IR Bill to bring in and engage outsiders as tax officers

• Sanjeeva Jayawardena PC rings alarm bells

By S.S. Selvanayagam

President’s Counsel Sanjeeva Jayawardena forewarned about the Inland Revenue Bill in the Supreme Court, stating that it is ambivalent and subtly bringing in persons known as ‘other agents’ from outside as tax officers at a great cost, highlighting danger to taxpayers.

He raised doubts on ambiguity and apathy in the impugned bill and scrutinised that it would open passage for siphoning classified information of taxpayers to ministers or outsiders, removing the confidentiality and secrecy of classified and sensitive information about taxpayers which had been only privy to the department itself.

The Commissioner General to perform any functions under this Act and a further class of persons in clause 100 (1) (a) of the bill called “other agents of the department”, were all creatures and functionaries unknown to any form of law and would effectively be ex-judicial in both in form and function and it would be intrinsically dangerous to say the least to let such amorphous and ambivalent terms to be included in a fiscal statute which demands clarity and high precision.

President’s Counsel Sanjeeva Jayawardena with Lakmini Warusevitane made his oral submission on behalf of the five unions of the Inland Revenue Service, namely, the Inland Revenue Deputy Commissioners’ Association (also known as the Commissioner’s Association), the Inland Revenue Staff Officers’ Association, the Inland Revenue Executive Officers’ Union, the Inland Revenue Service Union, the Inland Revenue Employees’ General Union comprising of most senior officers from the Deputy Commissioner and downwards as well as very senior officers of the Inland Revenue Department.

Counsel Jayawardena made his submission before the Bench comprising Chief Justice Priyasath Dep, Justices Anil Gooneratne and Nalin Perera.

He stated that as a result of this Inland Revenue Bill, there will be a serious undermining of their authority and diminution of their status as both specialised and trained officers of the department as well as their capacity as public officer and the bill, by introducing a new illegal concept of a “tax official,” would result in serious inroads to their powers, duties and functions and render them effectively subservient to this so-called curious category of “tax officials”. It was submitted on behalf of the unions that;

In terms of Section 2.1 of Chapter II of the Establishments Code, for every post in the Public Service, there shall be a Scheme of Recruitment or a Service Minute.

He said there is a similar provision in the Rules of the Public Service Commission, formulated after the 16th Amendment to the Constitution. In these schemes of recruitment or Minutes, the specific designations or posts of public service or Government departments are specified and the term “public officer”, a specific definition is contained in Article 170 of the Constitution as one who holds a paid office under the Republic.

He cited the case of Abeywickrame Vs. Pathirana, and pleaded that it is held by the Supreme Court that public officers are in a special class, virtually a sui generis nature and are accorded a certain status and a privileges as well as security of tenure which cannot be lightly taken away. 

He submitted that certain provisions of the Inland Revenue Bill, apart from being violative of certain provisions of the Constitutions including right to equality and equal protection in law, guaranteed by Article 12(1) also most seriously had in certain respects a strong potential, in violating the concept of sovereignty, which is reposed in the people and is inalienable, indivisible, non-bridgeable, irreducible according to the judgments of the Court of Sri Lanka and of parallel jurisdiction.

Although Parliament has legislative power that is legislative power of the people and of Parliament and if a law has the effect of violating or being inconsistent with the power of sovereignty vested in the people, then in such an instance, the people itself who are the repositories of such powers, by their collective dispensation, through a referendum, permit such inconsistency and no other organ of the State has any authority in law to exercise such power, he stated.

He further submitted that although the present Inland Revenue Act of 2006 is now being sought to be repealed by this present bill, the present Inland Revenue Act expressly provides that the Commissioner General of Inland Revenue shall mean and include Senior Deputy Commissioner-General, a Deputy Commissioner General, Senior Commissioner, a Senior Commissioner and Commissioner who is specially authorised by the Commissioner-General. However, no such provision has been made in the new bill.

To further compound this issue, the bill, unlike in the present law, there is express definition for Commissioner General only and there has been complete suppression of any such definitions of other officers in the Department, he stated.

He stated that in the present law there are numerous sections which by statute itself allocates specific persons to certain specific posts in the department and thereby granting these posts and their holder specific powers and functions whilst in the new bill there is a complete omission of that.

The new bill seeks to introduce a new class so called “tax officials” who can perform or discharge powers, duties and functions assigned by the Commissioner General or delegated to them and very disturbingly such tax officials can by the definitions contained in the new bill, not only be individuals but also entities including a body of persons corporate or incorporate and most alarmingly even a non-governmental organisation or an NGO and such person according to the bill can be either appointed or employed or engaged in any capacity whatsoever which means that only are such persons not designated officers of the Inland Revenue Department and could be private companies or NGOs but also would not be appointed in the case of the individuals by the PSC or be accountable by way of Fundamental Rights or under the PSC or under the Financial Regulations and other rules and regulations governing public officers, he said.

He submitted that providing for mere engagement in any capacity whatsoever was utterly reckless and fraught with immeasurable dangers as the terms of engagements would be referable to law or monitoring in law or virtually vest the freedom of wild horse in such persons and conversely such persons as they hold their dubious office at the pleasure of the minister and Commissioner General would be necessarily be pliant to political and other collateral agendas and would succumb to pressures that public officers would generally be able to resist in terms of the law.

They would be pawns in the hands of those with insidious intent and seriously undermine the credibility of the Inland Revenue Department, he pointed out.

He also submitted that the previous Minister of Finance had attempted a similar device in the case of Excise Department by attempting to form a unit exercising the powers of the Excise officer functioning outside the purview of the Excise Department comprising of private persons and who reported to Ministry of Finance and not to the CG of Excise and that too had been the subject matter of a FR application as a result of which all functions were brought strictly within the Department of Excise in terms of the law.

He submitted apart from these so-called calls of tax off there were several express references in the bill to any other person or authorised by the CG to perform any functions under this act and a further class of persons in clause. 100 (1) a of the bill called other agents of the department, who were all creatures and functionaries unknown to any form of law and would effectively be ex judicial in both in form and function and it would be intrinsically dangerous to say the least to let such amorphous and ambivalent terms to be included in a fiscal statute which demands clarity and high precision.

He stated that in terms of the new bill the minister can with the CG specify additional classes of persons who would be required to register under the new bill; it was submitted that this would have the effect making such persons to liable to furnish returns of income without first determining whether they were chargeable with income tax in terms of the principal charging section, being Section 2.

He further stated that although they welcome and though that it was a great need to widen the tax net and to collect greater tax revenue, that nevertheless would have to be tempered with such processes effected within the mandates of the law and that if this was not done, the credibility and legitimacy underlining taxation and recovery would be eroded.

He submitted that unlike the present law where there is a requirement for an assessor to give reasons when amending or issuing an additional assessment, under the new bill there is no such provision. If assessors perform their functions correctly, then the rejection of return or imposition of additional assessments should be or would be supported by justifiable cause and reasons and if such reasons are given it may well lead to the taxpayer to desist from challenging the same in protracted legal process and permit the department to collect taxes in an expeditious manner, thereby augmenting the fiscal and State coffers and without having to hold up recovery of monies through the whole process of appeals to the Tax Commission and then to the Court of Appeal and thereafter to the SC after which due to inflation there is obviously devaluation of the currency.

The provision of reasons in an objective and defensive manner reinforces public confidence in tax officers and if no reasons are given it is fairly easy for taxpayers to challenge a rejected return on the basis that a basic safeguard in the law has been denied, he submitted.

Unlike in the present law where there is a provision for agreement to be reached during the appeal process, in the new bill by introduction of the new chapter called Administrative Review and under the present act such formal agreements to be reached could then be dissuaded, with litigations and delays in the recovery of monies due to the fiscal. It was submitted approximately Rs. 30 billion is still held up as a result of pending appeals which are effectively monies lost to the fiscal, he said.

He submitted that there was a new section sought to be introduced in the bill where although all information and documents received a departmental official in the course of the administration of the act shall necessarily be secret and confidential that nevertheless now in terms of the bill if such secret information and documents could be disclosed by even tax officials to so-called other agents of the department, this is critically dangerous as such persons are not known to law and not countenanced in law, he underlined.

He brought to cognisance that the bill provides the minister could also receive such secret and confidential information in the course of and for the purpose of carrying out its duties.

He submitted there was neither a legal provision or warrant or justification in law to supervise the Department of Inland Revenue as that would effectively constitute erosion and defeat the autonomy of the department and its office and makes the department susceptible to political or other influence which is highly undesirable.

He stated that in the case of a public ruling given by the Commissioner General there is no provision for him to have recourse to a committee of senior officers of the department unlike in the present act and it was urged that it should be introduced.

He submitted that although it was reasonable to invest the CG with the power to withdraw public ruling in the interest of consistency and uniformity, interpretation the power should only be exercised for good or reasonable cause and none other.

It said that there was no warrant or justification for granting extensive tax reliefs to so-called NGOs unless there is some objective process by which the legitimacy of such NGOs are first monitored after having recourse to the relevant line ministers and there have been several instances in the past the agendas of certain have been inconsistent and inimical to larger national interest.

Thus, that the far-reaching power of the CG to reduce or remove the tax of an NGO should be subjective to objective and verifiable criteria, he added.

He asserted that grating of tax credits against the tax payable on a charitable institution of tax income should also be perhaps expanded to include recognised places of public worship like principal temples, churches, kovils, etc. but there should be an exclusion of mushroom entities that do not have a well-established public congregation as otherwise there would be abuse of the tax system.

It stated that in terms of the new bill the minister can with the CG specify additional classes of persons who would be required to register under the new bill.

He contended that this would have the effect of making such persons liable to furnish returns of income without first determining whether they were chargeable with income tax in terms of the principal charging section, being Section 2.

He stated that although they welcome the thought that it was a great need to widen the tax net and to collect greater tax revenue, that nevertheless has to be tempered with such processes effected within the mandates of the law and that if this was not done, the credibility and legitimacy underlining taxation and recovery would be eroded.