📈 Parliament Passes Controversial IRD Bill with Penal Provisions

Sri Lanka’s Parliament has passed the controversial Inland Revenue (Amendment) Bill, introducing strict criminal penalties for tax compliance failures despite strong resistance from the Opposition and required revisions mandated by the Supreme Court. The reforms align with the IMF-backed fiscal consolidation program. • Key Penal & Compliance Provisions: Failure to register for a Tax Identification Number (TIN), file annual income tax returns, or appear when summoned can now attract fines of up to Rs. 400,000, imprisonment for up to 6 months, or both. Taxpayers receive a 30-day notice to comply before criminal proceedings begin. • Revenue Performance & Strategy: Tax collection reached Rs. 2.27 Tn as of May 15, 2026, marking 43.6% of the annual target. Total tax files expanded from under 800,000 to around 1.3 Mn. The government aims to structurally reverse the nation's direct-to-indirect tax ratio from 20:80 to 80:20 to stabilize the economy. • Sector & Industry Impacts: SMEs & Retail: The VAT registration threshold was reduced from Rs. 5 Mn to Rs. 3 Mn monthly turnover, raising concerns over operational pressure on smaller businesses. Concessions: The bill includes interest and penalty waivers for SMEs, tax credits for salary arrears, and tax exemptions on life insurance maturity claims. Professional Services: Withholding tax mechanisms have been expanded to cover 28 professional categories to curb rampant tax evasion. • Opposition vs. Government Stance: The Opposition criticized the move as "draconian," warning that treating administrative oversights as criminal offences risks harming young entrepreneurs, while highlighting existing inefficiencies like Rs. 1.6 Tn in tax arrears (2023). The Government defended the law as a final resort to tackle widespread leakages and fund national relief programs.