AN OVERVIEW OF THE PRESIDENTIAL COMMISSION ON TAXATION 2009/2010

Based on publicly available documents

 

Date of Appointment

!0 August, 2009

 

Venue

Bandaranaike Memorial International Conference Hall

 

Members of the Commission

Prof. W. D. Lakshman (Chairman)

Dr. R. H. S. Samaratunge,  Mr. R. P. L. Weerasinghe 

Dr. Saman Kelegama, Mr. Sarath Jayatilleke  

Mr. Nihal Fonseka, Mr. Rajan Asirwathan 

Mr. B. R. L. Fernando, Mr. Samantha Kumarasinghe 

Secretary

P.D.K. Fernando

Mandate

1.Study country’s tax system and make an assessment as to why tax revenue in relation to GDP has declined over the years and make proposals as to how a tax/GDP ratio that is comparable with other emerging economies could be achieved through a buoyant performance in tax revenue and that will also prevent the need to make frequent changes to taxation.

2.Study various taxes operational at different levels of Government and propose as to how such taxes could be rationalized at national, provincial and local government levels with a view to maximize revenue objectives at each level.

3.Study the operations of numerous taxes at national level and propose as to how such taxes could be harmonized having regard to their revenue yield, administrative convenience and specific objectives for which such taxes have been introduced.

4.Study the framework of both personal and corporate income taxation and propose measures to raise income tax revenue as a percentage of tax revenue by expanding the base and overcoming legal, administrative and procedural obstacles that hamper tax compliance, keeping in line with other comparable emerging economies.

5.Study concessions that have been granted since 1977 by way of tax holidays and exemptions under the Inland Revenue, Customs and Board of Investment laws with the intention of promoting investment and ;
(a)Make a cost benefit analysis of such concessions in terms of promoting foreign direct investment and revenue foregone.
(b) Identify complexities or anomalies that such concessions have caused by creating different tax treatment for similar entrepreneurs and examine ways and means of rationalizing such concessions, considering the discrimination caused to local entrepreneurs who are expected to remain competitive in international trade, the likely impact on the tax base and the overall investment regime.
(c) Propose a rational and equitable mechanism through which strategically important foreign and domestic investments could continue to be attracted.

6. Study broad problems connected with the implementation of Value Added Tax (VAT), the associated refund mechanism, the possibilities of expanding VAT and how Provincial Turnover Tax could be rationalized with VAT and make recommendations as to how VAT could be made operative as an effective and simple indirect tax.

7. Study the prevailing Customs Tariff regime while recognizing the applicability of international trade agreements and propose desirable changes to make the related mechanism more compliant, simpler and cost effective.

8. Study the prevailing excise tax regime under the Excise (Special Provisions) Act and the Excise Ordinance and propose how best excise taxes could be used as a revenue source.

9.Study the various ‘Cess’ schemes in operation and make recommendations as to how income derived through such ‘Cess’ could be better utilized to ensure greater development of their respective sectors.

10.Study the system of devolved taxes and duties that have been assigned to Provincial Councils under the 13thAmendment to the Constitution and make recommendations as to how the potential revenue collection could be improved while ensuring effective revenue sharing and usage between central, Provincial and local government units.

11. Study the administrative structure of the Inland Revenue Department (IRD), the Customs Department (CD) and the Excise Department (ED) and their respective statutes and propose how best these 3 departments could be reformed to suit modern day needs through changes to the organizational structures and the relevant statutes with special emphasis on how these department could be coordinated for effective implementation of tax policy and administration.

12.Propose reform initiatives to be implemented to bring about more transparency in the tax system through greater coordination between different revenue administration institutions such as the Inland Revenue Department, Sri Lanka Customs and the Board of Investment and suggest how such institutions and other investment promoting institutions such as the Export Development Board and the Industrial Development Board could be harmonized to augment revenue, while also proposing desirable changes to the associated legal framework to facilitate this process.

13. Study the adequacy of skills involved in tax administration in the backdrop of major challenges associated with revenue collection efforts, while recognizing gaps, lapses or anomalies relating to procedural and internal controls that have left room for malpractices and abuses, and propose desirable institutional and capacity building measures to overcome such drawbacks.

14.Study the extent to which Information Technology is being used to facilitate revenue collection efforts and propose as to how best Information Technology could be used to link revenue collection agencies and investment promotion agencies to enhance efficiency and bring about a complaint and taxpayer friendly investment climate.

15.Propose as to how the relationship between the Ministry of Finance and Planning (MoFP) and IRD, CD and ED could be strengthened in terms of policy formulation, implementation and performance review, while ensuring that the MoFP could perform an effective supervisory control in discharging its duties in terms of the Constitution, while also facilitating effective functioning of the three (03) departments.

16.Examine the present incentive payments schemes of the revenue Departments and their implications on revenue administration, deficiencies and the desirability of continuation of such incentive schemes in current form and recommend alternative schemes based on the revenue effort.

Representations

The Commission received a large number of representations in response to a request made, & some of those who responded were invited to make oral submissions before the Commission.

The Governor of the Central Bank &  the Secretary to the Ministry of Finance also made presentations to the Commission.

 

Report of the Commission

The report was handed over to the President on October 26, 2010 by its Chairman. However, it has not so far been published.

Read about it here:

The Tax Commission Report: Consigned To The Dustbin Of History? - Colombo Telegraph

Chairman hands over Tax Commission Report

In the course of a presentation made on the Political Economy of Taxation in Sri Lanka, Dr. Saman Kelegama, Executive Director of the Institue of Poilicy Studies, & a member of the Taxation Commission comments as follows in Slide No. 20. Read his presentation here:

https://www.slideserve.com/jerome/privatization-free-trade-and-the-erosion-of-government-authority
)

Slide 20 . Presidential Taxation Commission

• Recognizing these anomalies of the taxation system, a Presidential Taxation Commission was appointed in 2009

• Mandate was to simplify the tax system, rationalize tax concessions, broaden the tax base, improve coordination among revenue collecting agencies, etc.

The report will be out in September 2010

• In 1990, the last Presidential Taxation Commission came out with a number of recommendations but only about 40% of them were implemented

• Political economy factors always gain priority in a tax rationalization exercise

• Strong political leadership can ensure that most of the recommendations of the 2009 report will be implemented

• If implemented enhancing revenue in the medium term to about 20% of GDP will not be difficult.

 

An interview with Professor Lakshman on the contents of the report can be accessed here :

https://www.tisrilanka.org/simplified-taxation-to-increase-revenue/

It is reproduced below :

The Presidential Commission on Taxation (Commission) has recommended far reaching tax reforms including the sharp reduction of the number of existing taxes which are about 60 to about half of it, simplifying the computation of taxes and offering a range of new tax holidays to local and foreign investors.

The 10 member Commission headed by Prof. W.D.Lakshman handed its voluminous final report to President Mahinda Rajapaksa on Tuesday afternoon at Temple Trees.

Prof. Lakshman in an exclusive interview with the Daily Mirror yesterday at his office at the BMICH said the main focus of the Commission was how to improve tax revenue without burdening the average citizen and also to motivate the private sector investment.The Commission has recommended -not to increase the rates of existing taxes in its attempt to improve the tax revenue -but to simplify the tax collection mechanism.

“We directed our attention to simplify the tax collection and recommended to reduce the number of existing taxes including the taxes imposed by Provincial Councils from 60 to about half of it. We have also recommended simplifying the tax collection and the method of computation instead of raising the tax rates,” Prof. Lakshman said.

The basic approach was to broaden the tax base and increase the coverage of the tax system. On one hand we have to achieve this through voluntary compliance. Therefore, the simplification of the entire tax regime and broadening the coverage of the tax system have been recommended to achieve desired results, Prof. Lakshman emphasized.

There will be a change of the incentive system in respect of private enterprises in addition to the introduction of a tax holiday system to investors to motivate them and attract investment.

The Commission has recommended a complete overhaul of the administration of the Inland Revenue Department, modernization of the tax administration and introducing of IT.

Prof. Lakshman said a series of legislative amendments were necessary to implement the recommendations of the Commission and a part of the recommendations have been incorporated in the budget 2011.

“Our expectation is that these reforms (Recommendations) if implemented will modernize our income tax system and its structure to suit the level of development of the economy the government expects in the next five years. It will also facilitate foreign and local investment, longer growth momentum that will benefit each and every Sri Lankan."

One of the recommendations of the Commission are quoted here :
https://publicfinance.lk/en/topics/effectiveness-of-tax-amnesty-in-sri-lanka-1628167591

"The Presidential Commission on Taxation chaired by Professor W.D. Lakshman in 2009 recommended that governments refrain from providing tax amnesties in the future apart from under very special circumstances. The Commission proposed alternative tax reforms in three broad categories to improve tax revenues, including (1) expanding the number of tax registrants; (2) improving enforcement; and (3) enhancing tax administration to improve compliance.

A specific recommendation of the Commission on the subject effective enforcement is stated as, “Firm policy statements indicating that there would be no tax amnesties in the future. As the Moral Hazard element attached with tax amnesties encourage under payment of taxes” (p. 329). "

Conclusion

All members of the Commission were persons with expertise  in their respective fields  & took part in the deliberations of the Commission with a sense of purpose & determination to guide the country's taxation policy in the right direction. It is therefore unfortunate that their report prepared after much argument & discussion, was not even published. The report in its final form was projected onto a wide screen, & the Commissioners went through it paragraph by paragraph & made further changes where necessary, before releasing it for printing. Such was their dedication to the task in hand.

End