Provisions for retrospective taxation in Sri Lanka’s constitution and the practice of tax changes by midnight government gazette came in for strong criticism at an annual oration of the island’s main body of accountants.
President’s Counsel K. Kanag-Isvaran said that although the Constitution states that taxes can be imposed and changed only by Parliament, there were loopholes that were being used by governments to avoid such approval.
The Sri Lankan Constitution in Chapter XVII mandates that the raising of finances of citizens shall only be by the authority of Parliament, he said, delivering the 22nd Annual Oration on Taxation of the Institute of Chartered Accountants of Sri Lanka.
This is articulated in Articles 148 and 152 of the Constitution.
“Sometimes what is given with the right is taken away with the left! The legislative sleight of hand. You need a hawk eye to spot it,” Kanag-Isvaran said in the oration on ‘The tax collector and the rights of the taxed’.
Despite provisions in Article 152 of the constitution, he said, “We know, day in and day out, the Minister of Finance issues, usually at midnight, gazettes, imposing or exempting or reducing taxes and levies.”
Minister’s (Royal) Prerogative
A case in point is Section 2A of the Value Added Tax Act, where the power vested on the Minister to change the VAT rate empowers the Ministry of Finance to vary the VAT rate at his discretion by order published in the gazette.
Although there were provisions for such orders to be approved by Parliament, until it was done, the finance minister’s decision remained valid “to the exclusion of the Parliament!” Kanag-Isvaran said. “More importantly, there is no compulsion to place the gazette before Parliament for its approval or disapproval! What happens if the gazette is not placed before Parliament for approval at all?
“Does not the Section 2A of the VAT Act, therefore defeat the very spirit and the core underpinning of Article148 read in conjunction with Article 152 of the Constitution?”
The law also allows the minister to exempt any financial institution from payment of Debt Repayment Levy of seven percent, introduced in the Finance Act No 35 of November 2018, by order published in the gazette, Kanag-Isvaran said.
“The curious thing is the Finance Act has not imposed a requirement, as is done normally, for the Gazette so published by the Minister to be laid before the Parliament for its approval! Why may we not ask?”
This means any exemption of the application of the Debt Repayment Levy, to a particular taxpayer, could be effected by the Minister in charge of Finance, contrary to Article 152 of the Constitution.
“But alas, there are many similar provisions in various tax statutes to like effect as you well know,” Kanag-Isvaran said.
“One is therefore well entitled to ask, is not the carte blanche power thus given to the Minister violative of Article 152 of the Constitution and hence unconstitutional?
“Unfortunately all these have passed muster, sub silentio or simply out of disinterest of those concerned, prior to, during and after the bill stage,” Kanag-Isvaran said.
“One may well ask, have these unconstitutional provisions in the aforesaid tax statutes empowered the Finance Minister of Sri Lanka to assume powers that were denied to King John via the declaration of the Magna Carta of 1215, that no tax will be levied without the authority of the Parliament?”
Constiution of Liberty
Kanag-Isvaran said he believes the answer lies in the enactment of a constitutional provision permitting a post enactment challenge to any Act of Parliament.
“This is now prohibited and, therefore, not available. Could we look forward to it, if and when the promised new Constitution comes?”
Kanag-Isvaran also drew attention to the dangers of retrospective tax laws, which he said are abhorred in every jurisdiction as they cause great inconveniences and introduce uncertainty into any tax regime.
“Our Constitution however, permits retrospective legislation by Article 75. It is also recognized by section 6 of the Interpretation Ordinance.”
Though many find it repugnant, Kanag-Isvaran said, Article 75 of the Sri Lankan Constitution empowers the legislature to enact laws with retrospective effect.
“This includes fiscal statutes as well, so that taxes may be levied retrospectively under authority of the law without the violation of the Constitution,” he said.
Kanag-Isvaran said the need for a “Tax Ombudsman” is now more urgent than ever before due to the changes in the income tax regime and the implementation of the Revenue Administration Management Information System (RAMIS), to prevent tax payers running from pillar to post.
“I believe the time is opportune to address the concerns of the taxpayers by appointing a Tax Ombudsman, along the lines of the South African experience to achieve a balance that will enhance the degree of equity and fairness in tax administration.”
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