Wednesday, September 7, 2016

Handing over tax collection to the private sector! RIGHT OR WRONG Why?

The Inland Revenue Service Unions are up in arms about this proposal! See link:

According to the paper article, the Inland Revenue Commissioner and the senior staff attended a meeting where it was agreed to give the local agents of Baker McKenzie the task of collecting Taxes. I don’t know what taxes, whether it is Income Tax , Corporation Tax or VAT, but there has to be a reason for this out of the box suggestion.

It is a well known fact that  the tax yield of Sri Lanka has dropped from 20% of GDP some years ago to about 14% now, and the Govt. wishes initially to raise it to 20% so that about Rs500B of unpaid taxes can be collected.

It is also known that the staff of the Inland Revenue just have NOT been able to collect the taxation that is due, and either because those who should be paying taxes don’t even have a tax file, are not being selected, or those having a tax file are in cahoots with the Accountant of the Businessman, and both take a fee from the Businessman in reducing his taxation liability, and so defraud the nation from its rightful take. These are but two of the most common reasons why the taxation take is so abysmal.

No wonder then that the Govt. collects the bulk of taxes from imports as they are easy to administer; similarly Tobacco, and Alcohol Taxes as they are too collected at the Manufacture stage. Telecommunication levies are also easily collected as that is ONLY from a few companies, and VAT has been imposed on the largest companies where collection is easy.

Instead of the 5 unions representing the Inland Revenue Employees agitating against this privatization, they MUST counter with a proposal of collecting the Rs500B as long as they get to share out Rs5B amongst their staff. That is fair isn’t it? The real story is that they are CORRUPT TO THE CORE in being bribed, who supplement their income many times, and who have a nice life from robbery, who see their cash cow coming to an end.

I would suggest that a new strategy is adopted immediately. Request ALL Government departments to second two top administrative service officers for a period of two years. Give them a basic training in identifying potential tax payers.

Then they will be given an honorary title like assistant commissioner general of Inland Revenue Service, and be given a file of 10,000 people who need special attention for investigation, and a procedure given for them as to how to tackle these very wealthy people, WHO CURRENLTY DO NOT HAVE A TAX FILE.

So let me give you an example of how I would tackle one person. Let us take a car dealership. I will first do some background checks to find out who owns this. Where they bank, where he or she lives, and asking the neighbors the period in which they have occupied the current premises. I will also try and find out what he or she was doing 10 years ago, to fathom if this person has started from scratch.

One reason to be armed with this information is so that when confronted, the businessman who may have dealt with lower level IRS employees, and been able to fob them off with a one of payment of Rs20K, is now confronted by an assistant commissioner with a far greater level of responsibility and standing!

This person can say that he has knowledge of the Tax payer and that he should now have a tax file, and go through the process. Say if he says that his stock of vehicles is worth Rs600M and he owes the Bank Rs 100M then he has effectively earned Rs500M over a period of 10 years starting with nothing. As he has never paid any taxes, he can assess that he should have paid about 150M in taxes over this period, but is willing to agree to settle an up to date tax liability of Rs 75M if paid within 3 months, and then he will be assessed from now on a new basis as agreed after he provides a list of the stock with him, and his transactions of the whole year etc.

Using this type of example where the car dealer will without question when confronted with the truth, realize it is best to pay up Rs75M and be up to date with his taxes, if there are 1,000 senior officers on secondment for two years, they could collect this back log say of an average of Rs75M per person per year. The total taxation thus collected on back taxes would be 75M X 2 X 1000 = Rs 150B

That would be a start wont it? This brings a new pool of people onto the taxation roll, and the Staff of the Inland Revenue Service can carry on from there, with these staff returning to their former positions. Of course as an incentive to these SLAS staff grade 1, they could be paid a 1% commission on what they collect.

In conclusion the Govt. should be STRONG not to give into the threats by the IRS unions, who only care about their existence, and not on the long term benefit of their work towards collecting the much needed revenue for the nation.

1 comment:

  1. It is time to REMOVE all the Bribe takers and Gon baases at the inland revenue service. In short transfer them all out of there. If we have a whole new culture with new people we can easily collect Rs700B from the IRS alone, and Sri Lanka will boom as deficit will narrow, soverein rating will soar, borrowing costs will be lower. Debt repayments will made easier and voila SL will be on its way to glory.

    Son now you see the how many traitors loiter within this IRS!