Tax appeals play a crucial role in ensuring fairness and justice in the taxation system. The ability to appeal provides taxpayers with a mechanism to challenge tax decisions made by the authorities. However, challenges persist, as a segment of the population is unaware of how to appeal a tax mechanism while another segment deals with numerous challenges in doing so.
A recent webinar organised by KPMG focused on this subject, featuring main speakers Dr. K. Kanag-Isvaran, PC, KPMG Sri Lanka Tax and Regulatory Division Principal Suresh Perera, KPMG Sri Lanka Tax and Regulatory Division Principal Rifka Ziyard, and KPMG Sri Lanka Tax and Regulatory Division Senior Manager Mirani Ratnarajah.
The main speakers provided crucial insights into the appeal process under the Inland Revenue Act and the Value-Added Tax (VAT) Act.
During the webinar, Ratnarajah observed that under the previous Inland Revenue Act of 2006, in cases where an assessment resulted in taxpayer dissatisfaction, they traditionally had the option of making a payment to the Commissioner General of Inland Revenue. However, with the Inland Revenue Act of 2017, the process has shifted to a request for administrative review, specifically directed to the Commissioner General of Inland Revenue.
Meanwhile, Ziyard highlighted Section 165: “Any person who disagrees with the amount of an assessment made under this act or with the amount of any valuation for this act may, within 30 days after the date of the notice of the judgement, appeal to the Commissioner General against such assessment or evaluation.”
Dr. Kanag-Isvaran explained: “A review by a case means a revisit of your decision. It’s not on a judicial basis before a judge, where you will assess the correctness of it all, but a review. Revisit the decision and see whether you will say the same thing or a different thing, since you will be heard during the review. This means you will have better insight because the initial decision comes from the four corners of the department. When the review is done, you say: ‘Please look at it again and make a decision.’”
He also noted that the review process had been introduced under the 2017 act. However, even in the 2006 act, when individuals lodged an appeal, they could approach the commissioner and request a reconsideration.
In this context, it is important to note that the commissioner is not exercising judicial power. Despite using the term ‘appeal,’ what is implied is that individuals may appeal to him and request a reconsideration.
Perera explained the potential alternative decisions that could be made – decisions that may influence the commissioner’s judgement: “Under the old act, we always discussed filing an appeal with the Commissioner General against the assessment. Now, under the new Inland Revenue Act, you have the option to request an administrative review, not only against the assessment made by the assistant commissioner but also against other decisions.
“This is outlined in Section 139, which specifies that taxpayers who are dissatisfied with the assessment or any other decision may request the Commissioner General to review the decision.”
Budget proposal on tax
Furthermore, Ziyard provided an introductory insight into a Budget proposal. The proposal specifies that documentary evidence during a tax audit for administrative review must be submitted within a reasonable period – six months from the original date of all the evidence available in Sri Lanka and nine months earlier. Failure to comply with this timeframe will result in the evidence not being allowed for submission during the hearing at the Tax Appeals Commission.
Perera said: “Regarding the Budget proposal, it has not been incorporated into the law yet. However, we anticipate that it may be included through an amendment. The current position is that the Evidence Ordinance is not applicable during hearings before the Commissioner General, as well as before the Tax Appeals Commission.
“The law stipulates that unless a specific piece of evidence has been presented before the Commissioner General, permission from the Tax Appeals Commission must be obtained before introducing any evidence outside of that. Therefore, only new evidence can be introduced before the Tax Appeals Commission with their prior permission.”
This Budget proposal aims to curtail the rights of the Tax Appeals Commission members and also seeks to allow taxpayers to introduce evidence even without their consent.
A complex process
Perera also provided insights from the taxpayers’ perspective: “I have already paid taxes and the authorities have taken recovery action against me. How can I initiate the process to get a refund and will there be an interest rate applied? If there was an error in the substantive decision, one could argue that the mistake had occurred from the beginning, giving the right to compensation under the contract,” Perera explained.
He also drew attention to Section 144, which poses a challenge in this matter. He said that individuals may raise questions or encounter difficulties, since a specific and somewhat complex process was involved to proceed to the Court of Appeal.
Firstly, an appeal request must be submitted and thereafter a separate filing of a notice of appeal to the Court of Appeal is required. Importantly, there is no provision for a postponement when filing the notice of appeal.
Following the submission of the notice of appeal, a decision must be made within a 90-day timeframe, considering that a decision has already been received from the Tax Appeals Commission. The notice of appeal request plays a crucial role in the decision-making process. Navigating through this process can be intricate and it is essential to be aware of the specific steps and timelines involved to ensure a smooth progression.
Upon hearing issues, a written statement encompassing a summary of the evidence, the commission’s findings of facts, and its conclusions on the pertinent points of law will be provided.
Once the decision from the Tax Appeals Commission is received, any appeal must be initiated within 90 days. Failure to receive a response within this timeframe means the appeal cannot proceed. In such cases, the appeal, if allowed, will be limited to addressing questions of law.
“When filing a notice of appeal, it is imperative to wait for the decision before processing the appeal. However, some individuals have attempted to file a case statement with legal questions under the notice of appeal, which does not align with the appeal request process,” he said.
The section involving treaties requires careful reconsideration and rewording, especially regarding the use of the term ‘decision’ in various contexts. The complexity arises from different meanings attached to this term, creating challenges for lawyers.
Additionally, in addressing the practical aspect of the situation, if an assessment has been agreed upon and interest is calculated afterward, the question arises whether a prior refund can be utilised to settle the tax input. This presents a practical challenge where refunds may need to be applied to settle both interest and any additional taxes.
Tax clearance certificate
Answering Ziyard’s query on whether there was a way to obtain a tax clearance certificate, either directly from the Inland Revenue Department (IRD) or through another method, Perera said: “While we are certain about certain aspects, there remains uncertainty regarding specific questions. When it comes to documenting the source, it is advisable to be meticulous in selecting and presenting the text, and in this context, I find that presenting it here is more suitable.
“Closing a business, especially concerning the tax year, involves a unique set of considerations. On an annual basis, the IRD does not issue a certificate for account closure. After filing your return, you are required to wait for 30 months to determine whether an assessment will be provided.”
Perera also said that after the 30-month period, if an assessment was not received, and if you were confident in the accuracy of your accounts, it was essential to be assertive.
“You must be confident that there are no issues related to fraud or willful evasion that the commission has overlooked. At this point, you can consider the matter finalised,” he added.
However, if the Commissioner General wishes to address an issue, it will likely be based on allegations of fraud or willful evasion. In such cases, the resolution process may extend beyond the initial 30 months, Perera concluded.