Charmaine Tillekeratne

Partner and Tax Leader
Tax Services
PwC Sri Lanka

Tax registration

It’s pertinent to note that the proposal to register all residents over 18 covers only compulsory tax registration, irrespective of annual income and tax-free thresholds; it does not specifically indicate whether filing an income tax return would necessarily follow, irrespective of income and tax-free thresholds.

It would be interesting to know the exact intention of the policy makers behind this proposal. Is it merely to enforce a habit of tax compliance among the youth? Or is it intended to generate additional income?

If it’s the former, then a mere registration may suffice together with the condition that the registration number is a prerequisite for certain capital transactions such as buying and/or registering an asset, opening bank accounts, obtaining loans and so on. But the registration would not be productive if the authorities are not able to monitor the change in income status of the youth as they progress in life.

And if it’s the latter, everyone above 18 years would have to file a tax return, declaring not only their income but also assets and liabilities. This would no doubt be a herculean task on the part of the Inland Revenue Department (IRD) to facilitate such filings. Obviously, these filings cannot be done manually and would have to be obtained electronically.

The internal systems of the IRD may not be geared to implement this overnight. Further, the compulsory filings will only yield results if the data obtained is analysed and the next steps taken. The pertinent question here is whether the department has the required resources to do this – and whether the benefits outweigh the costs (i.e. the cost of upgrading the IRD systems, recruiting and training new staff, and so on.)

Finally, will the said compulsion actually force all individuals above 18 to register? If a person is below the tax-free threshold, which is proposed to be reduced to Rs. 1.8 million per annum, it’s unlikely that the said individuals will be entering into any significant transactions unless they’re supported by wealthy families and/or illegal activities.

This segment would presumably be a minority and in any event, there are other mechanisms to monitor such activity, which are already in place – albeit not properly implemented.

Therefore, it may not be practically feasible to implement this proposal in the immediate future; and even if it’s implemented, it may not yield any significant positive results.

It may not be practically feasible to implement this proposal in the immediate future