The new Inland Revenue Act (IRA) despite not being the best of laws to ensure an efficient tax administration in the country is hailed by tax experts and those involved in the formulation of it as a proactive legislation to induce compliance.
The new Act lays down harsher penalties than the existing law to those who fail to comply with the statutes pertaining to filling of return, tax payment, negligent or fraudulent underpayment and false or misleading statements made to a tax official.
The interest that has to be paid by the tax payer on delayed payment is 1.5 percent per month or part of a month compounded monthly from the due date until the tax is paid.
The interest that has to be paid to the tax payer on refunds is 0.5 percent per month or part of a month compounded monthly from the due date or the date the tax was paid until the date on which the refund is paid.
A penalty of 5 percent of the tax owing plus a 1 percent of the tax owing for each month or part of a month during which the failure to file continues will be imposed for late filling of return.
Twenty percent of the tax due will be levied for late payment which entails failing to pay tax within 14 days of the due date or by the due date specified in the notice of assessment and a 10 percent of the tax due will be charged for failing to pay all or part of an installment within 14 days of the due date.
The new Act further specifies that a fine of 25 percent of underpayment and 75 percent of the underpayment if the underpayment is over 10 million and is higher than 25 percent of the person’s tax liability be charged.
Ernst and Young Senior Partner Duminda Hulangamuwa addressing a forum on the new Inland Revenue Law last week said the new Act has specified stricter penalties than the existing law to ensure greater compliance .
Tax experts are of the view that the existing law is relaxed on non compliance and that strict enforcement of the law will help net in more tax payers and boost revenue to the state coffers.
Experts also noted that with regard to finance leases it is not certain whether existing leases will continue under the current method. Under the existing provision rental is taxable and the lessor is entitled for depreciation allowance. Leasing losses can only be set off against leasing profits.
The new provisions for deductions states that business losses can be deducted in full and balance if any can be carried forward for six years. The loss can be set off against business profits or investment income subject to certain restrictions.
The Withholding Tax on senior citizens is exempted up to Rs. 1.5 million and on other individuals the rate has been raised by 2.5 percent under the new law.
The three-tier tax structure of 14, 28 and 40 continues under the new tax Act .
Tax experts said the new Act is simpler on calculations of taxable income, tax exemptions and calculation of gains and profits from businesses.
However experts said it was not the case a year ago when there were so many grey areas that needed simplification.
A top official of the Inland Revenue Department said the department will issue a press note soon on the day from which the payee tax will come into force.