The Hon. (Dr.) Anil Jayantha - Minister of Labour and Deputy Minister of Finance and Planning

¶ 01 Hon. Presiding Member, this debate concerns the Inland Revenue amendments. Before itemizing them, we must understand their purpose and importance to society. Whatever Government is in office, it must levy taxes on fair principles. The problem is not taxation itself, but tax evasion and misuse of collected revenue. Simple, fair, and efficient tax collection is a foundation of a good society, which is why our policy statement included these principles. Beyond today’s amendments, further steps will follow, moving progressively toward fairness and compliance.

¶ 02 If, at the start of a year, we estimate tax revenue to fund expenditure, our duty is to actually collect it. Efficiency of tax administration and compliance matter. We must broaden the base: all should participate. The misconception that only a few pay taxes is wrong—everyone pays indirect taxes when consuming goods and services. For income tax, fairness dictates higher earners pay more; those without sufficient income to meet living costs should not pay. Accordingly, we raised the annual tax-free threshold for individuals from Rs. 1.2 million to Rs. 1.8 million, and we will consider further enhancements.

¶ 03 On performance, in 2025 we exceeded planned revenue; those funds were not wasted or misused but turned into public relief—e.g., Rs. 500 billion allocated for disaster response to “Tithwa,” and an additional Rs. 100 billion in the context of global conflict. By 15 May 2026, despite challenges, we had collected 43.1% of the annual target within four and a half months—above the usual 40% by mid-year—totaling Rs. 2,273 billion. This shows many remain outside the net; to achieve fiscal consolidation, more must join. Once support builds, we can extend further reliefs—rather than dismissing measures as punitive.

¶ 04 The Department does not desire litigation; it increases costs of collection. Legal action is a last resort after notices, grace periods, and opportunities to be heard have been given.

¶ 05 On compliance facilitation: - If a taxpayer’s current year income is higher than last year’s, they can voluntarily pay 20% more in installments with a sworn declaration; we will trust and facilitate them rather than litigate. - On related-party transactions, disclosure obligations will be strengthened; persistent non-disclosure may lead to treatment as an associated entity for tax. - Fairness measures include clarifying exclusions for life insurance receipts (death benefit, maturity proceeds, surrender value), while curbing short-term products misused to avoid tax on interest. - For Sri Lankan-flag seafarers and foreign crew, rules clarify taxable scope based on service periods and nature of income to reflect fairness.

¶ 06 On ease and technology: - We simplify the Statement of Estimated Tax Payable and will expand online payment options. - We will enhance data-sharing interoperability among key State institutions (e.g., Inland Revenue, Lands, Customs), amending legal frameworks as needed.

¶ 07 On VAT rates: misconceptions exist. The 18% VAT plus 2.5% SSCL totaling 20.5% applies to financial services on a unified base for simplification. It is not a 25% VAT. For goods/services, VAT and SSCL are on separate bases.

¶ 08 Support for SMEs: - Thin capitalization: we remove constraints where negative reserves prevented interest deductibility, allowing legitimate interest to be deducted. - Capital allowance threshold: reduce the asset-cost threshold from Rs. 3 million to Rs. 2.5 million to facilitate investment.

¶ 09 Some Members raised unrelated claims about vehicles and forex. Global oil price movements and dollar demand exert temporary pressure; this is not a crisis trajectory. Do not be misled by misinformation—rash decisions based on rumors can harm you, not the rumor-mongers.

¶ 10 With these clarifications—promoting compliance, fairness, ease, and stability—I conclude.

¶ 11 Thank you.