong>al Examination (Promoted on 03.08.2005).<br />
2). Examinations for Assessors:<br />
Examination Held in Number<br />
Sat<br />
01 Final <strong>Department</strong>al Examination for<br />
Assessors in Class II Grade II<br />
02 Final <strong>Department</strong>al Examination for<br />
Assessors in Class II Grade II<br />
(Repeat - 2 nd attempt)<br />
<strong>2006</strong>.07.17<br />
to<br />
<strong>2006</strong>.07.26<br />
<strong>2006</strong>.11.22<br />
to<br />
<strong>2006</strong>.11.30<br />
17 04<br />
13 12<br />
Number<br />
Successful<br />
3). Seminars conducted:<br />
Date<br />
Subject<br />
16.02.<strong>2006</strong> A Seminar on “Are We Heading for E-filing”<br />
26.04.<strong>2006</strong> A Seminar on “Improving Productivity through<br />
Comprehensive Audit”<br />
03.05.<strong>2006</strong> A Seminar on “Taxing <strong>of</strong> MNEs and Transfer-pricing”<br />
11.05.<strong>2006</strong> A Seminar on “Re-introduction <strong>of</strong> Stamp Duty”<br />
14.06.<strong>2006</strong> Change <strong>of</strong> ownership Vs Merger/Amalgamation<br />
14.07.<strong>2006</strong> Sharing the Experiences in Singapore<br />
23.08.<strong>2006</strong> Audit <strong>of</strong> Corporate Accounts-Transfer pricing<br />
01.11.<strong>2006</strong> Capital Market and Securities<br />
4). Computer Training:<br />
Fully equipped IT Laboratory with 35 computers was setup and 512<br />
personnel (covering all relevant categories <strong>of</strong>ficers) were trained during the<br />
year in the basic computer application.<br />
1.3sdPromotions<br />
1). The following Deputy Commissioners were promoted to the post <strong>of</strong><br />
Commissioner<br />
Name<br />
Date <strong>of</strong> Promotion<br />
i. Mrs. H M C I Gunasekera 11.08.<strong>2006</strong><br />
ii. Mr. W P Karunaratne 17.10.<strong>2006</strong><br />
2). The following Senior Assessors were promoted to the post <strong>of</strong> Deputy<br />
Commissioner<br />
Name<br />
Date <strong>of</strong> Promotion<br />
i. Mr. K D M N Gunatunga 24.01.<strong>2006</strong><br />
ii. Mr. H W Gamini Pushpakumara 08.02.<strong>2006</strong><br />
4
iii. Mr. B M Ariyadasa 17.02.<strong>2006</strong><br />
iv. Mr. P Hewage 27.02.<strong>2006</strong><br />
v. Mr. S S D Weerasekera 07.03.<strong>2006</strong><br />
vi. Mr. T Rajapakse 27.03.<strong>2006</strong><br />
vii. Mr. B Sivaji 30.03.<strong>2006</strong><br />
viii. Mr. M S M Siyan 09.04.<strong>2006</strong><br />
ix. Mr. E M Ekanayake 07.05.<strong>2006</strong><br />
x. Mr. U P S A Jayalath 13.06.<strong>2006</strong><br />
xi. Mr. J D Sepala 11.08.<strong>2006</strong><br />
xii. Mr. T D G S Jayawardena 17.10.<strong>2006</strong><br />
xiii. Mr. T Karunadasa 23.10.<strong>2006</strong><br />
3). 20 Assessors were promoted to the post <strong>of</strong> Senior Assessor<br />
4). 201 Senior Tax Officers and 45 Tax Officers were promoted to the post <strong>of</strong><br />
Assessor.<br />
5). 02 Data Entry Operators were promoted to the post <strong>of</strong> Assessor<br />
1.4hjDeaths<br />
Mr. N.S. Wattaladeniya, Senior Commissioner.<br />
Mr. Wattaladeniya passed away while in service, in February <strong>2006</strong>. Joined<br />
the <strong>Department</strong> in 1976 as an Assessor, he had counted 30 years in the<br />
<strong>Inland</strong> <strong>Revenue</strong> Service and has been the Senior Commissioner in charge <strong>of</strong><br />
the ‘Zone I’ <strong>of</strong> the <strong>Department</strong>, when his untimely death occurred.<br />
He followed a training programme in Tax Administration in USA (California)<br />
in August 19, 1991and has during his tenure <strong>of</strong> <strong>of</strong>fice functioned in<br />
diversified areas <strong>of</strong> department activities.<br />
Mr.Wattaladeniya has been a talented <strong>of</strong>ficer <strong>of</strong> the <strong>Department</strong> and his<br />
demise is a great loss to the <strong>Department</strong>.<br />
1.5hjRetirements<br />
The following Offices were retired from the Service.<br />
i. Mr. P P D P Karunasekera- Commissioner General<br />
ii. Mr.R.A.D.H.Ranasinghe- Deputy Commissioner General<br />
iii. Mr.W.P.Sirisena- Commissioner<br />
iv. Mr.P.B.Madawala- Commissioner<br />
v. Mrs.Karunarathna- Commissioner<br />
vi. Mr.D.B.Kannangara- Deputy Commissioner<br />
vii. Mr.C.W.W.Gamanayaka- Deputy Commissioner<br />
viii. Mr.Violet Jayasuriya- Deputy Commissioner<br />
ix. Mr.H.M.P.B.Herath- Deputy Commissioner<br />
5
x. Mr.G.V.Somasiri- Deputy Commissioner<br />
xi. Mr.I.K.Ginadasa- Deputy Commissioner<br />
xii Mr.K.K.Samarapala- Deputy Commissioner<br />
Two Senior Assessors, thirty-one Assessors and two Senior Tax Officers<br />
were also retired.<br />
Mr. P P D P Karunasekera<br />
Mr. Karunasekara began his career with the <strong>Department</strong> as an Assistant<br />
Assessor in February 1970. He was appointed Commissioner General on<br />
July 10, 2005. He functioned as the Additional Commissioner General<br />
before he was elevated to this highest position <strong>of</strong> the <strong>Department</strong>. During<br />
his long period <strong>of</strong> service in the <strong>Department</strong> spanning 36 years, he served<br />
with dedication in several important Branches <strong>of</strong> the <strong>Department</strong>,<br />
particularly in the Investigation Branch, where he served as senior<br />
Assessor, Deputy Commissioner and then as its Commissioner.<br />
He followed Taxation programmes in Japan in August 27, 1980 and<br />
Germany in March 11, 1985, and has during his tenure <strong>of</strong> <strong>of</strong>fice,<br />
participated in several other international conferences held abroad. He was<br />
also involved with Double Tax Avoidance Treaty negotiations held with<br />
China, Vietnam and India.<br />
Mr Karunasekara retired from the service on March 27, <strong>2006</strong>.<br />
Mr.R.A.D.H. Ranasinghe<br />
Mr. Ranasinghe joined the <strong>Department</strong> on November 1, 1977 as an<br />
Assistant Assessor. He was appointed Deputy Commissioner General on<br />
March 15, 2005. He retired from service on May 7, <strong>2006</strong>, at the time when<br />
the Information & Communication Technology Division was under his<br />
charge.<br />
Mr. Ranasinghe counted 36 years in the <strong>Department</strong>, extending a devoted<br />
service in every assigned areas. During his tenure <strong>of</strong> <strong>of</strong>fice, he followed a<br />
programme in Tax Administration in South Korea and participated in<br />
several other taxation forums held abroad.<br />
6
CHAPTER 2<br />
REVENUE COLLECTION<br />
Raising revenue is the main objective <strong>of</strong> taxation, and therefore, the success or<br />
failure <strong>of</strong> the <strong>Department</strong> <strong>of</strong> <strong>Inland</strong> <strong>Revenue</strong> being the main contributor to the<br />
Government’s revenue, is principally determined by the quantum <strong>of</strong> its tax<br />
collection. Concerted effort is, therefore, made to fulfill the revenue requirements<br />
<strong>of</strong> the Government keeping in the line with the statement <strong>of</strong> mission <strong>of</strong> the<br />
Debpartment.<br />
In <strong>2006</strong>, the year under review, the <strong>Department</strong> collected a total <strong>of</strong> Rs.253.3<br />
Billion, a revenue which represent an increase <strong>of</strong> 27.7 % over that <strong>of</strong> the year<br />
2005, which was Rs: 198.3 Billion. Further, this total collection reflects an<br />
additional quantum <strong>of</strong> Rs: 6.1 Billion over the revenue estimate <strong>of</strong> Rs: 247.2<br />
Billion for the year.<br />
2.1ghTotal <strong>Revenue</strong> – <strong>2006</strong><br />
The total (net) revenue collection <strong>of</strong> the <strong>Department</strong> in the year <strong>2006</strong> is<br />
Rs. 253,319,518,312/-. A comparison <strong>of</strong> collection under each type <strong>of</strong> tax<br />
with the corresponding estimate is given in Table 01 and Chart 01<br />
illustrates this comparison. The Cash Flow during the year is shown in the<br />
Table 02, and is illustrated by Chart 02.<br />
Table -01<br />
Total <strong>Revenue</strong> Collection-<strong>2006</strong><br />
Type <strong>of</strong> Tax<br />
<strong>Revenue</strong> Estimate<br />
Rs:<br />
<strong>Revenue</strong> Collection Rs:<br />
Collection as a<br />
% <strong>of</strong> Estimate<br />
Collection as a<br />
% <strong>of</strong> Total<br />
<strong>Revenue</strong><br />
Direct Taxes<br />
Income Tax * 66,158,000,000 71,481,521,231 108.05% 28.22%<br />
Economic Service Charge 9,614,000,000 8,852,985,755 92.08% 3.49%<br />
Stamp Duty 1,200,000,000 1,495,293,475 124.61% 0.59%<br />
Debits Tax 6,841,000,000 6,254,885,377 91.43% 2.47%<br />
Betting & Gaming Levy 460,000,000 282,294,230 61.37% 0.11%<br />
Share Transaction Levy 475,000,000 420,180,879 88.46% 0.17%<br />
Estate Duty ** 646,558 0.00%<br />
Sub Total 84,748,000,000 88,787,807,505 104.76% 35.04%<br />
Indirect taxes<br />
Value Added Tax 162,298,000,000 164,070,832,668 101.09% 64.77%<br />
Turnover Tax 150,000,000 232,565,201 155.04% 0.09%<br />
Goods & Services Tax** 135,752,036 0.05%<br />
National Security Levy** 92,560,902 0.04%<br />
Sub Total 162,448,000,000 164,531,710,807 101.28% 64.95%<br />
247,196,000,000 253,319,518,312 102.48% 100.00%<br />
7
* Includes Social Responsibility Levy, which is collected by the <strong>Department</strong> together<br />
with income tax.<br />
** No estimate was made as this tax had been abolished. The collection, out <strong>of</strong> the<br />
amount in default, is small when compared with the total collection.<br />
Chart 01<br />
Total <strong>Revenue</strong> Collection-<strong>2006</strong><br />
180,000<br />
160,000<br />
140,000<br />
IT<br />
ESC<br />
VAT<br />
120,000<br />
DT<br />
Rs Million<br />
100,000<br />
80,000<br />
60,000<br />
40,000<br />
20,000<br />
IT<br />
ESC<br />
VAT<br />
DT<br />
B&GL<br />
STL<br />
TT<br />
SD<br />
ED<br />
GST<br />
NSL<br />
B&GL<br />
STL<br />
TT<br />
SD<br />
ED<br />
GST<br />
NSL<br />
-<br />
1Type <strong>of</strong> Tax<br />
8
Table –02<br />
Cash Flows- <strong>2006</strong><br />
Month<br />
<strong>Revenue</strong><br />
Collection Rs:<br />
Cumulative <strong>Revenue</strong><br />
Collection Rs:<br />
January 14,781,884,984 14,781,884,984<br />
February 17,097,240,996 31,879,125,980<br />
March 15,858,541,525 47,737,667,504<br />
April 18,554,287,213 66,291,954,717<br />
May 21,182,221,913 87,474,176,630<br />
June 17,628,803,120 105,102,979,751<br />
July 18,651,856,070 123,754,835,821<br />
August 28,442,157,236 152,196,993,057<br />
September 25,754,752,374 177,951,745,431<br />
October 30,750,875,548 208,702,620,979<br />
November 26,409,150,556 235,111,771,534<br />
December 18,207,746,778 253,319,518,312<br />
Chart 02<br />
Cash Flow -<strong>2006</strong><br />
300,000<br />
250,000<br />
200,000<br />
Rs: Million<br />
150,000<br />
100,000<br />
50,000<br />
-<br />
1 2 3 4 5 6 7 8 9 10 11 12<br />
Months<br />
<strong>Revenue</strong> Cllection<br />
Cumulative <strong>Revenue</strong> Collection<br />
9
2.2fgNumber <strong>of</strong> Tax files<br />
An analysis <strong>of</strong> tax files handled by the <strong>Department</strong> during the year is shown in<br />
the Table 03:<br />
Table 03<br />
Number <strong>of</strong> Tax files as at 31-12-<strong>2006</strong><br />
Income Tax.<br />
* Resident Companies 23,405<br />
* Non-Resident Companies 434<br />
* State Corporations, Statutory Boards and State owned institutions 161<br />
* Individuals 136,783<br />
* Partnerships 16,105<br />
* Bodies <strong>of</strong> Persons etc. 2,115<br />
Total Income Tax Files 179,003<br />
Employers Registered under PAYE Scheme 10,988<br />
Persons and Partnerships registered for Economic Service Charge (ESC) 6,990<br />
Persons registered for Value Added Tax (VAT) 25,808<br />
Persons registered for Debits Tax 835<br />
Betting Levy Files 1,004<br />
Gaming Levy Files 8<br />
Total Number <strong>of</strong> Files handled by the <strong>Department</strong> as at 31-12-<strong>2006</strong> 224,636<br />
Notes:<br />
o A separate file is not generally maintained in respect <strong>of</strong> any employee from whose<br />
remuneration tax is deducted under PAYE Scheme and who has no any other income.<br />
o New income tax files, 18,613 in number have been opened by the Information Branch <strong>of</strong><br />
the <strong>Department</strong> and refered to the respective units, however, in view <strong>of</strong> the inadequacy<br />
<strong>of</strong> the staff in certain Units, perment numbers could not be allocated to some <strong>of</strong> such<br />
files by 31.12.<strong>2006</strong>. Such numbers are not reflected in the above total.<br />
2.2.1ghNumber <strong>of</strong> Income Taxpayers<br />
The number <strong>of</strong> persons registered with the <strong>Department</strong> for income tax, as at the end <strong>of</strong> the<br />
year, is given in Table 04.<br />
Table 04<br />
Number <strong>of</strong> Income Taxpayers – <strong>2006</strong><br />
Persons registered for Income Tax<br />
Corporate<br />
* Resident Companies 23,405<br />
* Non-Resident Companies 434<br />
* State Corporations, Statutory Boards and State owned Institutions 161<br />
Non-Corporate<br />
* Resident and Non-resident Individuals 136,783<br />
* Partnerships 16,105<br />
* Bodies <strong>of</strong> Persons etc.(Co-op. Societies, Executors, Trustees, Clubs, NGO etc.) 2,115<br />
Employees paying income tax under Pay-As-You-Earn (PAYE) Scheme (as 253,553<br />
at 31-03-<strong>2006</strong>)<br />
Total Number <strong>of</strong> Income Taxpayers 432,556<br />
10
2.2.2ghIncome Tax Return Filing Compliance 2001/2002 to 2005/<strong>2006</strong><br />
Table 05<br />
Income Tax Return Compliance 2001/02 to 2005/06<br />
Year <strong>of</strong><br />
Assessment<br />
Sector<br />
Compliance<br />
on Due Date<br />
%<br />
Compliance after<br />
one month from<br />
the due date<br />
%<br />
Corporate 32% 44%<br />
2001/2002 Non-corporate 33% 46%<br />
Corporate 31% 48%<br />
2002/2003 Non-corporate 32% 47%<br />
Corporate 50% 58%<br />
2003/2004 Non-corporate 32% 41%<br />
Corporate 37% 43%<br />
2004/2005 Non-corporate 28% 41%<br />
Corporate 34% 44%<br />
2005/<strong>2006</strong> Non- corporate 33% 44%<br />
2.3f Income Tax Collection<br />
Income tax collection together with Economic Service Charge, for the year<br />
was Rs: 80.3 Billion. It shows an increase <strong>of</strong> 6.2 % over the estimated<br />
revenue from this tax for the year. This is an increase <strong>of</strong> 62.5% over that <strong>of</strong><br />
the previous year, which was Rs. 49.4 Billion. Table 06 shows the<br />
composition <strong>of</strong> Income Tax collection considering under corporate and noncorporate<br />
sectors. In the total income tax collection (excluding Economic<br />
Service Charge), the corporate sector’s contribution is Rs.38.5 Billion, which<br />
is 53.91 %. Non-Corporate Sector contributed Rs.32.9 Billion, which<br />
46.09 % <strong>of</strong> total Income Tax collection. Table 07 shows the Source wise<br />
analysis (Employees & others) <strong>of</strong> Income Tax collection.<br />
During the year, several policy measures were introduced to rationalize<br />
corporate income taxes, including the reduction <strong>of</strong> tax rate on Small &<br />
Medium Enterprises, increasing the rate applicable to companies <strong>of</strong> which<br />
taxable income exceed Rs.5 Mn, fixing <strong>of</strong> the tax rate applicable to income<br />
and pr<strong>of</strong>it from the businesses <strong>of</strong> any lottery, betting or gaming at 40% and<br />
providing 33 1/3% rate for a specified period for quoted public companies<br />
as an incentive for capital market development.<br />
11
In addition, restrictions were imposed on the deduction <strong>of</strong> losses to 35% <strong>of</strong><br />
Statutory Income. In order to counter the unfavorable effect to revenue due<br />
to transfer pricing, arms-length transaction principle was introduced.<br />
Moreover, legal measures were taken to discourage thin capitalization.<br />
The maximum personal Income tax rate was increased to 35% and created a<br />
new slab <strong>of</strong> Rs.500,000/- for the 30% tax rate. Pr<strong>of</strong>its from processing<br />
primary agriculture produce were also exempted from income tax for 5<br />
years. The provisions introduced to grant a 10% discount to individuals<br />
paying self assessed tax one month before the due date were effective from<br />
this year.<br />
Gross Income Tax collection through Employment recorded Rs. 7.6 Billion.<br />
Withholding Tax on Interest, Rent and Specified Fees generated Rs.20.7<br />
Billion.<br />
2.3.1ghCorporate and Non-corporate Income Tax<br />
Table 06 shows the composition to Income Tax collection, and Chart 03<br />
illustrates the same with percentages.<br />
Table – 06<br />
Corporate and Non-corporate Income Tax Collection -<strong>2006</strong><br />
Sector Tax Collection (Rs:) %<br />
Corporate 38,535,842,683 53.91%<br />
Non-Corporate 32,945,678,548 46.09%<br />
Total 71,481,521,231 100.00<br />
12
Chart-03<br />
Income Tax Collection -<strong>2006</strong><br />
Non-Corporate<br />
46%<br />
Corporate<br />
54%<br />
2.3.2sdSource wise Analysis <strong>of</strong> Income Tax Collection in <strong>2006</strong><br />
Table 07<br />
Income Tax Collection- <strong>2006</strong><br />
Source wise Analysis ( Employees and Others)<br />
Source<br />
Collection (Rs. Mn)<br />
Employment<br />
PAYE Scheme 7,312.8<br />
Self Assessment and Assessments<br />
with penalties for tax in default 271.1 7,583.9<br />
Others<br />
Self Assessment and Assessments<br />
with penalties for tax in default 40,133.8<br />
Withholding Tax on Interest, Rent &<br />
Specified Fees 20,697.4<br />
Deductions at Source 3,316.4<br />
Compounding Penalties 0.8 64,148.4<br />
Gross Collection 71,732.3<br />
Less: Refunds (250.3)<br />
Net Collection 71,482<br />
2.4saEconomic Service Charge<br />
Economic Service Charge (ESC), which was introduced under the Finance<br />
Act, was brought within a separate enactment. The new Act, Economic<br />
Service Charge Act No 13 <strong>of</strong> <strong>2006</strong> imposes the ESC on the relevant turnover<br />
<strong>of</strong> any person or partnership in respect <strong>of</strong> every quarter <strong>of</strong> every year <strong>of</strong><br />
assessment commencing April 1, <strong>2006</strong>.<br />
13
The Ceiling <strong>of</strong> the ESC payable by an entity for quarter was raised to Rs. 15<br />
Mn and the threshold <strong>of</strong> liable turnover reduced to Rs.10 Mn. Moreover,<br />
relieves were provided to distributors, freight forwarders by providing special<br />
rate or special turnover definition.<br />
During the year, 1111 new ESC files were opened making the total to 6990<br />
files as at 31-12-<strong>2006</strong>. ESC contributed 3.49% to the total collection<br />
amounting to Rs.8,852.9 Mn. It is an increase <strong>of</strong> Rs. 1,569.8 Mn over that <strong>of</strong><br />
2005. Out <strong>of</strong> ESC collected during the year 92% was from the corporate<br />
sector. The rest 8% was from the Non corporate sector.<br />
Table 08 shows the composition <strong>of</strong> ESC collection in the year.<br />
Table 08<br />
Economic Service Charge Collection- <strong>2006</strong><br />
Sector Collection (Rs.'000) %<br />
Corporate Sector 8,135,950 92%<br />
Non Corporate Sector 717,035 8%<br />
Total 8,852,985 100%<br />
2.5asValue Added Tax Collection<br />
The quantum <strong>of</strong> Value Added Tax (VAT) collection <strong>of</strong> Rs. 164.1 Billion during<br />
the year indicates a slight excess <strong>of</strong> Rs: 1.8 Billion over the estimated amount<br />
<strong>of</strong> Rs: 162.3Billion for the year. However, this is an increase <strong>of</strong> Rs: 22.2<br />
billion or 15.6% over that <strong>of</strong> the previous year. VAT represents 64.77% <strong>of</strong> the<br />
total revenue collection in <strong>2006</strong>.<br />
Factors that influenced improved VAT revenue include,<br />
‣ Increase the markup applicable to the VAT base to 7% and the inclusion<br />
<strong>of</strong> PAL in the tax base<br />
‣ Increasing VAT on the financial sector from 15% to 20%.<br />
‣ Increased imports <strong>of</strong> high value items such as motor vehicles<br />
‣ Up in international prices <strong>of</strong> certain essential commodities<br />
‣ Growth witnessed in manufacturing, tourism, construction and<br />
telecommunication sectors, resulting in expansion <strong>of</strong> the base.<br />
14
Steps were also taken to streamline the refund process that witnessed<br />
considerable delays to prevent possible fraudulent refunds and to expedite<br />
the refund process.<br />
Moreover, as a measure toward reducing delays pertaining to the refund<br />
mechanism, a system <strong>of</strong> releasing refunds based on a Bank Guarantee from<br />
the relevant exporter was introduced for the benefit <strong>of</strong> local industries. This<br />
refund process was further facilitated through opening <strong>of</strong> a special account<br />
at the Central Bank to cater to refunds while avoiding delay in payments.<br />
The audit system was also strengthened. 602 Desk Audits were conducted<br />
during the year <strong>2006</strong> while completing 994 Field and other audits. As a<br />
result <strong>of</strong> that 3723 new VAT files could be opened.<br />
Table 09 shows the Value Added Tax gross collection and refunds in <strong>2006</strong><br />
and Table 12 shows the Value Added Tax (net) Collection sector wise, and<br />
which is illustrated by the Chart 04.<br />
Table 10 (a) shows the Domestic VAT Industry Wise analysis which high<br />
lighted the increase in <strong>2006</strong> compared to 2005 in all domestic sectors such<br />
as Banking, Insurance, Hotel & Restaurant, Construction, Electricity & Gas,<br />
Imports and Financing. Collection <strong>of</strong> VAT on imports in <strong>2006</strong> reached Rs.<br />
92.5 Billion recording 56.36% out <strong>of</strong> total collection <strong>of</strong> VAT.<br />
Sector<br />
Table 09<br />
Value Added Tax Collection and Refunds – <strong>2006</strong><br />
Gross Collection<br />
(Rs.Mn) Refunds (Rs.Mn) Net Collection (Rs.Mn)<br />
Manufacturing<br />
33,389<br />
11,171 22,218<br />
Non-<br />
49,382<br />
Manufacturing<br />
49,382<br />
Imports 92,476 5 92,471<br />
Total 175,247 11,176 164,071<br />
15
Table 10 shows the Value Added Tax (net) sector wise Collection, and is<br />
illustrated by Chart 04.<br />
Table 10<br />
Value Added Tax Collection-<strong>2006</strong><br />
Sector Net Collection (Rs:) %<br />
Manufacturing Sector 22,218,159,285 13.54%<br />
Non Manufacturing Sector 49,381,697,407 30.10%<br />
On Imports 92,470,975,976 56.36%<br />
Total 164,070,832,668 100%<br />
Chart 04<br />
Value Added Tax Collection-<strong>2006</strong><br />
13.54% Manufacturing<br />
56.36% Imports<br />
30.10%<br />
Non-Maufacturing<br />
Table 10 (a)<br />
Gross Domestic VAT – Main Service Sectors<br />
Annual-2005 (Rs.Mn) Annual -<strong>2006</strong> (Rs.Mn)<br />
Banking 5,051.09 7,400.82<br />
Insurance 2,092.03 2,402.60<br />
Hotel & Restaurant 1,964.10 2,028.02<br />
Construction 3,580.65 3,828.15<br />
Electricity & Gas 2,086.34 3,106.62<br />
Imports 5,132.65 6,439.82<br />
Financing 4,290.22 5,541.82<br />
Others 52,023.15<br />
Total 82,771.00<br />
16
2.6dfStamp Duty collection<br />
Stamp Duty (special provisions) Act No. 12 <strong>of</strong> <strong>2006</strong> came into operation with<br />
effect from April 1, <strong>2006</strong> for the imposition <strong>of</strong> stamp duty on selected<br />
specified instruments. Rs.1,495 Mn generated from stamp duty during the<br />
year.<br />
<strong>Department</strong> carried out awareness programs, advisory and information<br />
collecting programs several part <strong>of</strong> the country to facilitate the proper<br />
implementation <strong>of</strong> this Act.<br />
2.7hjBetting & Gaming levy Collection<br />
During the year <strong>2006</strong>, the collection <strong>of</strong> Betting and Gaming Levy was<br />
increased by Rs. 85.8 Mn over that <strong>of</strong> 2005. The total Betting and Gaming<br />
Levy revenue was seen marginally below the targeted amount <strong>of</strong> Rs. 460 Mn.<br />
Table 11 compares the revenue estimate <strong>of</strong> Betting & Gaming Levy with the<br />
collection for the year, and Chart 05 illustrates it.<br />
Table 11<br />
Collection <strong>of</strong> Betting & Gaming Levy- <strong>2006</strong><br />
<strong>Revenue</strong> Collected<br />
<strong>Revenue</strong> Estimated (Rs:)<br />
(Rs:) %<br />
460,000,000 282,294,230 61.37<br />
Chart 05<br />
Betting & Gaming Levy Collection <strong>2006</strong><br />
Rupees<br />
500,000,000<br />
400,000,000<br />
300,000,000<br />
200,000,000<br />
100,000,000<br />
<strong>Revenue</strong><br />
Estimated<br />
<strong>Revenue</strong><br />
Collection<br />
-<br />
1<br />
Betting & Gaming Levy<br />
17
2.8ghDebits Tax Collection<br />
Debits Tax generated Rs. 6,254.8 Mn and constituted 2.47% <strong>of</strong> the total<br />
revenue collection in <strong>2006</strong>. Debits Tax collection was only marginally below<br />
the target <strong>of</strong> Rs.6,841 Mn set for the year.<br />
Table 12 compares the revenue estimate <strong>of</strong> Debits Tax with revenue collected<br />
in the year, and the Chart 06 illustrates it. Debits tax collection <strong>of</strong> the year<br />
reflects a 9.7% growth over the corresponding collection in 2005.<br />
Table 12<br />
Debits Tax Collection - <strong>2006</strong><br />
Estimated <strong>Revenue</strong> (Rs:) <strong>Revenue</strong> Collection (Rs:) %<br />
6,841,000,000 6,254,885,377 91.43<br />
Chart 06<br />
Debits Tax Collection - <strong>2006</strong><br />
7,000<br />
6,000<br />
Rupees Million<br />
5,000<br />
4,000<br />
3,000<br />
2,000<br />
1,000<br />
Estimated<br />
<strong>Revenue</strong><br />
<strong>Revenue</strong><br />
Collection<br />
-<br />
Debits 1 Tax<br />
2.9ghShare Transaction Levy<br />
Share Transaction Levy contributed Rs. 420.2 Mn marginally declining from<br />
Rs. 451.2 Mn collected in the previous year.<br />
18
2.9.1hjCollection <strong>of</strong> Share Transaction Levy in <strong>2006</strong><br />
The Table 13 shows the estimate for the year <strong>2006</strong> and the amount collected<br />
and Chart 07 illustrates the same.<br />
Table 13<br />
Share Transaction Levy - <strong>2006</strong><br />
<strong>Revenue</strong> Collection<br />
Estimated <strong>Revenue</strong> (Rs:)<br />
(Rs:) %<br />
475,000,000 420,180,879 88.46%<br />
2.10 <strong>Inland</strong> <strong>Revenue</strong> Collection 2002 to <strong>2006</strong><br />
Figures in Table 07 represent the tax wise classification <strong>of</strong> revenue<br />
collection <strong>of</strong> the IRD, from 2002 to <strong>2006</strong>.<br />
Table 14<br />
<strong>Inland</strong> <strong>Revenue</strong> Collection 2002 to <strong>2006</strong> – Tax wise Analysis<br />
Type <strong>of</strong> Tax<br />
2002 2003 2004 2005 <strong>2006</strong><br />
Colln.Rs % Colln % Colln % Colln % Colln<br />
(Mn)<br />
(Rs Mn)<br />
(Rs Mn)<br />
(Rs Mn) (Rs Mn)<br />
%<br />
Income Tax<br />
37,682<br />
27.38<br />
38,602<br />
27.76<br />
37,904.0<br />
23.00<br />
42,154.8<br />
21.26<br />
71,481.5<br />
28.22<br />
Economic Service Charge<br />
-<br />
-<br />
4,052.8<br />
2.46<br />
7,283.1<br />
3.67<br />
8,852.9<br />
3.49<br />
Value Added Tax<br />
35,181<br />
25.57<br />
97,754<br />
70.30<br />
117,030.9<br />
71.01<br />
141,877.9<br />
71.55<br />
164,070.8<br />
64.77<br />
Debits Tax<br />
1,310<br />
0.95<br />
3,601<br />
2.59<br />
4,488.8<br />
2.72<br />
5,700.8<br />
2.87<br />
6,254.8<br />
2.47<br />
Betting & Gaming Levy<br />
55<br />
0.04<br />
56<br />
0.04<br />
77.1<br />
0.05<br />
196.4<br />
0.10<br />
282.2<br />
0.11<br />
Share Transaction Levy<br />
-<br />
-<br />
-<br />
451.2<br />
0.23<br />
420.2<br />
0.17<br />
Turnover tax<br />
678<br />
0.49<br />
4<br />
0.00<br />
106.2<br />
0.06<br />
143.1<br />
0.07<br />
232.6<br />
0.09<br />
Stamp Duty<br />
2,331<br />
1.69<br />
69<br />
0.05<br />
51.3<br />
0.03<br />
8.9<br />
0.00<br />
1,495.2<br />
0.59<br />
Estate Duty<br />
2<br />
0.00<br />
-<br />
0.4<br />
0.00<br />
0.5<br />
0.00<br />
0.6<br />
0.00<br />
Goods & Services Tax<br />
31,511<br />
22.90<br />
(759)<br />
-0.55<br />
852.6<br />
0.52<br />
448.9<br />
0.23<br />
135.7<br />
0.05<br />
National Security Levy<br />
28,859<br />
20.97<br />
(284)<br />
-0.20<br />
239.9<br />
0.15<br />
34.6<br />
0.02<br />
92.6<br />
0.04<br />
137,609 100 139,043 100 164,804 100 198,300 100 253,319 100<br />
19
2.11fg<strong>Inland</strong> <strong>Revenue</strong> Contribution to the Government <strong>Revenue</strong> and Gross<br />
Domestic Product (GDP)<br />
Table 15 shows the contribution <strong>of</strong> the <strong>Inland</strong> <strong>Revenue</strong> <strong>Department</strong> to the<br />
Government revenue and the GDP, in <strong>2006</strong> and its trends in the last 4 years.<br />
Chart 07 illustrates these contributions.<br />
Total Government revenue in <strong>2006</strong> has increased to Rs. 477,334 Mn as per the<br />
Annual <strong>Report</strong> <strong>of</strong> Central Bank <strong>of</strong> Sri Lanka -<strong>2006</strong>, while the ratio <strong>of</strong> the total<br />
<strong>Inland</strong> <strong>Revenue</strong> collection to the Government revenue, continued its increasing<br />
trend and reached 53.07% in the year. The ratio <strong>of</strong> IRD’s collection to GDP is in<br />
the increasing direction.<br />
Year<br />
Table 15<br />
Contribution to the Government <strong>Revenue</strong> and GDP at Current Factor Prices<br />
Governments<br />
<strong>Revenue</strong> Rs. Mn<br />
IRD's Collection<br />
Rs.Mn<br />
% <strong>of</strong> IRD's<br />
Collection<br />
to Govt.<br />
<strong>Revenue</strong><br />
GDP at Current<br />
Factor Prices<br />
Rs.Mn<br />
% <strong>of</strong> IRD's<br />
Collection to<br />
GDP<br />
2002 261,887 137,609 52.55% 1,403,286 9.81%<br />
2003 276,465 139,044 50.29% 1,562,737 8.90%<br />
2004 311,473 164,803 52.91% 1,800,750 9.15%<br />
2005 379,747 198,301 52.22% 2,098,323 9.45%<br />
<strong>2006</strong> 477,334* 253,319 53.07% 2,484,191 10.20%<br />
Source – Central Bank <strong>of</strong> Sri Lanka (Annual <strong>Report</strong>- <strong>2006</strong>)<br />
* Provisional Figures<br />
Chart 07<br />
Contribution <strong>of</strong> the IRD's Collection to the Government <strong>Revenue</strong><br />
2002 to <strong>2006</strong><br />
500,000<br />
450,000<br />
400,000<br />
350,000<br />
Rs. Million<br />
300,000<br />
250,000<br />
200,000<br />
150,000<br />
100,000<br />
50,000<br />
-<br />
2002 2003 2004 2005 <strong>2006</strong><br />
Year<br />
Government <strong>Revenue</strong><br />
IRD's Collection<br />
20
CHAPTER 3<br />
EXPENDITURE AND PRODUCTIVITY RATIO<br />
Total expenditure <strong>of</strong> the <strong>Inland</strong> <strong>Revenue</strong> <strong>Department</strong> in <strong>2006</strong> reached Rs. 1,084<br />
Mn recording a 37% increase compared to the previous year which amounted to<br />
Rs.789 Mn. Out <strong>of</strong> the total expenditure, 69% or Rs. 746 Mn was incurred as<br />
recurrent expenditure in <strong>2006</strong> which is an increase by 21% <strong>of</strong> the expenditure <strong>of</strong><br />
Rs. 617 Mn in 2005. Expenditure on emoluments increased in <strong>2006</strong> by 24% to<br />
579Mn from 467Mn in 2005, mainly due to the increase <strong>of</strong> public sector salaries<br />
in <strong>2006</strong>. This was the highest single expenditure item which accounted for 53.42%<br />
<strong>of</strong> total expenditure and 78% <strong>of</strong> recurrent expenditure in <strong>2006</strong>.<br />
Capital expenditure in <strong>2006</strong>,continued its increasing trend which constituted 5%<br />
in 2004, 22% in 2005 and 31% in <strong>2006</strong> and reached Rs. 315Mn reflecting 49.66%<br />
increase as compared to Rs. 159Mn in 2005, mainly due to the increase <strong>of</strong><br />
“Acquisitions” which has been analyzed in the Note to Table 16. The expenditure<br />
on building has gone up by 138.72% to Rs. 240Mn as compared Rs. 100Mn in<br />
2005, even though expenses incurred on vehicles decreased to Rs. 10Mn in <strong>2006</strong><br />
from Rs. 46Mn in 2005. Further, expenses on furniture and <strong>of</strong>fice equipments as<br />
well increased drastically by 380% to Rs.33Mn in <strong>2006</strong> from Rs. 7Mn in 2005.<br />
Opening <strong>of</strong> new Branches, shifting <strong>of</strong> Metropolitan Branches to the new location at<br />
Jawatta Road, expansion <strong>of</strong> several Units to provide better service to tax payers<br />
were attributed for the increase in payments on buildings, furniture and <strong>of</strong>fice<br />
equipments. Moreover, payments on machinery increased by 468.53% to Rs. 24<br />
Mn in <strong>2006</strong> compared to corresponding figure in the year 2005, which amounted<br />
to Rs. 4Mn.<br />
Further, the growing up <strong>of</strong> expenditure on “Reconstruction and improvements”<br />
was also caused in the increase <strong>of</strong> the capital expenditure. Payments on<br />
“Reconstruction and improvement” grew up by 73% to Rs. 23 Mn in <strong>2006</strong><br />
compared to Rs. 13 Mn in 2005. Table 16 represents the comparison <strong>of</strong> the total<br />
expenditure incurred in the year <strong>2006</strong> with 2004 and 2005. Chart 08 shows the<br />
composition <strong>of</strong> Capital and Recurrent Expenditure for 2004, 2005 and <strong>2006</strong> and<br />
Chart 09 illustrates the analysis <strong>of</strong> Recurrent Expenditure in <strong>2006</strong>.<br />
21
The continuation <strong>of</strong> the existing practice <strong>of</strong> having an Internal Audit Branch,<br />
<strong>Inland</strong> <strong>Revenue</strong> <strong>Department</strong> was able to improve the productivity <strong>of</strong> available<br />
resources. Audits carried out included examining <strong>of</strong> all payment vouchers relating<br />
to capital and recurrent expenditure, daily vehicle running charts maintained by<br />
the Head <strong>of</strong>fice and Regional <strong>of</strong>fice, pay sheets, the Board <strong>of</strong> Survey reports,<br />
repairs to the buildings and purchases <strong>of</strong> <strong>of</strong>fice equipments, the Appropriation<br />
Account for the year 2005 and refund <strong>of</strong> VAT. Submission <strong>of</strong> replies to the audit<br />
quires raised by the Auditor General and Examining the action taken to recover<br />
the amounts due on dishonored cheques are the other main tasks performed by<br />
this Internal Audit Branch.<br />
3.1hjComparison <strong>of</strong> the total expenditure incurred in the year <strong>2006</strong> with that <strong>of</strong><br />
2004 and 2005.<br />
Table 16<br />
Total Expenditure- 2004, 2005 and <strong>2006</strong><br />
Description<br />
Recurrent Expenditure<br />
2004<br />
(Rs:'000) %<br />
2005<br />
(Rs:'000) %<br />
<strong>2006</strong><br />
(Rs:'000) %<br />
Emoluments 363,934 73.76% 467,061 59.18% 579,251 53.42%<br />
Traveling 3,179 0.64% 4,105 0.52% 8,072 0.74%<br />
Supplies & Equipments 14,602 2.96% 20,595 2.61% 30,633 2.83%<br />
Repairs & Maintenance 15,600 3.16% 20,199 2.56% 28,877 2.66%<br />
Contracted Services 54,009 10.95% 62,484 7.92% 81,174 7.49%<br />
Transfers 721 0.15% 649 0.08% 779 0.07%<br />
Other Recurrent Exp. 8,714 1.77% 42,195 5.35% 17,303 1.60%<br />
Modernization Program 6,409 1.30% - 0.00% - 0.00%<br />
Sub Total 467,168 617,288 746,089<br />
Capital Expenditure<br />
Reconstruction and Improvements 7,827 1.59% 13,290 1.68% 22,986 2.12%<br />
Acquisitions (Note) 5,861 1.19% 158,641 20.10% 315,158 29.07%<br />
Modernization Program 12,549 2.54% - 0.00% - 0.00%<br />
Sub Total 26,237 171,931 338,144<br />
Total 493,405 100% 789,219 100% 1,084,233 100%<br />
Modernization Program<br />
Personnel Emoluments 7,734 4.73%<br />
Capital Expenditure 66 0.04%<br />
Development Expenditure 143,533 87.81%<br />
Recurrent Expenditure 12,127 7.42%<br />
163,460 100.00%<br />
22
Analysis <strong>of</strong> Assets acquired in 2005 & <strong>2006</strong> is given below<br />
2005 (Rs: ‘000) <strong>2006</strong> (Rs: ‘000)<br />
Vehicles 45,609 9,900<br />
Furniture & Office Equipment 6,808 32,672<br />
Machinery 4,223 24,009<br />
Buildings 100,403 239,678<br />
Other- Communication 839 1,767<br />
Library Books 758 1,796<br />
Other - 5,336<br />
Total 158,641 315,158<br />
Chart 08<br />
Capital and Recurrent Expenditure – 2004, 2005 and <strong>2006</strong><br />
Capital<br />
Expenditure<br />
5%<br />
2004<br />
Capital<br />
Expenditure<br />
22%<br />
2005<br />
Capital<br />
Expenditure<br />
31%<br />
<strong>2006</strong><br />
Recurre<br />
Expenditure<br />
95%<br />
Recurrent<br />
Expenditure<br />
78%<br />
Recurren<br />
Expenditure<br />
69%<br />
3.2llAnalysis <strong>of</strong> the Recurrent Expenditure in <strong>2006</strong><br />
Chart 09<br />
Recurrent Expenditure <strong>2006</strong><br />
23
3.3ghProductivity Ratio<br />
The total expenditure <strong>of</strong> the <strong>Department</strong> in the year <strong>2006</strong> was Rs. 1,084,233 and the <strong>Revenue</strong><br />
collected was Rs. 253,319,518,312. The Productivity Ratio ( i.e. the revenue collected for every<br />
rupee <strong>of</strong> expenditure) therefore works out to 234:1. In other words, the cost <strong>of</strong> collection <strong>of</strong> Rs. 100<br />
was 43 cents. Even though total expenditure <strong>of</strong> <strong>Department</strong> in <strong>2006</strong> recorded 37% increase, the cost<br />
<strong>of</strong> collection per Rs.100 recorded only 7.5% increase since the total revenue collection was grown<br />
up by 28% when compared to 2005. Cost <strong>of</strong> collection per Rs. 100, excluding VAT on Imports<br />
accounted Rs. 1/=. Table 17 represents the analysis <strong>of</strong> <strong>Revenue</strong> Collection, Total Expenditure and<br />
the calculation <strong>of</strong> cost <strong>of</strong> collection from 2004 to <strong>2006</strong>.<br />
Table 17<br />
<strong>Revenue</strong> Collection, Total Expenditure and Cost <strong>of</strong> Collection (Rs. Mn)<br />
<strong>Revenue</strong> Collection<br />
Income Tax<br />
Economic Service Charge<br />
Value Added Tax<br />
Debits Tax<br />
Betting & Gaming Levy<br />
Share Transaction Levy<br />
Turnover Tax<br />
Stamp Duty<br />
Estate Duty<br />
Goods & Services Tax<br />
National Security Levy<br />
2004 2005 <strong>2006</strong><br />
37,904.0<br />
4,052.8<br />
117,030.9<br />
4,488.8<br />
77.1<br />
-<br />
106.2<br />
51.3<br />
0.4<br />
852.6<br />
239.9<br />
42,154.8<br />
7,283.1<br />
141,877.9<br />
5,700.8<br />
196.4<br />
451.2<br />
143.1<br />
8.9<br />
0.5<br />
448.9<br />
34.6<br />
71,481.5<br />
8,852.9<br />
164,070.8<br />
6,254.8<br />
282.2<br />
420.2<br />
232.6<br />
1,495.2<br />
0.6<br />
135.7<br />
92.6<br />
Total 164,804.0 198,300.2 253,319.1<br />
Expenditure<br />
Recurrent Expenditure<br />
Emoluments<br />
Traveling<br />
Supplies & Equipment<br />
Repairs & Maintenance<br />
Contracted Services<br />
Transfers<br />
Others<br />
363.9<br />
3.2<br />
14.6<br />
15.6<br />
54.0<br />
0.7<br />
15.1<br />
467.1<br />
4.1<br />
20.6<br />
20.2<br />
62.5<br />
0.6<br />
42.2<br />
579.3<br />
8.1<br />
30.6<br />
28.8<br />
81.1<br />
0.8<br />
17.3<br />
Capital Expenditure<br />
Reconstruction & Improvements<br />
Acquisitions<br />
Others<br />
7.8<br />
5.8<br />
12.5<br />
13.3<br />
158.6<br />
-<br />
22.9<br />
315.2<br />
-<br />
Total Expenditure 493.2 789.2 1,084.1<br />
Cost <strong>of</strong> Collection per Rs.100, Rs. 0.30 0.40 0.43<br />
Cost <strong>of</strong> Collection per Rs.100, excluding VAT on Imports, Rs. 1.00<br />
24
CHAPTER 4<br />
TAXES IN DEFAULT<br />
Figures in Table 18 represent the amounts <strong>of</strong> Taxes in default, amounts <strong>of</strong> taxes<br />
held over and collectible taxes in default, as at 31-12-<strong>2006</strong>.<br />
Table 18 - Analysis <strong>of</strong> the default taxes<br />
Tax Type<br />
Income Tax<br />
Tax in default<br />
including<br />
Penalty<br />
Default Tax<br />
held over (as<br />
not tollectible)<br />
Penalty<br />
Disputed default<br />
Tax (Including<br />
the amount held<br />
over)<br />
Balance (collectible)<br />
tax in default<br />
excluding Penalty and<br />
disputed tax<br />
45,670,476,841 6,617,866,589 16,774,818,206 18,375,856,679 10,519,801,956<br />
Surcharge on<br />
Income tax 1,836,965,788 192,144,351 740,997,052 128,096,234 967,872,502<br />
Value Added<br />
74,429,384,086<br />
Tax<br />
24,284,598,953<br />
35,359,837,944 14,784,947,189<br />
VAT on<br />
Financial<br />
292,703,362 292,596,103<br />
247,095,718<br />
45,500,385<br />
Service<br />
107,259<br />
Economic<br />
2,711,580,725<br />
Service Charge<br />
910,835,489<br />
1,800,745,236<br />
Wealth Tax<br />
110,996,940 87,049,328<br />
36,998,980<br />
58,032,885 15,965,075<br />
Surcharge on<br />
3,737,601 3,116,021<br />
Wealth Tax<br />
1,245,867<br />
2,077,347 414,387<br />
Gift Tax<br />
16,031,000 6,814,052<br />
5,343,667<br />
4,542,701 10,687,333<br />
Estate Duty<br />
35,836,626<br />
11,945,542<br />
23,891,084<br />
Stamp Duty<br />
17,920<br />
5,973<br />
11,947<br />
Goods &<br />
19,229,231,371<br />
Services Tax<br />
10,601,608,892<br />
5,219,471,950 3,408,150,529<br />
Turnover Tax<br />
7,663,311,215<br />
2,728,801,912<br />
4,934,509,303<br />
National<br />
5,231,369,430<br />
Security Levy<br />
1,839,320,474<br />
3,392,048,956<br />
Save the Nation<br />
108,920,756<br />
Contribution<br />
39,022,454<br />
69,898,302<br />
Betting &<br />
163,309,659 163,309,659<br />
Gaming Levy<br />
-<br />
163,309,659 -<br />
Compounding<br />
13,979,224 12,170,791<br />
Penalty<br />
13,979,224<br />
-<br />
Obsolete Taxes 3,889,990 168,385 1,296,663 112,257 2,593,327<br />
Penalty<br />
27,900,471<br />
Assessment<br />
27,900,471<br />
-<br />
157,549,643,005 7,375,235,279 58,064,220,204 59,558,433,375 39,926,989,426<br />
Notes<br />
1. Penalty <strong>of</strong> non-corporate sector has been estimated at 33 1/3 % <strong>of</strong> the gross tax in default in that sector.<br />
2. Disputed tax <strong>of</strong> non-corporate sector has been estimated at 2/3 rd <strong>of</strong> the taxes held over on appeals (in that).<br />
3. It has been identified that as at 31.12.<strong>2006</strong> a sum <strong>of</strong> Rs. 2319 Mn. (an over payment <strong>of</strong> GST) is available<br />
for set <strong>of</strong>f against.outstanding taxes.<br />
4.The default taxes as at 31.12.<strong>2006</strong> includes a sum close to Rs.8486 Mn, which is the sum due as at<br />
31.03.2007 from Government institutions. As these institutions are running at a loss, the <strong>Department</strong> finds<br />
no ways to recover such arrears.<br />
25
Taxes in default as classified above are not fully arrears per se. The total in default<br />
represents cumulative balances remained as such under each type <strong>of</strong> tax. Taxes in<br />
default referred to in above have been, in general, charged by making assessments in<br />
the judgment <strong>of</strong> the assessor, mainly in view <strong>of</strong>:<br />
o furnishing incorrect return or declaration,<br />
o non payment <strong>of</strong> tax on the basis <strong>of</strong> the return furnished, or<br />
o non-furnishing the return<br />
by the taxpayers. The gross default so created has been inflated itself due to penalty<br />
added for non-payment on due dates. (For recovery purposes, such penalties are<br />
treated as tax). Penalty is, generally, 10% for the non payment on due date and<br />
further 2% for each month <strong>of</strong> non-payment until reaching 50% <strong>of</strong> tax in the case <strong>of</strong><br />
income tax and as much as 100% with regard to VAT.<br />
Plan for reduction <strong>of</strong> default taxes<br />
(a). The respective enactments stipulate action and steps to be taken for recovery<br />
<strong>of</strong> taxes in default. Although, such action is continueously taken from the issuing<br />
<strong>of</strong> assessments, a considerable amuont <strong>of</strong> taxes is seen in default. It is proposed<br />
that a policy decision be taken to write-<strong>of</strong>f such taxes, which are in default for a<br />
long period <strong>of</strong> time, despite all possible recovery action was taken.<br />
(b). Porvisions have been included in the <strong>Inland</strong> <strong>Revenue</strong> Act, to waive <strong>of</strong>f penalties<br />
for delays, in relation to income tax payments, if the taxpayer pays such tax<br />
according to an installment plan, not extending beyond 3 years, agreed with the<br />
<strong>Department</strong>.<br />
(c).It expected that, in recovering the taxes in default, around 10% <strong>of</strong> the tax as<br />
penalty for non paymet on due dates, and certain amount out <strong>of</strong> disputed default<br />
taxes could also be recovered.<br />
26
CHAPTER 5<br />
INTERNATIONAL RELATIONS<br />
5.1jkDouble Tax Treaties<br />
The main objective <strong>of</strong> Tax Treaties is to eliminate or reduce double taxation in<br />
international trade, and thereby to encourage the flow <strong>of</strong> investment, trade,<br />
technology and technical know how into the country. As at 31-12-<strong>2006</strong> Sri Lanka<br />
has entered into such agreements with 36 countries, and concluded negotiations<br />
with 6 other count<br />
POSITION OF SRI LANKA DTR AGREEMENTS<br />
bAs at 31.12.<strong>2006</strong><br />
Country<br />
Date <strong>of</strong> Signing the<br />
Agreement<br />
Gazette<br />
No.<br />
Date<br />
Operation in Sri Lanka<br />
1 Australia 18.12.1989 657/2 08.04.1991 1992/93<br />
2 Belgium 03.02.1983 292/6 09.04.1984 1984/85<br />
3 Bangladesh 24.07.1986 448/13 07.04.1987 1989/90<br />
4 Canada 23.06.1982 253/8 13.07.1983 1986/87<br />
5 China 11.08.2003 1374/20 06.01.2005 <strong>2006</strong>/07<br />
6 Denmark (Rev.) 22.12.1981 228/15 20.01.1983 1980/81<br />
7 France 17.09.1981 210/17 17.09.1982 1982/83<br />
8 Finland 18.05.1982 253/8 13.07.1983 1981/82<br />
9 Germany (Rev.) 13.09.1979 113/ 31.10.1980 1982/83<br />
10 Hong Kong (Lim.) 26.03.2004 1374/21 06.01.02005 2005/<strong>2006</strong><br />
11 India (Rev.) 27.01.1982 210/17 17.09.1982 1980/81<br />
12 Italy 28.03.1984 322/4 05.11.1984 1978/79<br />
13 Indonesia 03.02.1993 789/10 21.10.1993 1995/96<br />
14 Iran 25.07.2000 1187/16 06.06.2001 2002/2003<br />
15 Japan 12.12.1967 14803/5 29.05.1968 1969/70<br />
16 Korea 28.05.1984 342/11 29.03.1985 1980/81<br />
17 Kuwait 05.02.2002 1245/19 18.07.2002 2002/03*<br />
18 Malaysia (Rev.) 16.09.1997 1028/21 22.05.1998 99/2000<br />
19 Mauritius 12.03.1996 958/10 15.01.1997 1998/99<br />
20 Nepal 06.07.1999 1116/6 26.01.2000 2001/2002<br />
21 Netherlands 17.11.1982 281/13 26.01.1984 1979/80<br />
22 Norway (Rev.) 01.12.1986 464/4 27.07.1987 1989/90<br />
23 Oman (Lim.) 26.07.1994 881/7 26.07.1995 1979/80<br />
24 Poland 25.04.1980 130/ 27.02.1981 1984/85<br />
25 Pakistan (Rev.) 15.10.1981 210/17 17.09.1982 1983/84<br />
26 Qatar 09.11.2004 1422/10 05.12.2005 2008/09<br />
27 Russia 02.03.1999 1101/22 15.10.1999 2003/2004<br />
28 Saudi Arabia (Lim.) 16.12.1999 1101/23 15.10.1999 1983/84<br />
29 Singapore 29.05.1979 57/11 10.10.1979 1977/78<br />
30 Switzerland 11.01.1983 292/6 09.04.1984 1981/82<br />
31 Sweden (Rev.) 23.02.1983 297/28 18.05.1984 1985/86<br />
32 Thailand 14.12.1988 571/16 18.08.1989 1990/91<br />
33 U.K. 21.06.1979 60/23 02.11.1979 1977/78<br />
34 U.A.E. (Lim.) 07.07.1992 824/13 23.06.1994 1979/80<br />
U.A.E. (Comp.) 24.09.2003 1346/1 21.06.2004 2004/05<br />
35 U.S.A 398/4 22.04.1986 2004/05<br />
U.S.A.Protocol<br />
1298/8<br />
21.07.2003<br />
36 Vietnam 26.10.2005<br />
1455/9<br />
24.07.<strong>2006</strong> 2007/08<br />
*for airline pr<strong>of</strong>its 01.01.1981<br />
27
Follow up action on concluded agreements<br />
(a)<br />
Agreement (New) with India:<br />
Negotiations at <strong>of</strong>ficials level held between Sri Lanka and India for a new<br />
agreement, under the umbrella <strong>of</strong> Comprehensive Economic Partnership<br />
Agreement (CEPA), were concluded. The approval <strong>of</strong> the Cabinet for the draft<br />
agreement to present in parliament is awaited.<br />
(b)<br />
SAARC Limited Multilateral Convention on Avoidance <strong>of</strong> Double<br />
Taxation and Mutual Administrative Assistance in Tax matters.<br />
Having obtained the parliamentary approval, published in the Gazette and<br />
the other statutory requirements were completed. The agreement is awaited<br />
entry into force.<br />
(c)<br />
Agreement with Lebanon.<br />
First round <strong>of</strong> negotiations at <strong>of</strong>ficials’ level were held and awaited for<br />
further negotiations.<br />
28
5.2jkParticipations at International Taxation matters abroad.<br />
Name & Designation<br />
<strong>of</strong> the Officer<br />
Name <strong>of</strong> the<br />
Programme<br />
Country <strong>of</strong><br />
Training<br />
Duration<br />
Mr. P P D P<br />
karunasekera - CGIR<br />
Mr. A A Wijepala -<br />
CGIR<br />
Mr. S.Angammana –<br />
DCG<br />
Mr. R K H<br />
Kaluarachchi – DCG<br />
Mr. P Wickramasena -<br />
SCIR<br />
Mrs. M Samarasekera<br />
- CIR<br />
Mr. H B A Seneviratne<br />
- CIR<br />
Mrs. B A D D Herath -<br />
DC<br />
Mrs. R P H Fernando -<br />
Assessor<br />
01st Round<br />
Negotiations on Double<br />
Taxation Agreement<br />
i. CATA Management<br />
Committee Meeting<br />
ii. 11th Annual<br />
International Taxation<br />
Meeting on Tax Treaties<br />
CATA 27th Annual<br />
Technical Conference<br />
Lebanon 31.01.<strong>2006</strong> -<br />
02.02.<strong>2006</strong><br />
UK 09.05.<strong>2006</strong> -<br />
10.05.<strong>2006</strong><br />
France 27.09.<strong>2006</strong> -<br />
29.09.<strong>2006</strong><br />
Mauritius 13.08.<strong>2006</strong> -<br />
18.08.<strong>2006</strong><br />
. 16th Tax Conference Japan 17.10.<strong>2006</strong> -<br />
20.10.<strong>2006</strong><br />
CATA 27th Annual Mauritius 13.08.<strong>2006</strong> -<br />
Technical Conference<br />
18.08.<strong>2006</strong><br />
16th Tax Conference Japan 17.10.<strong>2006</strong> -<br />
20.10.<strong>2006</strong><br />
i. 04th Round <strong>of</strong><br />
India 10.01.<strong>2006</strong> -<br />
Technical Level<br />
12.01.<strong>2006</strong><br />
Negotiations on DTA<br />
under CEPA<br />
ii.<br />
11th Annual<br />
International Taxation<br />
Meeting on Tax Treaties<br />
iii. 01st Round <strong>of</strong><br />
Negotiations on Double<br />
Taxation Agreement<br />
11th Annual<br />
International Taxation<br />
Meeting on Tax Treaties<br />
01st Round <strong>of</strong><br />
Negotiations on Double<br />
Taxation Agreement<br />
France 27.09.<strong>2006</strong> -<br />
29.09.<strong>2006</strong><br />
Lebanon 31.01.<strong>2006</strong>-<br />
02.02.<strong>2006</strong><br />
France 27.09.<strong>2006</strong> -<br />
29.09.<strong>2006</strong><br />
Lebanon 31.01.<strong>2006</strong> -<br />
02.02.<strong>2006</strong><br />
29
CHAPTER 6<br />
LEGISLATION<br />
6.1klFollowing legislation was enacted during the year.<br />
i) <strong>Inland</strong> <strong>Revenue</strong> Act, No. 10 <strong>of</strong> <strong>2006</strong><br />
ii) Value Added Tax (Amendment) Act, No. 8 <strong>of</strong> <strong>2006</strong>.<br />
iii) Stamp Duty (Special Provisions) Act, No. 12 <strong>of</strong> <strong>2006</strong><br />
iv) Economic Service Charge Act, No13 <strong>of</strong> <strong>2006</strong>.<br />
v) Betting & Gaming Levy (Amendment) Act, No. 14 <strong>of</strong> <strong>2006</strong><br />
vi) Finance Act, No. 11 <strong>of</strong> <strong>2006</strong>, which introduced amendment to the law<br />
relating to the Social Responsibility Levy.<br />
A new <strong>Inland</strong> <strong>Revenue</strong> Act, the Act No 10 <strong>of</strong> <strong>2006</strong> was enacted during the<br />
year. It is more or less a consolidation <strong>of</strong> the <strong>Inland</strong> <strong>Revenue</strong> Act, No.38 <strong>of</strong><br />
2000 and the six amendments made thereto, but with deletion <strong>of</strong> those<br />
provisions (subject to a few exceptions) which are not applicable to any year<br />
<strong>of</strong> assessment commencing on or after April 1, <strong>2006</strong>. It also incorporates<br />
provisions designed to give legal effect to the income tax proposals announced<br />
in the Budget <strong>2006</strong>. The provisions <strong>of</strong> the new Act, (with a few exceptions)<br />
apply only in relation to any year <strong>of</strong> assessment commencing on or after April<br />
1, <strong>2006</strong>.<br />
6.2jkRulings given during the year.<br />
Relevant<br />
Section<br />
Description Ruling Number Date<br />
Section 21 A Specified Undertaking Rul/<strong>2006</strong>/IT/05 30/08/<strong>2006</strong><br />
(Act No. 38 <strong>of</strong> 2000)<br />
Section 72 A Refund <strong>of</strong> Partnership Tax Rul/<strong>2006</strong>/IT/02 07/06/<strong>2006</strong><br />
(Act No. 38 <strong>of</strong> 2000)<br />
Section 61 Withholding Tax on Rul/2005/IT/24 09/03/<strong>2006</strong><br />
(Act No. 38 <strong>of</strong> 2000) Dividends<br />
Section 04 Employment Income Rul/<strong>2006</strong>/IT/01 12/12/<strong>2006</strong><br />
(Act No. 38 <strong>of</strong> 2000)<br />
Section 122A Interest Income Rul/<strong>2006</strong>/IT/07 06/12/<strong>2006</strong><br />
(Act No. 38 <strong>of</strong> 2000)<br />
Section 10 Exempt Income- Rul/<strong>2006</strong>/IT/06 22/09/<strong>2006</strong><br />
(Act No. 38 <strong>of</strong> 2000) Interest<br />
Section 15 Exemption on Re-export Rul/2005/IT/14 11/09/<strong>2006</strong><br />
(Act No. 38 <strong>of</strong> 2000) Income <strong>of</strong> Gems & Diamonds<br />
30
6.3 Approved Charities<br />
The Following Intuitions were declared as Approved Charities under Section<br />
34(8)(a) <strong>of</strong> the <strong>Inland</strong> <strong>Revenue</strong> Act, No 10 <strong>of</strong> <strong>2006</strong>.<br />
Name and address <strong>of</strong> the organization Gazette Number Date<br />
1) Share Foundation 1460 25.08.<strong>2006</strong><br />
No: 138/4, Havelock Road<br />
Colombo 4.<br />
2) Udapadi Trust 1472 17.11.<strong>2006</strong><br />
No: 49, Hampden Lane<br />
Colombo 6.<br />
3) Peristera Children Home 1476 15.12.<strong>2006</strong><br />
Raddolugama.<br />
4) Project for the construction <strong>of</strong> building 1476 15.12.<strong>2006</strong><br />
for pre school education for poor children<br />
<strong>of</strong> Hemas Tsunami Foundation,<br />
No: 36, Bristol Street,<br />
Colombo 1.<br />
31
CHAPTER 7<br />
AUDITS, ADDITIONAL TAX COLLECTION AND APPEALS<br />
Amidst <strong>of</strong> a severe staff shortage, the <strong>Department</strong> could maintain the audit<br />
functions in a satisfactory level resulting in collection <strong>of</strong> an additional tax<br />
amounting to Rs 6 billion, in the year.<br />
7.1…Particulars <strong>of</strong> Audits and Additional Tax Collection during the year.<br />
Total amount <strong>of</strong> additional tax<br />
assessed during the year <strong>2006</strong><br />
(Rs. Mn.)<br />
Total amount <strong>of</strong> additional tax<br />
collected during the year <strong>2006</strong><br />
Income<br />
Tax<br />
PAYE<br />
Value<br />
Added Tax<br />
ESC NSL Total<br />
5,545 4 2,851 74 24 8,498<br />
3,306 0.4 2,849 24 24 6,203.4<br />
(Rs. Mn.)<br />
Number <strong>of</strong> Audit cases<br />
commenced during the year <strong>2006</strong> 3,178<br />
Number <strong>of</strong> Audit cases finalized<br />
during the year <strong>2006</strong> 2,834<br />
7.2 Appeals<br />
Appeals to the Commissioner General<br />
Income Tax Value Added Tax<br />
Opening balance as at 01-01-<strong>2006</strong> 376 55<br />
Number <strong>of</strong> Appeals Lodged during the year 422 197<br />
Number <strong>of</strong> Appeals settled during the year 468 125<br />
Balance as at 31-12-<strong>2006</strong> 330 127<br />
7.3hjBoard <strong>of</strong> Review<br />
Number <strong>of</strong> appeals pending before the Board <strong>of</strong> Review as at 01-01-<strong>2006</strong> 103<br />
Number <strong>of</strong> appeals lodged during the year 08<br />
Number <strong>of</strong> cases taken up for hearing 06<br />
Number <strong>of</strong> orders issued on conclusion <strong>of</strong> hearing<br />
Number <strong>of</strong> appeals outstanding as at 31-12-<strong>2006</strong> 105<br />
Stated cases -<br />
32
Annexure I<br />
PARTICIPANTS AT THE TRAINING PROGRAM HELD IN SINGAPORE<br />
Program : Investigation, Computer Forensic & Auditing Techniques using Computers<br />
Duration : From 15 th to 24 th May <strong>2006</strong> (01) & From 19 th to 28 th June <strong>2006</strong> (02)<br />
Name Designation Name Designation<br />
1. Mrs. Priya Fernando D C 16. U.B. Wakkumbura D C<br />
2. M.S. Fuward D C 17. G.A.J. Mahindaratne D C<br />
3. P.M. Dissanayake D C 18. Mrs. D.M. Padmakumari D C<br />
4. J. Ratnayake D C 19. B.J. Jayaratne D C<br />
5. D.K.Ranathunga D C 20. M.L.M. Thahir D C<br />
6. W.M.N.P.B. Wanigasekera D C 21. I.M.B. Seneviratne D C<br />
7. M.J. Gunasiri D C 22. J.M. Jayawardena D C<br />
8. D. Rangalla 23. W.K.K. Jayaratne S A<br />
9. U.P.S.A. Jayalath S A 24. G.D.S. Jayaratne S A<br />
10. T. Karunadasa S A 25. P.K. Padmanadan S A<br />
11. R.N. Rajapakse S A 26. Mrs. L.M.C. Weerakoon S A<br />
12. Mrs. N.K.A.I.K. Gunaratna S A 27. Mrs. R.K.C. Chitralatha S A<br />
13. O.W.N. Gunasekera S A 28. Mrs. H.W.N.K. Thalaramba S A<br />
14. P.G.P. Porawagama S A 29. Mrs. H.M.C.M. Hereth S A<br />
15. L.P. Pushpakumara Assessor 30. A.B.P. Karunaratne S A<br />
PARTICIPANTS AT THE TRAINING PROGRAM HELD IN THE NETHERLANDS<br />
PROGRAM: Princiles <strong>of</strong> International and Comparative Taxation.<br />
1. Mr. P D Premaratne – CIR<br />
2. Mr. H M Premaratne Banda - CIR<br />
3. Mr. W M W Kumarasiri – CIR<br />
33