The Hon. Chathuranga Abeysinghe - Deputy Minister of Industry and Entrepreneurship Development

¶ 01 Hon. Deputy Speaker, Hon. Kabir Hashim completely missed the essence of this Bill and spoke in a narrow, alarmist way. I wonder whether he spoke out of sadness for those who funded politics in our country for so long. He criticized “prosecutions for offences relating to returns.” What we are addressing is the absence of an operational pathway. When Inland Revenue issues assessments to recover taxes, there has been no proper avenue to accept those in court; cases get dragged on for 10 or 15 years. Files are in court; action is on foot; but we have not had a process to enforce. That is why we are making this change. We are moving entrepreneurship into an organized framework, bringing the informal into the formal. Those who pay taxes and comply in good faith will have no problem. Thieves should indeed be afraid.

¶ 02 Under the process, if there is a deficiency in a tax file, the Inland Revenue Department first informs the person and gives time to rectify. Next, it gives time to make representations. Only then will a case be filed in the Magistrate’s Court. The Court will issue a Show Cause Order; if there are valid reasons, the person can explain. Hardened tax evaders will not be able to get away. We are not rolling this back.

¶ 03 Hon. Member earlier said that in 1990 so much was collected and it fell to 8.50 at the end. That may be true. But during 2015-2019, your economic “experts” could not even achieve a tenth of what we have done in the last one and a half years.

¶ 04 [Interruption]

¶ 05 On RAMIS: at this point, all required systems have been integrated into RAMIS.

¶ 06 [Interruption]

¶ 07 Let me continue. Now, to specifics you have not mentioned. In 2025, there will be efficiency gains in collections. Let me outline further substantive changes.

¶ 08 - For motor vehicles, previously an extra levy/capital gains element applied on sales; under this Bill we remove that. - Donations and gifts to Government and universities: previously taxable treatments created issues. We are now exempting and clarifying these. Under Section 34 type scenarios, qualifying donations become allowable expenses and can be carried forward. - Life insurance: sums payable on death, surrender values, maturity proceeds had uncertainty; we have clarified and removed inappropriate taxation. - If interest income is under Rs. 5,000 and a person is only a salaried individual, a separate income tax file is not required. - Senior citizens now have both online and physical channels to file. - Salary arrears receive appropriate relief. - If an individual pays at least 120 percent of last year’s tax, the assessment exposure is relaxed—no harassment for honest overpayers.

¶ 09 For businesses and investors: - We are creating a fair playing field between tax-paying entities and non-compliers. Payments above Rs. 500,000 must be made online or by cheque; otherwise they are disallowable for tax. - Thin capitalization restrictions that became problematic during the recent crisis have been removed as requested. - Investor visa recipients will be taxed only on Sri Lanka-sourced income; foreign-source income will not be swept in just because they reside here. - Exporters’ overseas promotional expenses and maintaining foreign buying/liaison offices will now be allowable, deductible in Sri Lanka. - Enhanced capital allowance: the prior threshold of USD 3 million is cut to USD 250,000 (around Rs. 82 million), allowing even mid-sized investors to deduct from tax from year one.

¶ 10 We also address SME distress: - Penalties and interest have accumulated where SMEs fell into difficulty. The Commissioner is empowered to waive penalties and interest if arrears are settled within six months—giving genuine businesses a fresh start.

¶ 11 Widening the tax net—something you failed to do: - You did not broaden the base; we were not handed 1.8 million taxpayers. Now, about 1.3 million TIN certificates have already been issued; moving forward, TIN will be mandatory for economic activities, ensuring inclusion. - Withholding Tax at 5 percent will apply to professional service payments above Rs. 100,000 per month. Around 28 professions will be within WHT. Withholding is not an extra tax; it’s a credit/prepayment. - Withholding agents who fail to deduct will face penalties to curb leakage.

¶ 12 International comparisons show that where mature compliance cultures exist, criminalization is minimal. But in countries like ours, streamlining and credible enforcement are necessary to end chronic evasion. Many SMEs have not been paying; this Bill helps integrate them with support, not just punishment. With better collections, we can reduce indirect taxes and increase the share of direct taxes, as we promised to invert the 80/20 structure.

¶ 13 Thank you.