Strict criminal penalties against those who evade tax procedures through new amendments to the Inland Revenue Act

Through new amendments proposed to the Inland Revenue Act, the government is preparing to introduce severe criminal penalties for basic administrative procedures concerning taxpayers. Against those who violate certain tax obligations previously considered only administrative requirements, this new bill provides for the imposition of a fine up to Rs. 400,000 or a six-month prison sentence or both penalties.

It is stated that the main objective of this step is to strengthen tax compliance, streamline the government's revenue collection process, and enhance taxpayer responsibility.

Several prosecutable offenses have been identified under the newly added Section 185A of the Act, with the main ones being the failure to submit annual statements and the failure to duly file income tax or any other tax return. Failure to register under the Commissioner General of the Department of Inland Revenue for Capital Gains Tax and Withholding Tax is also included in this category of criminal offenses. Furthermore, failure to appear before tax authorities even after official notification will henceforth be a cause for legal action, and relevant legal actions can be implemented immediately after the Commissioner General issues a written notice.

Commenting on this, Mr. Suresh Perera, Head of Tax and Regulatory at KPMG Sri Lanka, stated that the Supreme Court has ruled that these amendments are consistent with the Constitution and can be passed by a simple majority in Parliament. He further emphasized that businesses and individuals should pay close attention to this, as even ordinary daily tax obligations that are sometimes inadvertently missed could fall within this broad legal framework.

Furthermore, Section 18 of the Act has broadened the definition of 'Reserves', and it has been proposed to include negative retained earnings, accumulated losses, and arrears. However, reserves arising from asset revaluation will continue to be excluded from this definition. It is further reported that these new definitions have been formulated based on the Court of Appeal's decision concerning Samson Rajarata Tiles PLC, and the second reading of this bill is scheduled to take place in Parliament on May 20th.