|Friday, 18 July 2003|
Streamlining activities of revenue depts. imperative - Tax Analysts
By Channa Kasturisinghe
The failure on the part of the Inland Revenue Department (IRD) and the Customs Department to collect the full amount of revenue due to the Government in terms of the Value Added Tax has made it necessary to streamline the activities of the two departments, tax analysts said.
Tax analysts believe lack of efficiency in the IRD and frauds in the Customs have been mainly responsible for this colossal loss of money due to the Government. According to reports Rs.20,000 million in revenue due to the Government has been evaded by certain businessmen.
The Budget 2002 proposed to consolidate the Goods and Service Tax (GST) and the National Security Levy into a single tax, namely, VAT with effect from August 2002 in order to simplify the prevailing tax procedure and to increase the Government's revenue. But the shortfall in the VAT revenue by one percent has made it difficult to bridge the deficit in the next budget.
S.R. Balachandran, a Tax Consultant to the National Chamber of Commerce of Sri Lanka (NCCSL) told the Daily News that the two departments should identify the various tactics used by defaulters to evade VAT and take stringent action.
"One of the tactics of the defaulters is suppression of sales. By using this method they refrain from remitting the money collected by the public in terms of VAT. They also grant concessions at their discretion charging from the public only 10 percent instead of the 20 percent for certain items. Some businessmen do not register for VAT according to the law. The VAT law requires an importer, manufacturer or service provider to register for VAT if the quarterly turnover is more than Rs.500,000.
Some culprits resort to selling goods on non VAT invoices avoiding liability at the selling point," Balachandran said.
He said that in some cases regular imports are cleared without registering for VAT but the importers take a temporary VAT number saying that they are non-recurring casual imports.
"In the case of Customs under-valuation, Grey imports, fake imports and smuggling are the main tactics of VAT evasion. Grey imports are importation of actual branded goods, but from unauthorised sources that send them under-valued. Fake imports are where the item itself is bogus and imported from unknown sources at a very low price," Balachandran said.
He called upon the authorities to be vigilant at the Customs regarding Grey and Fake imports.
He said that he will propose to the Treasury Secretary through the NCCSL his recommendations on how to put an end to this malpractice.
A tax analyst who wished to remain anonymous said that the failure to collect VAT which is an indirect tax levied on the consumption of goods and services would create an additional burden on the consumers at it would cause the cost-of-living to increase.
"VAT is a tax on the value added to goods and services at each stage of production and distribution. As VAT is a consumption tax the actual payment of the tax liability is passed on to the consumer, whereas the responsibility for paying the tax falls on the producer/supplier.
The preference for a VAT over other consumption taxes has been that it is non-distortionary, because it taxes only final consumption and not intermediate transactions.
Secondly, it overcomes the problem of cascading or the tax on tax effect. However, the shortfall of collecting VAT would nullify the government's objectives in introducing VAT," he said.However, senior officials of the Inland Revenue Department refused to comment on the matter.
Produced by Lake House