Performance Report 2006 - Department of Inland Revenue

Performance Report 

2006 

DEPARTMENT OF INLAND REVENUE 

SRI LANKA

Department’s Mission 

“To collect taxes in-terms of relevant tax and other related 

laws, by encouraging voluntary compliance while deterring tax 

evasion and tax avoidance, and 

To enhance public confidence in the integrity and efficiency of 

the tax system administered by the Department of Inland 

Revenue by administering relevant tax and other related laws 

in a fair, friendly and expeditious manner and thereby 

facilitate a beneficial tax culture.” 

Strategic Goals 

To improve voluntary compliance by taxpayers with the tax 

laws through programmes which encourage and assist that 

and detect those who do not comply and, where necessary, 

take appropriate corrective action. 

To improve the effectiveness of the Department by; the 

applications of efficient work methods, technology and better 

utilization of available resources. 

To enhance the productivity and professionalism of the staff 

through management and technical training, work experience, 

and thereby to enable them to contribute more effectively 

towards the fulfillment, by the Department, of it’s mission. 

i

Regional Office Network 

Regional Office Code Nos Regional Office Code Nos 

Kalutara 02 Ratnapura 21 

Kandy 03 Kegalle 22 

Matale 04 Negambo 23 

Nuwara Eliya 05 Gampaha 24 

Galle 06 Maharagama 

Matara 07,08 Colombo West 28 

Jaffna 09 Colombo East 29 

Anuradhapura 10,11,14,17,18 Jawatta 

Batticaloa 12,13 Colombo Central 25 

Kurunegala 15,16 Colombo City 26 

Badulla 19,20 Colombo South 27 

ii

PRINCIPAL OFFICIALS 

Mr. A.A. Wijepala 

Commissioner General of Inland Revenue 

Mr. S. Angammana 

Deputy Commissioner General 

Tax Surveillance, Risk Management and International Affairs 

Mr. E.A.S. Edirisinghe 


Tax Policy Planning & Development, Legislation, Rulings & BOI 

Enterprises 

Mr. R.K.H. Kaluarachchi 


VAT and Information & Communication Technology 

Mr. E.M.M. Medagoda 


Tax Administration 

Mr. H.M. Herath 


Human Resource Management 

iii

Mr. V.D.G.P. Ubesiri 

Senior Commissioner - Large Taxpayer Unit 

Mr. P. Wickramasena 

Senior Commissioner - Internal Audit 

Mr. K.M.S. Kandegedara 

Senior Commissioner- Zone 1 

Mrs. A. Seneviratne 

Senior Commissioner-Zone II 

Mr. H.A. Somapala 

Senior Commissioner-Zone III 

Mrs. M. Samarasekera 

Commissioner-Large Taxpayer Unit 

Mr. K.L.S. Silva 

Commissioner-ICT II 

Mr. H.B.A. Seneviratne 

Commissioner - Strategic & Operational Planning, Tax Policy & Rulings 

Mrs. D.M. Nandawathie 

Commissioner-Information and Non filers & Stop Filers 

Mr. A.A. Amararatne 

Commissioner-Value Added Tax 

Mr. W. Tilakaratne 

Commissioner-Internal Audit 

Mr. R.K. Premadasa 

Commissioner-Tax Payer Services 

Mr. H.M. Abesinghe 

Commissioner-Human Resource Management 

Mr. P.D. Premaratne 

Commissioner-Investigation and Legal 

Mr. H.M. Premaratna Banda 

Commissioner-Corporate Tax and Audit 

Mr. S.T.Gobalasingham 

Commissioner-PAYE and Zone III 

Mr. K.A.P. Kaluarachchi 

Commissioner-ICT I 

iv

Mrs. W.B.S. Shanthikumar 

Commissioner-Employee Services 

Mrs. L Ramanayake 

Commissioner-Human Resources Development 

Mr. W.M.W. Kumarasiri 

Commissioner-BOI Enterprises and Stamps 

Mr. W.M. Mendis 

Commissioner-Zone I 

Mrs. R.A.M.A.K. Herath 

Commissioner-Appeals and Economic Research 

Mr. W.A.Fernando 

Commissioner-Procurement and Supplies 

Mr. A.L.A. Sirisena 

Commissioner-Procurement and Supplies 

Mrs. H.M.C.I. Gunasekera 

Commissioner-Collection 

Mr. W.V.P. Karunaratne 

Commissioner-Assessment Control “B” 

v

CONTENT 

Organisation Chart 

2006 - A Year Of Many Achievements 

CHAPTER 1- HUMAN RESOURCES 1 

1.1 Approved Cadre, the number in post and vacancies 1 

1.2 Training 2 

1.2.1..Overseas Training 2 

1.2.2..Overseas Training provided through the Fiscal Management Reform Program 3 

1.2.3..In-house Training 3 

1.3 Promotions 4 

1.4 Deaths 5 

1.5 Retirements 5 

CHAPTER 2 – REVENUE COLLECTION 7 

2.1 Total Revenue- 2006 7 

2.2 Number of Tax Files 10 

2.2.1 Number of Income Taxpayers 10 

2.2.2 Income Tax Return Filing compliance 2001/02 to 2005/06 11 

2.3 Income Tax Collection 11 

2.3.1 Corporate and non corporate Income Tax 12 

2.3.2 Source wise Analysis of Income Tax Collection in 2006 13 

2.4 Economic Service Charge 13 

2.5 Value Added Tax Collection 14 

2.6 Stamp Duty Collection 16 

2.7 Betting and Gaming Levy Collection 16 

2.8 Debits Tax Collection 16 

2.9 Share Transaction Levy 17 

2.9.1 Collection of Share Transaction Levy in 2006 17 

2.10 ..Inland Revenue Collection 2002 to 2006 17 

2.11.. Inland Revenue Contribution to the Government Revenue and Gross Domestic Product 18 

CHAPTER 3 – EXPENDITURE AND PRODUCTIVITY RATIO 20 

3.1 Comparison of the total expenditure incurred in the year 2006 with that of Years 2004 and 2005 21 

vi

3.2 Analysis of the Recurrent Expenditure in 2006 22 

3.3 Productivity Ratio 22 

CHAPTER 4 – TAXES IN DEFAULT 26 

CHAPTER 5 – INTERNATIONAL RELATIONS 26 

5.1 Double Tax Treaties 26 

5.2 Participations at International Taxation matters abroad 28 

CHAPTER 6 – LEGISLATION 29 

6.1 Legislation enacted during the year 29 

6.2 Rulings given during the year 29 

6.3 Approved charities declared during the year 30 

CHAPTER 7 – AUDITS, ADDITIONAL TAX COLLECTION AND APPEALS 31 

7.1 Particulars of Audits and Additional Tax Collections 31 

7.2 Appeals 31 

7.3 Board of Review 31 

vii

Organisation Chart 

(As at 31-12-2006) 

Board of Review Commissioner General / 

Chairman - Revenue Board 

Ombudsman 

Secretary to the Revenue Board 

Senior Commissioner: Internal Audit 

Commissioner: System & Finance Audit 

Senior Deputy Commissioner 

General 

Commissioner: 

Procurement & Supplies 

Commissioner: 

Appeals 

Deputy Commissioner 

Chief Accountant 

Building Engineer 

Deputy 

Commissioner 

DCG: 

Tax Administration 

• Commissioner: 

Taxpayer Services 

[TS] 

• Commissioner: Audit 

[Aud] 


Collection & 

Enforcement [C&E] 


Returns & Payment 

Processing [R&PP] 

DCG: ICT 

[Chief Information Officer] 

• Commissioner: ICT I 

[ICT Manager, 

Developments & Reforms] 

• Commissioner: ICT II 

ICT Manager, Projects & 

Engineering] 

• DC: Application & 

Database Development 

Unit [Team Leader] 

• DC: Network Operations 

Centre [Team Leader] 

• DC: ICT Reforms 

• DC: Special Projects 

DCG: HRM 


Human 

Resources 


Human 

Resource 

Development 


Employee 

Services 

• HR Specialist I ** 

• HR Specialist II 

DCG: Tax 

Surveillance & Risk 

Management and 

International Affairs 


Investigation 


International 

Affairs 


Information & 

Non Filers & Stop 

Filers 

Deputy 

Commissioner 

DCG: Tax Policy 

Planning & 

Development, 

Legislation, Rulings 

& BOI Enterprises 


Strategic and 

Operational 

Planning, Tax 

Policy Planning, 

Legislation , and 

Rulings 


BOI & Investment 

Promotion 


Research & 

Policy 

• Policy, Planning & ** 

Standards Guidance 

• Database Administrator 

• Application Developer 

• Hardware, Network & 

System Administrator 

• Cyber Security & Risk 

Administrator 

• Data Centre Administrator 

• e-Government 

• Emerging Technology 

• Intranet/Web Developer 

• Software Engineering & QA 

• IT Helpdesk 

• ICT Competitive 

Outsourcing 

Training Centre 

Deputy 

Commissioner 

• Tax Policy ** 

Analyst 

• Fiscal Policy 

Expert 

• Economist 

• Financial Analyst 

• Legal Officer 

• Research 

Assistant 

• Statistician 

Senior Commissioner: Tax 

Administration - Zone 1 

Senior Commissioner: 

Tax Administration - LTU 


Tax Administration - 

Zone 2 


Tax Administration - 

Zone 3 

• Commissioner: Colombo 

Regional Offices, VAT, 

Stamp Duty, Unit 3 and ESC 

• Commissioner: LTU, 

Corporate Tax & Debits 

Tax 

• Commissioner: South 

Region 

• Commissioner: North 

Region 




* Until the Senior DCG is appointed, all officers required to report to the Senior DCG will report to the CGIR 

** Positions yet to be established 

ii 

Deputy Commissioner

2006 – A YEAR OF MANY ACHIEVEMENTS 

The Department of Inland Revenue, established as far back in 1932, has been 

entrusted with over the years the administration of a variety of revenue measures and 

has from time to time undergone several organizational changes. During the year 

2006, the Department administered 8 types of taxes viz: Value Added Tax 

(65 %), Income Tax (28 %), Economic Service Charge (3.5 %), Debits tax (2.5 

%), Stamp Duty (0.6 %), Share Transaction Levy, Social Responsibility Levy and 

Betting & Gaming Levy. 

• Revenue: In the year 2006, the total revenue collection of the Department 

reached Rs.253.3 Billion. This quantum of collection is particularly noteworthy 

as it surpasses the year’s target by Rs.6 Billion and represents an increase of 

27.7 % over that of the previous year, despite the fact that the Department had 

to function with a considerable shortage of operational staff. Further, this total 

revenue collection of the year formed 53.07% of the total Government’s 

revenue* and represented 10.2% of GDP* at current factor cost prices. 

(* Figures were taken from the statistics published in the Central Bank Report – 2006) 

• Modernization Process: The process of restructuring and modernizing the 

Department, with a view to create an efficient and effective tax administration 

and thereby raising revenue while providing a qualitative service to taxpayers, 

was successfully progressing during the Year achieving many such objectives. 

• New Recruitments: All arrangements have been made to recruit Assessors and 

Tax Officers to fill the existing vacancies. Assessors 256 in number have been 

selected on the basis of examinations and interviews and the procedure was 

half a way completed as at the end of the year to recruit 544 of Tax officers. 

The shortage of staff in these grades had been a major problem. 

• Opening up New Regional Offices: 2 new Regional Offices (Maharagama 

East and West) at Wijerama Juction, Gangodawila and a Regional Office at 

Matale were opened to concentrating closely on existing and potential 

taxpayers in those areas and also to facilitate the taxpayers in the respective 

areas in discharging their obligations. 

vii

Arrangements were also made to open in the following year, the next Regional 

Office at Gampaha. (Opening of a Regional Office at Wattala is also in the 

schedule). 

• Opening up New Branches: Having considered the contribution to the 

revenue from the financial sector, and with a view to monitoring closely and 

comprehensively, a separate Unit “The Banking and Insurance Services Unit” 

was established. Further, a Special Information Branch to strengthen the 

process of expanding tax base, a Research Unit to study several sectors, Unit 12 

to deal with certain company files and Stamp Duty Branch were also established. 

• Shifting Colombo Offices: In order to avoid congestion in the head office 

and non availability of parking facilities to taxpayers therearound, 

arrangements have been made to shift metro branches and some service units 

currently located in the head office to two new premises taken over by the 

Department, one at Jawatta road, and the other at Nawam mawatha. These 

new locations with ample parking spaces and bank as well as post office 

facilities would be much convenience to tax payers. Offices will be with modern 

facilities. 

• Taxpayer Services Unit: The Taxpayer Service Unit housed in the ground 

floor of the Inland Revenue Building has been made facilitated for the 

taxpayers and the public to access conveniently. The Unit is equip with Officers 

to assist every person seeking help or information. Relevant enactments, 

departmental publications, paying-in-slips, forms etc. are available in this Unit. 

In order to avoid possible delays and inconveniences, arrangements have been 

made to issue Taxpayer Identification Numbers (TINs) and temporary VAT 

Numbers at this Unit. 

• Issuing privilege Cards to good Taxpayers: The process of issuing 

privilege cards to good (individual) taxpayers to recognize their contribution (to 

the Government Revenue) and to make them entitled to certain moral benefits 

such as preferential treatments at the Government Agencies, continued with 

added modes. 

viii

• Publishing the “Code of Ethics and conduct” for the Officers: To ensure the 

ethical behavior and proper conduct of officers of the Department as required 

under Establishment Code, Financial Regulations etc, a “Code of Ethics and 

Conduct” was prepared and issued to the Officers of the Department. This was 

made available to the public for their information. 

• Taxpayer Education: Seminars and lectures are being organized with a View 

to educating Taxpayers as well as the staff of the Department. Several such 

seminars were organized out side Colombo as well. (viz. Kurunegala, Kandy, 

NuwaraEliya, Galle, Badulla, Anuradhapura) 

• Enacting a New Inland Revenue Act: New Inland Revenue Act. No 10 

of 2006 was enacted to replace the Act No. 38 of 2000, effective from April 1, 

2006. It is more or less a consolidation of the Inland Revenue Act, No.38 of 

2000 and the six amendments made thereto but with those provisions (subject 

to a few exceptions), which are not applicable to any year of assessment 

commencing on or after April 1, 2006, have been deleted therefrom. It also 

incorporates provisions designed to give legal effect to the income tax proposals 

announced in the Budget 2006. 

• Setting up of a Grievance Settlement Committee: A Committee to handle 

grievances of Officers has been appointed. The procedure and guidelines in this 

regard are in place. 

• Computer Training Center: The provision of computer training facilities was a 

long outstanding requirement of the Department. This has now been fulfilled 

with the setting up of the “Computer Training Center”. Now Officers are being 

trained in batches. 

• Provision of Overseas Training: With a view to provide the Officers a 

foreign exposure on tax policies, a scheme has been drawn up for sending 

Officers abroad for shorter periods. Accordingly 3 batches of Officers were sent 

to India and 2 batches of Officers were sent to Singapore for training during 

this year. This programme is continuing. 

ix

CHAPTER 1 

HUMAN RESOURCES 

1.1fApproved Cadre, the number in post and vacancies. 

The following Table shows the approved Cadre of the Department, the actual 

number in post and the vacancies, as at December 31, 2006. 

Post 

Approved In Post Vacancies 

Cadre 

Commissioner General 01 01 - 

Senior Deputy Commissioner General 01 - 01 * 

Deputy Commissioner General 05 05 - 

Senior Commissioner 05 05 - 

Commissioner 22 21 01 ** 

Deputy Commissioner 90 90 - 

Senior Assessor and Assessor 750 394 356 *** 

Assessor (Supernumerary) 78 

Senior Tax Officer and Tax Officer 1000 237 763 *** 

System Manager 2 2 - 

System Analyst 06 01 05 

Accountant 06 06 - 

Engineer 01 01 - 

Combined Service 326 303 23 

K. K. S. 294 289 05 

Others 40 26 14 

Total 2550 1459 1169 

* 

This post was not filled, as the recrument procedure had not been finalized. 

** Vacancy arose due to a year- end retirement. 

*** Vacancies existed through out the year in these Grades of Assessors and Tax Officers. The process of 

recruitments to these Grades was commenced, but could not be completed during the year. Therefore, 

the Deputy Commissioners of the respective Units had to cover up duties of Assessors as well. 

Necessary action was taken to appoint 256 Assessors with effect from January 01, 2007. 

x

1.2hjTraining 

1.2.1jkOverseas Training 

The Department is alive to the need to expand the horizons of the staff by 

exposing them to the advances made in other countries to maintain a level of 

professionalism of their officers as tax administrators. Accordingly, arrangements 

were made for several officials to participate in training programmes, seminars or 

workshops held abroad. Details of such officials and overseas training 

programmes, etc they participated are as follows: 

Name & Designation 

of the 

Officer 

1. Mr. A.A. Wijepala – 

CGIR 

2. Mr. R.K.H. 

Kaluarachchi- DCG 

3. Mr. H M Abeysinghe 

– CIR 

4. Mr. P D Premaratne – 

CIR 

5. Mr. H M Premaratne 

Banda- CIR 

6. Mr. W M W 

Kumarasiri – CIR 

7. Mr. H H Ranjith 

Somasiri – DC 

8. Miss D G P W D 

Gunathilake – DC 

9. Mr. K Dharmasena – 

DC 

10. Mr. W S K de Costa - 

DC 

11. Mr. J A A Parakrama 

– DC 

12. Mr. A G Sumanadasa 

– DC 

13. Mr. R M Jayasinghe – 

DC 

14. Mr. K D M 

Ratnakumara - Senior 

Assessor 

Name of the Programme 

Country of 

Training 

Duration 

Home Coming Seminar at the 

OECD Multilateral Tax Centre 

Korea 06.11.2006- 

09.11.2006 

Seminar on Financial Taxes Singapore 11.09.2006- 


Seminar on Financial Taxes Singapore 11.09.2006 - 


Principles of International and Netherlands 21.08.2006 - 

Comparative Taxation 








Workshop on Taxation of Malaysia 07.08.2006 - 

International Transactions 


Seminar on Financial Taxes Singapore 11.09.2006 - 


International Tax Aspects of Netherlands 13.09.2006 - 

Permanent Establishments 


Annual Seminar on VAT and the Germany 23.11.2006 - 

International Market 


Interpretation and Application of Netherlands 06.03.2006 - 

Tax Treaties 


Introduction to European VAT Netherlands 13.03.2006 - 


Master's Programme on Korea's Korea 01.02.2006 - 

Economic Policy 

31.01.2007 

Tax Analysis and Revenue USA 18.06.2006 - 

Forecasting Programme 


2

15. Mr. T M J N Bandara 

- Senior Assessor 

16. Mr. N M M Mifly - 

Senior Assessor 

17. Mrs. U H M Irangani 

– Assessor 

18. Mr. V R Dharmasiri – 

Assessor 

19. Mr. M K P J S S 

Perera - Assessor 

Advancing Management 

Potential 

Principles of International and 


Commonwealth tax Inspectors 

Course 

International Seminar on 

Taxation (General Course) II 

Master's Degree Programme on 

Korean Economy and Business 

UK 21.07.2006 - 


Netherlands 21.08.2006 - 




Japan 28.08.2006 - 


Korea 27.12.2006 - 

18.02.2008 

(Details of training abroad provided through the Financial Management Reform Programme, are 

given separately) 

1.2.2hjOverseas Training provided through the Fiscal Management Reform Programme. 

(FMRP) 

A remarkable improvement could be achieved in the training of Officers through 

arrangements made by the FMRP. Under the auspices of FMRP, 30 officers were 

participated in the special training program held in Singapore and 3 officers in the 

training programme held in the Netherlands. Name of these Officers are given in 

the Annexure 1. Further, Several batches of Officers, 250 officers in total were 

provided opportunity to participate in training course on “Practical Issues of Tax 

Policy & Tax Administration in Developing Countries” held in India. Each of these 

batches included a Commissioner and Officers selected from all other grades 

below the grade of Commissioner. 

1.2.3 In-house Training 

Training Branch of the Department conducts training courses and examinations 

regularly, for Assessors and Tax officers. This is aimed at enhancing knowledge 

and improving analytical skills particularly in taxation and accountancy. 

Emphasis is given on courses that fulfill various service requirements of officers 

for their confirmation in the respective grades. Details of personnel trained and 

the examinations conducted during the year are as follows: 

1). Training for Assessors - 

I. 17 Assessors in Class II Grade II were trained for the First 

Departmental Examination (Recruited on 20.06.2003). 

II. 

68 Assessors in Class II Grade II, were trained for the Second 

Departmental Examination. 

3

III. 

106 Assessors in Class II Grade II, were trained for the Final 

Departmental Examination (Promoted on 03.08.2005). 

2). Examinations for Assessors: 

Examination Held in Number 

Sat 

01 Final Departmental Examination for 

Assessors in Class II Grade II 

02 Final Departmental Examination for 

Assessors in Class II Grade II 

(Repeat - 2 nd attempt) 

2006.07.17 

to 



to 


17 04 

13 12 

Number 

Successful 

3). Seminars conducted: 

Date 

Subject 

16.02.2006 A Seminar on “Are We Heading for E-filing” 

26.04.2006 A Seminar on “Improving Productivity through 

Comprehensive Audit” 

03.05.2006 A Seminar on “Taxing of MNEs and Transfer-pricing” 

11.05.2006 A Seminar on “Re-introduction of Stamp Duty” 

14.06.2006 Change of ownership Vs Merger/Amalgamation 

14.07.2006 Sharing the Experiences in Singapore 

23.08.2006 Audit of Corporate Accounts-Transfer pricing 

01.11.2006 Capital Market and Securities 

4). Computer Training: 

Fully equipped IT Laboratory with 35 computers was setup and 512 

personnel (covering all relevant categories officers) were trained during the 

year in the basic computer application. 

1.3sdPromotions 

1). The following Deputy Commissioners were promoted to the post of 

Commissioner 

Name 

Date of Promotion 

i. Mrs. H M C I Gunasekera 11.08.2006 

ii. Mr. W P Karunaratne 17.10.2006 

2). The following Senior Assessors were promoted to the post of Deputy 

Commissioner 

Name 

Date of Promotion 

i. Mr. K D M N Gunatunga 24.01.2006 

ii. Mr. H W Gamini Pushpakumara 08.02.2006 

4

iii. Mr. B M Ariyadasa 17.02.2006 

iv. Mr. P Hewage 27.02.2006 

v. Mr. S S D Weerasekera 07.03.2006 

vi. Mr. T Rajapakse 27.03.2006 

vii. Mr. B Sivaji 30.03.2006 

viii. Mr. M S M Siyan 09.04.2006 

ix. Mr. E M Ekanayake 07.05.2006 

x. Mr. U P S A Jayalath 13.06.2006 

xi. Mr. J D Sepala 11.08.2006 

xii. Mr. T D G S Jayawardena 17.10.2006 

xiii. Mr. T Karunadasa 23.10.2006 

3). 20 Assessors were promoted to the post of Senior Assessor 

4). 201 Senior Tax Officers and 45 Tax Officers were promoted to the post of 

Assessor. 

5). 02 Data Entry Operators were promoted to the post of Assessor 

1.4hjDeaths 

Mr. N.S. Wattaladeniya, Senior Commissioner. 

Mr. Wattaladeniya passed away while in service, in February 2006. Joined 

the Department in 1976 as an Assessor, he had counted 30 years in the 

Inland Revenue Service and has been the Senior Commissioner in charge of 

the ‘Zone I’ of the Department, when his untimely death occurred. 

He followed a training programme in Tax Administration in USA (California) 

in August 19, 1991and has during his tenure of office functioned in 

diversified areas of department activities. 

Mr.Wattaladeniya has been a talented officer of the Department and his 

demise is a great loss to the Department. 

1.5hjRetirements 

The following Offices were retired from the Service. 

i. Mr. P P D P Karunasekera- Commissioner General 

ii. Mr.R.A.D.H.Ranasinghe- Deputy Commissioner General 

iii. Mr.W.P.Sirisena- Commissioner 

iv. Mr.P.B.Madawala- Commissioner 

v. Mrs.Karunarathna- Commissioner 

vi. Mr.D.B.Kannangara- Deputy Commissioner 

vii. Mr.C.W.W.Gamanayaka- Deputy Commissioner 

viii. Mr.Violet Jayasuriya- Deputy Commissioner 

ix. Mr.H.M.P.B.Herath- Deputy Commissioner 

5

x. Mr.G.V.Somasiri- Deputy Commissioner 

xi. Mr.I.K.Ginadasa- Deputy Commissioner 

xii Mr.K.K.Samarapala- Deputy Commissioner 

Two Senior Assessors, thirty-one Assessors and two Senior Tax Officers 

were also retired. 

Mr. P P D P Karunasekera 

Mr. Karunasekara began his career with the Department as an Assistant 

Assessor in February 1970. He was appointed Commissioner General on 

July 10, 2005. He functioned as the Additional Commissioner General 

before he was elevated to this highest position of the Department. During 

his long period of service in the Department spanning 36 years, he served 

with dedication in several important Branches of the Department, 

particularly in the Investigation Branch, where he served as senior 

Assessor, Deputy Commissioner and then as its Commissioner. 

He followed Taxation programmes in Japan in August 27, 1980 and 

Germany in March 11, 1985, and has during his tenure of office, 

participated in several other international conferences held abroad. He was 

also involved with Double Tax Avoidance Treaty negotiations held with 

China, Vietnam and India. 

Mr Karunasekara retired from the service on March 27, 2006. 

Mr.R.A.D.H. Ranasinghe 

Mr. Ranasinghe joined the Department on November 1, 1977 as an 

Assistant Assessor. He was appointed Deputy Commissioner General on 

March 15, 2005. He retired from service on May 7, 2006, at the time when 

the Information & Communication Technology Division was under his 

charge. 

Mr. Ranasinghe counted 36 years in the Department, extending a devoted 

service in every assigned areas. During his tenure of office, he followed a 

programme in Tax Administration in South Korea and participated in 

several other taxation forums held abroad. 

6

CHAPTER 2 

REVENUE COLLECTION 

Raising revenue is the main objective of taxation, and therefore, the success or 

failure of the Department of Inland Revenue being the main contributor to the 

Government’s revenue, is principally determined by the quantum of its tax 

collection. Concerted effort is, therefore, made to fulfill the revenue requirements 

of the Government keeping in the line with the statement of mission of the 

Debpartment. 

In 2006, the year under review, the Department collected a total of Rs.253.3 

Billion, a revenue which represent an increase of 27.7 % over that of the year 

2005, which was Rs: 198.3 Billion. Further, this total collection reflects an 

additional quantum of Rs: 6.1 Billion over the revenue estimate of Rs: 247.2 

Billion for the year. 

2.1ghTotal Revenue – 2006 

The total (net) revenue collection of the Department in the year 2006 is 

Rs. 253,319,518,312/-. A comparison of collection under each type of tax 

with the corresponding estimate is given in Table 01 and Chart 01 

illustrates this comparison. The Cash Flow during the year is shown in the 

Table 02, and is illustrated by Chart 02. 

Table -01 

Total Revenue Collection-2006 

Type of Tax 

Revenue Estimate 

Rs: 

Revenue Collection Rs: 

Collection as a 

% of Estimate 

Collection as a 

% of Total 

Revenue 

Direct Taxes 

Income Tax * 66,158,000,000 71,481,521,231 108.05% 28.22% 

Economic Service Charge 9,614,000,000 8,852,985,755 92.08% 3.49% 

Stamp Duty 1,200,000,000 1,495,293,475 124.61% 0.59% 

Debits Tax 6,841,000,000 6,254,885,377 91.43% 2.47% 

Betting & Gaming Levy 460,000,000 282,294,230 61.37% 0.11% 

Share Transaction Levy 475,000,000 420,180,879 88.46% 0.17% 

Estate Duty ** 646,558 0.00% 

Sub Total 84,748,000,000 88,787,807,505 104.76% 35.04% 

Indirect taxes 

Value Added Tax 162,298,000,000 164,070,832,668 101.09% 64.77% 

Turnover Tax 150,000,000 232,565,201 155.04% 0.09% 

Goods & Services Tax** 135,752,036 0.05% 

National Security Levy** 92,560,902 0.04% 

Sub Total 162,448,000,000 164,531,710,807 101.28% 64.95% 

247,196,000,000 253,319,518,312 102.48% 100.00% 

7

* Includes Social Responsibility Levy, which is collected by the Department together 

with income tax. 

** No estimate was made as this tax had been abolished. The collection, out of the 

amount in default, is small when compared with the total collection. 

Chart 01 

Total Revenue Collection-2006 

180,000 

160,000 

140,000 

IT 

ESC 

VAT 

120,000 

DT 

Rs Million 

100,000 

80,000 

60,000 

40,000 

20,000 

IT 

ESC 

VAT 

DT 

B&GL 

STL 

TT 

SD 

ED 

GST 

NSL 

B&GL 

STL 

TT 

SD 

ED 

GST 

NSL 

- 

1Type of Tax 

8

Table –02 

Cash Flows- 2006 

Month 


Collection Rs: 

Cumulative Revenue 

Collection Rs: 

January 14,781,884,984 14,781,884,984 

February 17,097,240,996 31,879,125,980 

March 15,858,541,525 47,737,667,504 

April 18,554,287,213 66,291,954,717 

May 21,182,221,913 87,474,176,630 

June 17,628,803,120 105,102,979,751 

July 18,651,856,070 123,754,835,821 

August 28,442,157,236 152,196,993,057 

September 25,754,752,374 177,951,745,431 

October 30,750,875,548 208,702,620,979 

November 26,409,150,556 235,111,771,534 

December 18,207,746,778 253,319,518,312 

Chart 02 

Cash Flow -2006 

300,000 

250,000 

200,000 

Rs: Million 

150,000 

100,000 

50,000 

- 

1 2 3 4 5 6 7 8 9 10 11 12 

Months 

Revenue Cllection 

Cumulative Revenue Collection 

9

2.2fgNumber of Tax files 

An analysis of tax files handled by the Department during the year is shown in 

the Table 03: 

Table 03 

Number of Tax files as at 31-12-2006 

Income Tax. 

* Resident Companies 23,405 

* Non-Resident Companies 434 

* State Corporations, Statutory Boards and State owned institutions 161 

* Individuals 136,783 

* Partnerships 16,105 

* Bodies of Persons etc. 2,115 

Total Income Tax Files 179,003 

Employers Registered under PAYE Scheme 10,988 

Persons and Partnerships registered for Economic Service Charge (ESC) 6,990 

Persons registered for Value Added Tax (VAT) 25,808 

Persons registered for Debits Tax 835 

Betting Levy Files 1,004 

Gaming Levy Files 8 

Total Number of Files handled by the Department as at 31-12-2006 224,636 

Notes: 

o A separate file is not generally maintained in respect of any employee from whose 

remuneration tax is deducted under PAYE Scheme and who has no any other income. 

o New income tax files, 18,613 in number have been opened by the Information Branch of 

the Department and refered to the respective units, however, in view of the inadequacy 

of the staff in certain Units, perment numbers could not be allocated to some of such 

files by 31.12.2006. Such numbers are not reflected in the above total. 

2.2.1ghNumber of Income Taxpayers 

The number of persons registered with the Department for income tax, as at the end of the 

year, is given in Table 04. 

Table 04 

Number of Income Taxpayers – 2006 

Persons registered for Income Tax 

Corporate 

* Resident Companies 23,405 

* Non-Resident Companies 434 

* State Corporations, Statutory Boards and State owned Institutions 161 

Non-Corporate 

* Resident and Non-resident Individuals 136,783 

* Partnerships 16,105 

* Bodies of Persons etc.(Co-op. Societies, Executors, Trustees, Clubs, NGO etc.) 2,115 

Employees paying income tax under Pay-As-You-Earn (PAYE) Scheme (as 253,553 

at 31-03-2006) 

Total Number of Income Taxpayers 432,556 

10

2.2.2ghIncome Tax Return Filing Compliance 2001/2002 to 2005/2006 

Table 05 

Income Tax Return Compliance 2001/02 to 2005/06 

Year of 

Assessment 

Sector 

Compliance 

on Due Date 

% 

Compliance after 

one month from 

the due date 

% 

Corporate 32% 44% 

2001/2002 Non-corporate 33% 46% 


2002/2003 Non-corporate 32% 47% 


2003/2004 Non-corporate 32% 41% 


2004/2005 Non-corporate 28% 41% 


2005/2006 Non- corporate 33% 44% 

2.3f Income Tax Collection 

Income tax collection together with Economic Service Charge, for the year 

was Rs: 80.3 Billion. It shows an increase of 6.2 % over the estimated 

revenue from this tax for the year. This is an increase of 62.5% over that of 

the previous year, which was Rs. 49.4 Billion. Table 06 shows the 

composition of Income Tax collection considering under corporate and noncorporate 

sectors. In the total income tax collection (excluding Economic 

Service Charge), the corporate sector’s contribution is Rs.38.5 Billion, which 

is 53.91 %. Non-Corporate Sector contributed Rs.32.9 Billion, which 

46.09 % of total Income Tax collection. Table 07 shows the Source wise 

analysis (Employees & others) of Income Tax collection. 

During the year, several policy measures were introduced to rationalize 

corporate income taxes, including the reduction of tax rate on Small & 

Medium Enterprises, increasing the rate applicable to companies of which 

taxable income exceed Rs.5 Mn, fixing of the tax rate applicable to income 

and profit from the businesses of any lottery, betting or gaming at 40% and 

providing 33 1/3% rate for a specified period for quoted public companies 

as an incentive for capital market development. 

11

In addition, restrictions were imposed on the deduction of losses to 35% of 

Statutory Income. In order to counter the unfavorable effect to revenue due 

to transfer pricing, arms-length transaction principle was introduced. 

Moreover, legal measures were taken to discourage thin capitalization. 

The maximum personal Income tax rate was increased to 35% and created a 

new slab of Rs.500,000/- for the 30% tax rate. Profits from processing 

primary agriculture produce were also exempted from income tax for 5 

years. The provisions introduced to grant a 10% discount to individuals 

paying self assessed tax one month before the due date were effective from 

this year. 

Gross Income Tax collection through Employment recorded Rs. 7.6 Billion. 

Withholding Tax on Interest, Rent and Specified Fees generated Rs.20.7 

Billion. 

2.3.1ghCorporate and Non-corporate Income Tax 

Table 06 shows the composition to Income Tax collection, and Chart 03 

illustrates the same with percentages. 

Table – 06 

Corporate and Non-corporate Income Tax Collection -2006 

Sector Tax Collection (Rs:) % 

Corporate 38,535,842,683 53.91% 

Non-Corporate 32,945,678,548 46.09% 

Total 71,481,521,231 100.00 

12

Chart-03 

Income Tax Collection -2006 

Non-Corporate 

46% 

Corporate 

54% 

2.3.2sdSource wise Analysis of Income Tax Collection in 2006 

Table 07 

Income Tax Collection- 2006 

Source wise Analysis ( Employees and Others) 

Source 

Collection (Rs. Mn) 

Employment 

PAYE Scheme 7,312.8 

Self Assessment and Assessments 

with penalties for tax in default 271.1 7,583.9 

Others 

Self Assessment and Assessments 

with penalties for tax in default 40,133.8 

Withholding Tax on Interest, Rent & 

Specified Fees 20,697.4 

Deductions at Source 3,316.4 

Compounding Penalties 0.8 64,148.4 

Gross Collection 71,732.3 

Less: Refunds (250.3) 

Net Collection 71,482 

2.4saEconomic Service Charge 

Economic Service Charge (ESC), which was introduced under the Finance 

Act, was brought within a separate enactment. The new Act, Economic 

Service Charge Act No 13 of 2006 imposes the ESC on the relevant turnover 

of any person or partnership in respect of every quarter of every year of 

assessment commencing April 1, 2006. 

13

The Ceiling of the ESC payable by an entity for quarter was raised to Rs. 15 

Mn and the threshold of liable turnover reduced to Rs.10 Mn. Moreover, 

relieves were provided to distributors, freight forwarders by providing special 

rate or special turnover definition. 

During the year, 1111 new ESC files were opened making the total to 6990 

files as at 31-12-2006. ESC contributed 3.49% to the total collection 

amounting to Rs.8,852.9 Mn. It is an increase of Rs. 1,569.8 Mn over that of 

2005. Out of ESC collected during the year 92% was from the corporate 

sector. The rest 8% was from the Non corporate sector. 

Table 08 shows the composition of ESC collection in the year. 

Table 08 

Economic Service Charge Collection- 2006 

Sector Collection (Rs.'000) % 

Corporate Sector 8,135,950 92% 

Non Corporate Sector 717,035 8% 

Total 8,852,985 100% 

2.5asValue Added Tax Collection 

The quantum of Value Added Tax (VAT) collection of Rs. 164.1 Billion during 

the year indicates a slight excess of Rs: 1.8 Billion over the estimated amount 

of Rs: 162.3Billion for the year. However, this is an increase of Rs: 22.2 

billion or 15.6% over that of the previous year. VAT represents 64.77% of the 

total revenue collection in 2006. 

Factors that influenced improved VAT revenue include, 

‣ Increase the markup applicable to the VAT base to 7% and the inclusion 

of PAL in the tax base 

‣ Increasing VAT on the financial sector from 15% to 20%. 

‣ Increased imports of high value items such as motor vehicles 

‣ Up in international prices of certain essential commodities 

‣ Growth witnessed in manufacturing, tourism, construction and 

telecommunication sectors, resulting in expansion of the base. 

14

Steps were also taken to streamline the refund process that witnessed 

considerable delays to prevent possible fraudulent refunds and to expedite 

the refund process. 

Moreover, as a measure toward reducing delays pertaining to the refund 

mechanism, a system of releasing refunds based on a Bank Guarantee from 

the relevant exporter was introduced for the benefit of local industries. This 

refund process was further facilitated through opening of a special account 

at the Central Bank to cater to refunds while avoiding delay in payments. 

The audit system was also strengthened. 602 Desk Audits were conducted 

during the year 2006 while completing 994 Field and other audits. As a 

result of that 3723 new VAT files could be opened. 

Table 09 shows the Value Added Tax gross collection and refunds in 2006 

and Table 12 shows the Value Added Tax (net) Collection sector wise, and 

which is illustrated by the Chart 04. 

Table 10 (a) shows the Domestic VAT Industry Wise analysis which high 

lighted the increase in 2006 compared to 2005 in all domestic sectors such 

as Banking, Insurance, Hotel & Restaurant, Construction, Electricity & Gas, 

Imports and Financing. Collection of VAT on imports in 2006 reached Rs. 

92.5 Billion recording 56.36% out of total collection of VAT. 

Sector 

Table 09 

Value Added Tax Collection and Refunds – 2006 

Gross Collection 

(Rs.Mn) Refunds (Rs.Mn) Net Collection (Rs.Mn) 

Manufacturing 

33,389 

11,171 22,218 

Non- 

49,382 

Manufacturing 

49,382 

Imports 92,476 5 92,471 

Total 175,247 11,176 164,071 

15

Table 10 shows the Value Added Tax (net) sector wise Collection, and is 

illustrated by Chart 04. 

Table 10 

Value Added Tax Collection-2006 

Sector Net Collection (Rs:) % 

Manufacturing Sector 22,218,159,285 13.54% 

Non Manufacturing Sector 49,381,697,407 30.10% 

On Imports 92,470,975,976 56.36% 

Total 164,070,832,668 100% 

Chart 04 

Value Added Tax Collection-2006 

13.54% Manufacturing 

56.36% Imports 

30.10% 

Non-Maufacturing 

Table 10 (a) 

Gross Domestic VAT – Main Service Sectors 

Annual-2005 (Rs.Mn) Annual -2006 (Rs.Mn) 

Banking 5,051.09 7,400.82 

Insurance 2,092.03 2,402.60 

Hotel & Restaurant 1,964.10 2,028.02 

Construction 3,580.65 3,828.15 

Electricity & Gas 2,086.34 3,106.62 

Imports 5,132.65 6,439.82 

Financing 4,290.22 5,541.82 

Others 52,023.15 

Total 82,771.00 

16

2.6dfStamp Duty collection 

Stamp Duty (special provisions) Act No. 12 of 2006 came into operation with 

effect from April 1, 2006 for the imposition of stamp duty on selected 

specified instruments. Rs.1,495 Mn generated from stamp duty during the 

year. 

Department carried out awareness programs, advisory and information 

collecting programs several part of the country to facilitate the proper 

implementation of this Act. 

2.7hjBetting & Gaming levy Collection 

During the year 2006, the collection of Betting and Gaming Levy was 

increased by Rs. 85.8 Mn over that of 2005. The total Betting and Gaming 

Levy revenue was seen marginally below the targeted amount of Rs. 460 Mn. 

Table 11 compares the revenue estimate of Betting & Gaming Levy with the 

collection for the year, and Chart 05 illustrates it. 

Table 11 

Collection of Betting & Gaming Levy- 2006 

Revenue Collected 

Revenue Estimated (Rs:) 

(Rs:) % 

460,000,000 282,294,230 61.37 

Chart 05 

Betting & Gaming Levy Collection 2006 

Rupees 

500,000,000 

400,000,000 

300,000,000 

200,000,000 

100,000,000 


Estimated 


Collection 

- 

1 

Betting & Gaming Levy 

17

2.8ghDebits Tax Collection 

Debits Tax generated Rs. 6,254.8 Mn and constituted 2.47% of the total 

revenue collection in 2006. Debits Tax collection was only marginally below 

the target of Rs.6,841 Mn set for the year. 

Table 12 compares the revenue estimate of Debits Tax with revenue collected 

in the year, and the Chart 06 illustrates it. Debits tax collection of the year 

reflects a 9.7% growth over the corresponding collection in 2005. 

Table 12 

Debits Tax Collection - 2006 

Estimated Revenue (Rs:) Revenue Collection (Rs:) % 

6,841,000,000 6,254,885,377 91.43 

Chart 06 

Debits Tax Collection - 2006 

7,000 

6,000 

Rupees Million 

5,000 

4,000 

3,000 

2,000 

1,000 

Estimated 



Collection 

- 

Debits 1 Tax 

2.9ghShare Transaction Levy 

Share Transaction Levy contributed Rs. 420.2 Mn marginally declining from 

Rs. 451.2 Mn collected in the previous year. 

18

2.9.1hjCollection of Share Transaction Levy in 2006 

The Table 13 shows the estimate for the year 2006 and the amount collected 

and Chart 07 illustrates the same. 

Table 13 

Share Transaction Levy - 2006 

Revenue Collection 

Estimated Revenue (Rs:) 

(Rs:) % 

475,000,000 420,180,879 88.46% 

2.10 Inland Revenue Collection 2002 to 2006 

Figures in Table 07 represent the tax wise classification of revenue 

collection of the IRD, from 2002 to 2006. 

Table 14 

Inland Revenue Collection 2002 to 2006 – Tax wise Analysis 

Type of Tax 

2002 2003 2004 2005 2006 

Colln.Rs % Colln % Colln % Colln % Colln 

(Mn) 

(Rs Mn) 

(Rs Mn) 

(Rs Mn) (Rs Mn) 

% 

Income Tax 

37,682 

27.38 

38,602 

27.76 

37,904.0 

23.00 

42,154.8 

21.26 

71,481.5 

28.22 

Economic Service Charge 

- 

- 

4,052.8 

2.46 

7,283.1 

3.67 

8,852.9 

3.49 

Value Added Tax 

35,181 

25.57 

97,754 

70.30 

117,030.9 

71.01 

141,877.9 

71.55 

164,070.8 

64.77 

Debits Tax 

1,310 

0.95 

3,601 

2.59 

4,488.8 

2.72 

5,700.8 

2.87 

6,254.8 

2.47 


55 

0.04 

56 

0.04 

77.1 

0.05 

196.4 

0.10 

282.2 

0.11 

Share Transaction Levy 

- 

- 

- 

451.2 

0.23 

420.2 

0.17 

Turnover tax 

678 

0.49 

4 

0.00 

106.2 

0.06 

143.1 

0.07 

232.6 

0.09 

Stamp Duty 

2,331 

1.69 

69 

0.05 

51.3 

0.03 

8.9 

0.00 

1,495.2 

0.59 

Estate Duty 

2 

0.00 

- 

0.4 

0.00 

0.5 

0.00 

0.6 

0.00 

Goods & Services Tax 

31,511 

22.90 

(759) 

-0.55 

852.6 

0.52 

448.9 

0.23 

135.7 

0.05 

National Security Levy 

28,859 

20.97 

(284) 

-0.20 

239.9 

0.15 

34.6 

0.02 

92.6 

0.04 

137,609 100 139,043 100 164,804 100 198,300 100 253,319 100 

19

2.11fgInland Revenue Contribution to the Government Revenue and Gross 

Domestic Product (GDP) 

Table 15 shows the contribution of the Inland Revenue Department to the 

Government revenue and the GDP, in 2006 and its trends in the last 4 years. 

Chart 07 illustrates these contributions. 

Total Government revenue in 2006 has increased to Rs. 477,334 Mn as per the 

Annual Report of Central Bank of Sri Lanka -2006, while the ratio of the total 

Inland Revenue collection to the Government revenue, continued its increasing 

trend and reached 53.07% in the year. The ratio of IRD’s collection to GDP is in 

the increasing direction. 

Year 

Table 15 

Contribution to the Government Revenue and GDP at Current Factor Prices 

Governments 

Revenue Rs. Mn 

IRD's Collection 

Rs.Mn 

% of IRD's 

Collection 

to Govt. 


GDP at Current 

Factor Prices 

Rs.Mn 

% of IRD's 

Collection to 

GDP 

2002 261,887 137,609 52.55% 1,403,286 9.81% 

2003 276,465 139,044 50.29% 1,562,737 8.90% 

2004 311,473 164,803 52.91% 1,800,750 9.15% 

2005 379,747 198,301 52.22% 2,098,323 9.45% 

2006 477,334* 253,319 53.07% 2,484,191 10.20% 

Source – Central Bank of Sri Lanka (Annual Report- 2006) 

* Provisional Figures 

Chart 07 

Contribution of the IRD's Collection to the Government Revenue 

2002 to 2006 

500,000 

450,000 

400,000 

350,000 

Rs. Million 

300,000 

250,000 

200,000 

150,000 

100,000 

50,000 

- 

2002 2003 2004 2005 2006 

Year 

Government Revenue 

IRD's Collection 

20

CHAPTER 3 

EXPENDITURE AND PRODUCTIVITY RATIO 

Total expenditure of the Inland Revenue Department in 2006 reached Rs. 1,084 

Mn recording a 37% increase compared to the previous year which amounted to 

Rs.789 Mn. Out of the total expenditure, 69% or Rs. 746 Mn was incurred as 

recurrent expenditure in 2006 which is an increase by 21% of the expenditure of 

Rs. 617 Mn in 2005. Expenditure on emoluments increased in 2006 by 24% to 

579Mn from 467Mn in 2005, mainly due to the increase of public sector salaries 

in 2006. This was the highest single expenditure item which accounted for 53.42% 

of total expenditure and 78% of recurrent expenditure in 2006. 

Capital expenditure in 2006,continued its increasing trend which constituted 5% 

in 2004, 22% in 2005 and 31% in 2006 and reached Rs. 315Mn reflecting 49.66% 

increase as compared to Rs. 159Mn in 2005, mainly due to the increase of 

“Acquisitions” which has been analyzed in the Note to Table 16. The expenditure 

on building has gone up by 138.72% to Rs. 240Mn as compared Rs. 100Mn in 

2005, even though expenses incurred on vehicles decreased to Rs. 10Mn in 2006 

from Rs. 46Mn in 2005. Further, expenses on furniture and office equipments as 

well increased drastically by 380% to Rs.33Mn in 2006 from Rs. 7Mn in 2005. 

Opening of new Branches, shifting of Metropolitan Branches to the new location at 

Jawatta Road, expansion of several Units to provide better service to tax payers 

were attributed for the increase in payments on buildings, furniture and office 

equipments. Moreover, payments on machinery increased by 468.53% to Rs. 24 

Mn in 2006 compared to corresponding figure in the year 2005, which amounted 

to Rs. 4Mn. 

Further, the growing up of expenditure on “Reconstruction and improvements” 

was also caused in the increase of the capital expenditure. Payments on 

“Reconstruction and improvement” grew up by 73% to Rs. 23 Mn in 2006 

compared to Rs. 13 Mn in 2005. Table 16 represents the comparison of the total 

expenditure incurred in the year 2006 with 2004 and 2005. Chart 08 shows the 

composition of Capital and Recurrent Expenditure for 2004, 2005 and 2006 and 

Chart 09 illustrates the analysis of Recurrent Expenditure in 2006. 

21

The continuation of the existing practice of having an Internal Audit Branch, 

Inland Revenue Department was able to improve the productivity of available 

resources. Audits carried out included examining of all payment vouchers relating 

to capital and recurrent expenditure, daily vehicle running charts maintained by 

the Head office and Regional office, pay sheets, the Board of Survey reports, 

repairs to the buildings and purchases of office equipments, the Appropriation 

Account for the year 2005 and refund of VAT. Submission of replies to the audit 

quires raised by the Auditor General and Examining the action taken to recover 

the amounts due on dishonored cheques are the other main tasks performed by 

this Internal Audit Branch. 

3.1hjComparison of the total expenditure incurred in the year 2006 with that of 

2004 and 2005. 

Table 16 

Total Expenditure- 2004, 2005 and 2006 

Description 

Recurrent Expenditure 

2004 

(Rs:'000) % 

2005 

(Rs:'000) % 


(Rs:'000) % 

Emoluments 363,934 73.76% 467,061 59.18% 579,251 53.42% 

Traveling 3,179 0.64% 4,105 0.52% 8,072 0.74% 

Supplies & Equipments 14,602 2.96% 20,595 2.61% 30,633 2.83% 

Repairs & Maintenance 15,600 3.16% 20,199 2.56% 28,877 2.66% 

Contracted Services 54,009 10.95% 62,484 7.92% 81,174 7.49% 

Transfers 721 0.15% 649 0.08% 779 0.07% 

Other Recurrent Exp. 8,714 1.77% 42,195 5.35% 17,303 1.60% 

Modernization Program 6,409 1.30% - 0.00% - 0.00% 

Sub Total 467,168 617,288 746,089 

Capital Expenditure 

Reconstruction and Improvements 7,827 1.59% 13,290 1.68% 22,986 2.12% 

Acquisitions (Note) 5,861 1.19% 158,641 20.10% 315,158 29.07% 

Modernization Program 12,549 2.54% - 0.00% - 0.00% 

Sub Total 26,237 171,931 338,144 

Total 493,405 100% 789,219 100% 1,084,233 100% 

Modernization Program 

Personnel Emoluments 7,734 4.73% 

Capital Expenditure 66 0.04% 

Development Expenditure 143,533 87.81% 

Recurrent Expenditure 12,127 7.42% 

163,460 100.00% 

22

Analysis of Assets acquired in 2005 & 2006 is given below 

2005 (Rs: ‘000) 2006 (Rs: ‘000) 

Vehicles 45,609 9,900 

Furniture & Office Equipment 6,808 32,672 

Machinery 4,223 24,009 

Buildings 100,403 239,678 

Other- Communication 839 1,767 

Library Books 758 1,796 

Other - 5,336 

Total 158,641 315,158 

Chart 08 

Capital and Recurrent Expenditure – 2004, 2005 and 2006 

Capital 

Expenditure 

5% 

2004 

Capital 

Expenditure 

22% 

2005 

Capital 

Expenditure 

31% 


Recurre 

Expenditure 

95% 

Recurrent 

Expenditure 

78% 

Recurren 

Expenditure 

69% 

3.2llAnalysis of the Recurrent Expenditure in 2006 

Chart 09 

Recurrent Expenditure 2006 

23

3.3ghProductivity Ratio 

The total expenditure of the Department in the year 2006 was Rs. 1,084,233 and the Revenue 

collected was Rs. 253,319,518,312. The Productivity Ratio ( i.e. the revenue collected for every 

rupee of expenditure) therefore works out to 234:1. In other words, the cost of collection of Rs. 100 

was 43 cents. Even though total expenditure of Department in 2006 recorded 37% increase, the cost 

of collection per Rs.100 recorded only 7.5% increase since the total revenue collection was grown 

up by 28% when compared to 2005. Cost of collection per Rs. 100, excluding VAT on Imports 

accounted Rs. 1/=. Table 17 represents the analysis of Revenue Collection, Total Expenditure and 

the calculation of cost of collection from 2004 to 2006. 

Table 17 

Revenue Collection, Total Expenditure and Cost of Collection (Rs. Mn) 

Revenue Collection 

Income Tax 

Economic Service Charge 

Value Added Tax 

Debits Tax 


Share Transaction Levy 

Turnover Tax 

Stamp Duty 

Estate Duty 

Goods & Services Tax 

National Security Levy 

2004 2005 2006 

37,904.0 

4,052.8 

117,030.9 

4,488.8 

77.1 

- 

106.2 

51.3 

0.4 

852.6 

239.9 

42,154.8 

7,283.1 

141,877.9 

5,700.8 

196.4 

451.2 

143.1 

8.9 

0.5 

448.9 

34.6 

71,481.5 

8,852.9 

164,070.8 

6,254.8 

282.2 

420.2 

232.6 

1,495.2 

0.6 

135.7 

92.6 

Total 164,804.0 198,300.2 253,319.1 

Expenditure 

Recurrent Expenditure 

Emoluments 

Traveling 

Supplies & Equipment 

Repairs & Maintenance 

Contracted Services 

Transfers 

Others 

363.9 

3.2 

14.6 

15.6 

54.0 

0.7 

15.1 

467.1 

4.1 

20.6 

20.2 

62.5 

0.6 

42.2 

579.3 

8.1 

30.6 

28.8 

81.1 

0.8 

17.3 

Capital Expenditure 

Reconstruction & Improvements 

Acquisitions 

Others 

7.8 

5.8 

12.5 

13.3 

158.6 

- 

22.9 

315.2 

- 

Total Expenditure 493.2 789.2 1,084.1 

Cost of Collection per Rs.100, Rs. 0.30 0.40 0.43 

Cost of Collection per Rs.100, excluding VAT on Imports, Rs. 1.00 

24

CHAPTER 4 

TAXES IN DEFAULT 

Figures in Table 18 represent the amounts of Taxes in default, amounts of taxes 

held over and collectible taxes in default, as at 31-12-2006. 

Table 18 - Analysis of the default taxes 

Tax Type 

Income Tax 

Tax in default 

including 

Penalty 

Default Tax 

held over (as 

not tollectible) 

Penalty 

Disputed default 

Tax (Including 

the amount held 

over) 

Balance (collectible) 

tax in default 

excluding Penalty and 

disputed tax 

45,670,476,841 6,617,866,589 16,774,818,206 18,375,856,679 10,519,801,956 

Surcharge on 

Income tax 1,836,965,788 192,144,351 740,997,052 128,096,234 967,872,502 

Value Added 

74,429,384,086 

Tax 

24,284,598,953 

35,359,837,944 14,784,947,189 

VAT on 

Financial 

292,703,362 292,596,103 

247,095,718 

45,500,385 

Service 

107,259 

Economic 

2,711,580,725 

Service Charge 

910,835,489 

1,800,745,236 

Wealth Tax 

110,996,940 87,049,328 

36,998,980 

58,032,885 15,965,075 

Surcharge on 

3,737,601 3,116,021 

Wealth Tax 

1,245,867 

2,077,347 414,387 

Gift Tax 

16,031,000 6,814,052 

5,343,667 

4,542,701 10,687,333 

Estate Duty 

35,836,626 

11,945,542 

23,891,084 

Stamp Duty 

17,920 

5,973 

11,947 

Goods & 

19,229,231,371 

Services Tax 

10,601,608,892 

5,219,471,950 3,408,150,529 

Turnover Tax 

7,663,311,215 

2,728,801,912 

4,934,509,303 

National 

5,231,369,430 

Security Levy 

1,839,320,474 

3,392,048,956 

Save the Nation 

108,920,756 

Contribution 

39,022,454 

69,898,302 

Betting & 

163,309,659 163,309,659 

Gaming Levy 

- 

163,309,659 - 

Compounding 

13,979,224 12,170,791 

Penalty 

13,979,224 

- 

Obsolete Taxes 3,889,990 168,385 1,296,663 112,257 2,593,327 

Penalty 

27,900,471 

Assessment 

27,900,471 

- 

157,549,643,005 7,375,235,279 58,064,220,204 59,558,433,375 39,926,989,426 

Notes 

1. Penalty of non-corporate sector has been estimated at 33 1/3 % of the gross tax in default in that sector. 

2. Disputed tax of non-corporate sector has been estimated at 2/3 rd of the taxes held over on appeals (in that). 

3. It has been identified that as at 31.12.2006 a sum of Rs. 2319 Mn. (an over payment of GST) is available 

for set off against.outstanding taxes. 

4.The default taxes as at 31.12.2006 includes a sum close to Rs.8486 Mn, which is the sum due as at 

31.03.2007 from Government institutions. As these institutions are running at a loss, the Department finds 

no ways to recover such arrears. 

25

Taxes in default as classified above are not fully arrears per se. The total in default 

represents cumulative balances remained as such under each type of tax. Taxes in 

default referred to in above have been, in general, charged by making assessments in 

the judgment of the assessor, mainly in view of: 

o furnishing incorrect return or declaration, 

o non payment of tax on the basis of the return furnished, or 

o non-furnishing the return 

by the taxpayers. The gross default so created has been inflated itself due to penalty 

added for non-payment on due dates. (For recovery purposes, such penalties are 

treated as tax). Penalty is, generally, 10% for the non payment on due date and 

further 2% for each month of non-payment until reaching 50% of tax in the case of 

income tax and as much as 100% with regard to VAT. 

Plan for reduction of default taxes 

(a). The respective enactments stipulate action and steps to be taken for recovery 

of taxes in default. Although, such action is continueously taken from the issuing 

of assessments, a considerable amuont of taxes is seen in default. It is proposed 

that a policy decision be taken to write-off such taxes, which are in default for a 

long period of time, despite all possible recovery action was taken. 

(b). Porvisions have been included in the Inland Revenue Act, to waive off penalties 

for delays, in relation to income tax payments, if the taxpayer pays such tax 

according to an installment plan, not extending beyond 3 years, agreed with the 

Department. 

(c).It expected that, in recovering the taxes in default, around 10% of the tax as 

penalty for non paymet on due dates, and certain amount out of disputed default 

taxes could also be recovered. 

26

CHAPTER 5 

INTERNATIONAL RELATIONS 

5.1jkDouble Tax Treaties 

The main objective of Tax Treaties is to eliminate or reduce double taxation in 

international trade, and thereby to encourage the flow of investment, trade, 

technology and technical know how into the country. As at 31-12-2006 Sri Lanka 

has entered into such agreements with 36 countries, and concluded negotiations 

with 6 other count 

POSITION OF SRI LANKA DTR AGREEMENTS 

bAs at 31.12.2006 

Country 

Date of Signing the 

Agreement 

Gazette 

No. 

Date 

Operation in Sri Lanka 

1 Australia 18.12.1989 657/2 08.04.1991 1992/93 

2 Belgium 03.02.1983 292/6 09.04.1984 1984/85 

3 Bangladesh 24.07.1986 448/13 07.04.1987 1989/90 

4 Canada 23.06.1982 253/8 13.07.1983 1986/87 

5 China 11.08.2003 1374/20 06.01.2005 2006/07 

6 Denmark (Rev.) 22.12.1981 228/15 20.01.1983 1980/81 

7 France 17.09.1981 210/17 17.09.1982 1982/83 

8 Finland 18.05.1982 253/8 13.07.1983 1981/82 

9 Germany (Rev.) 13.09.1979 113/ 31.10.1980 1982/83 

10 Hong Kong (Lim.) 26.03.2004 1374/21 06.01.02005 2005/2006 

11 India (Rev.) 27.01.1982 210/17 17.09.1982 1980/81 

12 Italy 28.03.1984 322/4 05.11.1984 1978/79 

13 Indonesia 03.02.1993 789/10 21.10.1993 1995/96 

14 Iran 25.07.2000 1187/16 06.06.2001 2002/2003 

15 Japan 12.12.1967 14803/5 29.05.1968 1969/70 

16 Korea 28.05.1984 342/11 29.03.1985 1980/81 

17 Kuwait 05.02.2002 1245/19 18.07.2002 2002/03* 

18 Malaysia (Rev.) 16.09.1997 1028/21 22.05.1998 99/2000 

19 Mauritius 12.03.1996 958/10 15.01.1997 1998/99 

20 Nepal 06.07.1999 1116/6 26.01.2000 2001/2002 

21 Netherlands 17.11.1982 281/13 26.01.1984 1979/80 

22 Norway (Rev.) 01.12.1986 464/4 27.07.1987 1989/90 

23 Oman (Lim.) 26.07.1994 881/7 26.07.1995 1979/80 

24 Poland 25.04.1980 130/ 27.02.1981 1984/85 

25 Pakistan (Rev.) 15.10.1981 210/17 17.09.1982 1983/84 

26 Qatar 09.11.2004 1422/10 05.12.2005 2008/09 

27 Russia 02.03.1999 1101/22 15.10.1999 2003/2004 

28 Saudi Arabia (Lim.) 16.12.1999 1101/23 15.10.1999 1983/84 

29 Singapore 29.05.1979 57/11 10.10.1979 1977/78 

30 Switzerland 11.01.1983 292/6 09.04.1984 1981/82 

31 Sweden (Rev.) 23.02.1983 297/28 18.05.1984 1985/86 

32 Thailand 14.12.1988 571/16 18.08.1989 1990/91 

33 U.K. 21.06.1979 60/23 02.11.1979 1977/78 

34 U.A.E. (Lim.) 07.07.1992 824/13 23.06.1994 1979/80 

U.A.E. (Comp.) 24.09.2003 1346/1 21.06.2004 2004/05 

35 U.S.A 398/4 22.04.1986 2004/05 

U.S.A.Protocol 

1298/8 

21.07.2003 

36 Vietnam 26.10.2005 

1455/9 

24.07.2006 2007/08 

*for airline profits 01.01.1981 

27

Follow up action on concluded agreements 

(a) 

Agreement (New) with India: 

Negotiations at officials level held between Sri Lanka and India for a new 

agreement, under the umbrella of Comprehensive Economic Partnership 

Agreement (CEPA), were concluded. The approval of the Cabinet for the draft 

agreement to present in parliament is awaited. 

(b) 

SAARC Limited Multilateral Convention on Avoidance of Double 

Taxation and Mutual Administrative Assistance in Tax matters. 

Having obtained the parliamentary approval, published in the Gazette and 

the other statutory requirements were completed. The agreement is awaited 

entry into force. 

(c) 

Agreement with Lebanon. 

First round of negotiations at officials’ level were held and awaited for 

further negotiations. 

28

5.2jkParticipations at International Taxation matters abroad. 

Name & Designation 

of the Officer 

Name of the 

Programme 

Country of 

Training 

Duration 

Mr. P P D P 

karunasekera - CGIR 

Mr. A A Wijepala - 

CGIR 

Mr. S.Angammana – 

DCG 

Mr. R K H 

Kaluarachchi – DCG 

Mr. P Wickramasena - 

SCIR 

Mrs. M Samarasekera 

- CIR 

Mr. H B A Seneviratne 

- CIR 

Mrs. B A D D Herath - 

DC 

Mrs. R P H Fernando - 

Assessor 

01st Round 

Negotiations on Double 

Taxation Agreement 

i. CATA Management 

Committee Meeting 

ii. 11th Annual 

International Taxation 

Meeting on Tax Treaties 

CATA 27th Annual 

Technical Conference 

Lebanon 31.01.2006 - 




France 27.09.2006 - 


Mauritius 13.08.2006 - 


. 16th Tax Conference Japan 17.10.2006 - 


CATA 27th Annual Mauritius 13.08.2006 - 

Technical Conference 


16th Tax Conference Japan 17.10.2006 - 


i. 04th Round of 

India 10.01.2006 - 

Technical Level 


Negotiations on DTA 

under CEPA 

ii. 

11th Annual 



iii. 01st Round of 



11th Annual 



01st Round of 





Lebanon 31.01.2006- 




Lebanon 31.01.2006 - 


29

CHAPTER 6 

LEGISLATION 

6.1klFollowing legislation was enacted during the year. 

i) Inland Revenue Act, No. 10 of 2006 

ii) Value Added Tax (Amendment) Act, No. 8 of 2006. 

iii) Stamp Duty (Special Provisions) Act, No. 12 of 2006 

iv) Economic Service Charge Act, No13 of 2006. 

v) Betting & Gaming Levy (Amendment) Act, No. 14 of 2006 

vi) Finance Act, No. 11 of 2006, which introduced amendment to the law 

relating to the Social Responsibility Levy. 

A new Inland Revenue Act, the Act No 10 of 2006 was enacted during the 

year. It is more or less a consolidation of the Inland Revenue Act, No.38 of 

2000 and the six amendments made thereto, but with deletion of those 

provisions (subject to a few exceptions) which are not applicable to any year 

of assessment commencing on or after April 1, 2006. It also incorporates 

provisions designed to give legal effect to the income tax proposals announced 

in the Budget 2006. The provisions of the new Act, (with a few exceptions) 

apply only in relation to any year of assessment commencing on or after April 

1, 2006. 

6.2jkRulings given during the year. 

Relevant 

Section 

Description Ruling Number Date 

Section 21 A Specified Undertaking Rul/2006/IT/05 30/08/2006 

(Act No. 38 of 2000) 

Section 72 A Refund of Partnership Tax Rul/2006/IT/02 07/06/2006 


Section 61 Withholding Tax on Rul/2005/IT/24 09/03/2006 

(Act No. 38 of 2000) Dividends 

Section 04 Employment Income Rul/2006/IT/01 12/12/2006 


Section 122A Interest Income Rul/2006/IT/07 06/12/2006 


Section 10 Exempt Income- Rul/2006/IT/06 22/09/2006 

(Act No. 38 of 2000) Interest 

Section 15 Exemption on Re-export Rul/2005/IT/14 11/09/2006 

(Act No. 38 of 2000) Income of Gems & Diamonds 

30

6.3 Approved Charities 

The Following Intuitions were declared as Approved Charities under Section 

34(8)(a) of the Inland Revenue Act, No 10 of 2006. 

Name and address of the organization Gazette Number Date 

1) Share Foundation 1460 25.08.2006 

No: 138/4, Havelock Road 

Colombo 4. 

2) Udapadi Trust 1472 17.11.2006 

No: 49, Hampden Lane 

Colombo 6. 

3) Peristera Children Home 1476 15.12.2006 

Raddolugama. 

4) Project for the construction of building 1476 15.12.2006 

for pre school education for poor children 

of Hemas Tsunami Foundation, 

No: 36, Bristol Street, 

Colombo 1. 

31

CHAPTER 7 

AUDITS, ADDITIONAL TAX COLLECTION AND APPEALS 

Amidst of a severe staff shortage, the Department could maintain the audit 

functions in a satisfactory level resulting in collection of an additional tax 

amounting to Rs 6 billion, in the year. 

7.1…Particulars of Audits and Additional Tax Collection during the year. 

Total amount of additional tax 

assessed during the year 2006 

(Rs. Mn.) 

Total amount of additional tax 

collected during the year 2006 

Income 

Tax 

PAYE 

Value 

Added Tax 

ESC NSL Total 

5,545 4 2,851 74 24 8,498 

3,306 0.4 2,849 24 24 6,203.4 

(Rs. Mn.) 

Number of Audit cases 

commenced during the year 2006 3,178 

Number of Audit cases finalized 

during the year 2006 2,834 

7.2 Appeals 

Appeals to the Commissioner General 

Income Tax Value Added Tax 

Opening balance as at 01-01-2006 376 55 

Number of Appeals Lodged during the year 422 197 

Number of Appeals settled during the year 468 125 

Balance as at 31-12-2006 330 127 

7.3hjBoard of Review 

Number of appeals pending before the Board of Review as at 01-01-2006 103 

Number of appeals lodged during the year 08 

Number of cases taken up for hearing 06 

Number of orders issued on conclusion of hearing 

Number of appeals outstanding as at 31-12-2006 105 

Stated cases - 

32

Annexure I 

PARTICIPANTS AT THE TRAINING PROGRAM HELD IN SINGAPORE 

Program : Investigation, Computer Forensic & Auditing Techniques using Computers 

Duration : From 15 th to 24 th May 2006 (01) & From 19 th to 28 th June 2006 (02) 

Name Designation Name Designation 

1. Mrs. Priya Fernando D C 16. U.B. Wakkumbura D C 

2. M.S. Fuward D C 17. G.A.J. Mahindaratne D C 

3. P.M. Dissanayake D C 18. Mrs. D.M. Padmakumari D C 

4. J. Ratnayake D C 19. B.J. Jayaratne D C 

5. D.K.Ranathunga D C 20. M.L.M. Thahir D C 

6. W.M.N.P.B. Wanigasekera D C 21. I.M.B. Seneviratne D C 

7. M.J. Gunasiri D C 22. J.M. Jayawardena D C 

8. D. Rangalla 23. W.K.K. Jayaratne S A 

9. U.P.S.A. Jayalath S A 24. G.D.S. Jayaratne S A 

10. T. Karunadasa S A 25. P.K. Padmanadan S A 

11. R.N. Rajapakse S A 26. Mrs. L.M.C. Weerakoon S A 

12. Mrs. N.K.A.I.K. Gunaratna S A 27. Mrs. R.K.C. Chitralatha S A 

13. O.W.N. Gunasekera S A 28. Mrs. H.W.N.K. Thalaramba S A 

14. P.G.P. Porawagama S A 29. Mrs. H.M.C.M. Hereth S A 

15. L.P. Pushpakumara Assessor 30. A.B.P. Karunaratne S A 

PARTICIPANTS AT THE TRAINING PROGRAM HELD IN THE NETHERLANDS 

PROGRAM: Princiles of International and Comparative Taxation. 

1. Mr. P D Premaratne – CIR 

2. Mr. H M Premaratne Banda - CIR 

3. Mr. W M W Kumarasiri – CIR 

33

Performance Report 2006 - Department of Inland Revenue

Create successful ePaper yourself

Delete template?

Save as template?