Are Lacunae In Regulatory Oversight Permitting Tax Avoidance By Primary Dealers?

By Chandra Jayaratne –September 30, 2016 

Chandra Jayaratne

Dear Mr. President,

Are Lacunae in Regulatory Oversight Permitting Tax Avoidance By Primary Dealers?

You are well aware that as a consequence of the tax revenue to GDP ratio in Sri Lanka falling from around 20% in 1990 to around 10% in 2015 http://data.worldbank.org/indicator/GC.TAX.TOTL.GD.ZS?locations=LK) , the capacity of the State to fund;

1. essential infrastructure;

2. human development (especially investments in health, education and ICT sectors and in focused human capability development meeting tomorrows market needs);

3. research and promote innovation; and

4. specially targeted programmes aimed at alleviating poverty, removing inequity and lack of inclusiveness in society and aimed at bringing within the focus of development marginalized and vulnerable segments of society is severely restricted. In fact it is reported that Sri Lanka holds an adverse record amongst nation states, in that it has experienced the sharpest and longest impacting annual decline in tax revenue to GDP.

It is commonly believed that Administrative and Regulatory Oversight Lacunae may be the primary cause of the phenomenon experienced as reported above; and it is most likely that this lacunae is the primary reason leading to a significant drop in tax revenue ( both direct and indirect), customs duty, excise duty as a percentage of GDP.

As a specific single case in point, your kind attention is drawn to the Accounts of a Primary Dealer recently published in the news papers, in compliance with the applicable regulatory framework, a copy of which is enclosed. You will note that the Primary dealer in question, having declared in its accounts for the years ending on 31st March 2015 and 31st March 2016 respectively, trading profits before revaluation of trading securities of Rs. 713 million and of Rs 5,378 million, appears to have declared a NIL tax charge in respect of both years.

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