Although the International Monetary Fund’s (IMF) Governance Diagnostic Assessment (GDA) which was released in September last year pointed out the corruption vulnerabilities in Sri Lanka’s revenue collection agencies, attempts at addressing this matter appear to be a long way away.

The Inland Revenue Department (IRD) and Sri Lanka Customs were at the forefront of the revelations made by the GDA, while it also revealed systematic and severe governance weaknesses and corruption vulnerabilities across State functions, with particular macroeconomic impact on budget credibility, expenditure control, public investment management and control of spending, public procurement, and management and oversight of State-Owned Enterprises (SOEs).

“Exposure to corruption in Customs and tax administration is substantial, given the absence of effective systems for performance monitoring and detecting and sanctioning of officials for improper behaviour. The limited progress that has been made in digitising processes in tax and Customs requires users to maintain high levels of direct interaction with officials and reduces the ability to identify integrity issues through data analytics,” the IMF said in the GDA.

What does the GDA say about corruption?

The IMF GDA, which was conducted based on the request of the Sri Lankan Government and was the first of its kind done in the South Asian region, said that while corruption vulnerabilities appeared to permeate Sri Lankan revenue administration, there appeared to be little, if any, accountability or consequence for such actions. There is virtually no culture of integrity observed, with corruption allegedly found at every level – including top management. 

“In fact, promotions are almost exclusively based on seniority with no regard to merit, skill, or leadership ability, or whether the person has compromised integrity in any way,” the GDA said, adding that the revenue departments were predominantly closed institutions with little, if any, employment mobility into and out of the departments.

Moreover, it said that while this policy was justified by the specialised nature of revenue administration, it acted as a binding constraint that had led to very inward-looking institutions that were reluctant to change, particularly given strong union influences.

Furthermore, the GDA said that the revenue departments were hamstrung from building the skills and expertise needed for the modern economy, with the IRD unable to recruit specialist information technology staff and data analysts needed to move away from the corruption-prone embedded work practices. This also affected revenue department leadership. 

The Customs Department is currently (and has previously been) led by senior Government executives from outside Customs, whereas IRD commissioners general have always been internally appointed from the next most senior official, typically with an average tenure of around one year. The GDA noted that very short-duration leadership appointments were hardly conducive to tackling complex multi-year reforms and likely explained the institutional inertia and lack of urgent need for IRD modernisation. 

“Both Customs and IRD officials acknowledge the rampant state of corruption in their institutions with little risk or consequence of exposure, and similarly, few if any consequences when corruption allegations are made,” the GDA said, adding that with more than 2,000 staff in each of the Customs and IRD Departments, no cases against corrupt tax officials had been made or reported in recent years.

In 2021, the Customs Department had 11 preliminary disciplinary cases being investigated but not concluded and two formal cases similarly still under investigation. With very few internally investigated corruption cases, unsurprisingly, few cases involving revenue officials are subject to the independent investigation of the Commission to Investigate Allegations of Bribery or Corruption (CIABOC), which acknowledges revenue-related cases are relatively rare.

Recommendations to revenue collection agencies

Recommendations set out by the IMF GDA on revenue administration have three deadlines. 

The first set of recommendations directed towards the IRD to be implemented by September are to:

• Minimise interactions between taxpayers/traders and revenue officials to reduce discretionary opportunities and corruption vulnerabilities 
• Restrict revenue official interactions with taxpayers to narrowly defined and fully documented circumstances, and assign different officials to interact on different issues (e.g. filing compliance, audit, collection, appeals, and interpretations/rulings) 
• Streamline and overhaul tax return assessment processes to accept returns as filed without extensive pre-assessment cross-checking and data matching 
• Limit auditor engagement to cases selected on a compliance risk management basis 

The next set of recommendations, directed towards the IRD, Customs, and the Excise Department and to be implemented by December are to: 

• Institute short-term anti-corruption measures within each revenue department 
• Launch high-profile anti-corruption programmes advocated by revenue department heads that emphasise zero-tolerance 
• Update and operationalise staff codes of conduct (ethics) with regular training and annual written confirmation of understanding/compliance by every staff member
• Establish internal affairs units in each revenue department to investigate staff corruption allegations transmitted via secure and confidential reporting channels with links to CIABOC

The last set of recommendations, also directed towards the IRD, to be implemented by March are to: 

• Strengthen IRD oversight and inputs to revenue forecasting and tax policy and strengthen revenue department oversight and transparency  
• Ensure the IRD provides the Ministry of Finance (MoF) anonymised tax data for fiscal modelling
• Invite and include IRD views and analysis for MoF revenue forecasting and for development of tax policy considerations and options
• Improve tax morale by creating a tax ombudsperson and a taxpayer charter 

Customs to implement anti-corruption measures from April 

Speaking to The Sunday Morning, Sri Lanka Customs Senior Director and Spokesperson Seevali Arukgoda said that Customs was in the process of implementing anti-corruption measures and that the Internal Affairs Unit which had been created to look at corruption within Customs would become operational from 1 April onwards.

He said the specially crested unit would have two main functions – to receive corruption complaints regarding Customs officers and investigate them and to initiate anti-corruption measures such as conducting training sessions and developing a code of ethics which would become enforceable upon the signing of Custom officers.

“We will have training sessions for internal and external stakeholders such as Customs house agents, importers, and exporters on how to prevent corruption and improve integrity within Customs,” he added. 

“Investigations will continue upon receiving information from outside regarding corruption of Customs officers and the unit will undertake integrity improvement activities within Customs. We are fully compliant with the requirements set out in the IMF governance diagnostic,” Arukgoda said.

Moreover, he said that existing legislation within the Customs Ordinance would be sufficient for the department to implement anti-corruption measures. “The only thing we need to have is a set-up specifically focused on corruption, which is the purpose of this unit,” he added. 

He said that in instances where the code of ethics was seen to be broken by officers, they would be subjected to penalties under the Establishments Code.

“The unit will initially conduct a preliminary investigation and inquiries will take place if there is sufficient evidence to take action under the Establishments Code. If an officer has committed an offence punishable under the Customs Ordinance, it will be referred to one of the enforcement units to investigate and inquire under the ordinance,” Arukgoda said.

Moreover, he added that if an investigation was initiated against an officer on bribery and corruption, such complaints would be referred to CIABOC for action under the respective law.

Further, he noted that the Internal Affairs Unit would become operational under the existing staff within Customs, while individuals who would like to take on the responsibility would be selected from each section within the department.

IRD ahead of Customs in implementing recommendations 

Speaking to The Sunday Morning, a source from the IRD said that the special committee established last year to look into corruption within the department would be incorporated into the Internal Affairs Unit that would align with the CIABOC.

The officer said that the IRD, with the CIABOC, had already completed eight training programmes for 1,000 IRD officers with the help of the special committee.

The Prevention of Corruption guidelines issued by the IRD in August last year, even before the release of the IMF GDA, mentioned that it would appoint a special committee comprising officers with past records of honesty and integrity, with a minimum of one officer out of the Inland Revenue Service to be appointed by the Commissioner General, for conducting a preliminary inquiry in terms of the Establishments Code to look into such allegations of corruption made against IRD employees. 

Moreover, the IRD officer said that while the code of ethics had been enforced, internal guidelines had also been issued to officers regarding corruption. 

“A risk management unit has been established to look into minimising the interaction between IRD officers and taxpayers,” the officer said, adding that some of the other recommendations under the GDA would be completed by the end of March.

“If you don’t kill corruption, it will kill Sri Lanka,” the IRD said in its guidelines issued last year, explaining that bribery-connected cases within tax administration are better dealt with promptly and effectively so as to protect Government revenue.

“In an effort to eradicate or minimise bribe taking within a tax administration, measures addressing only the tax officials may not bring convincing results as it is not an act singly done by tax officials. If the problem is to be solved or reduced, solutions in such cases require the involvement of taxpayers and tax consultants together with tax officials, where all three parties should be well addressed to promote their willingness not to engage in this crime,” it said.

Moreover, the IRD said that bribery-connected cases could be identified as tax evasion cases due to the willingness of a taxpayer to reduce or avoid their tax liability in an illegal manner. It added that the same situation kept the case open, as an assessment on the correct amount of payable tax could be made at any time. In other words, the restriction of a time period for making an assessment (a time bar) does not apply for willful evasion done through giving a bribe. 

At the time, the IRD introduced several proactive measures aimed at minimisation and elimination of avenues for potential corruption at the department, which include the following: 

• Any corruption, including bribes offered or demanded, is not tolerated and the parties aggrieved are encouraged to collect the prima facie and apparent evidence for such corruption through audio/video recordings by mobile phones, CCTV, and others to make the complaint to the proper authorities, including CIABOC.
• Any person wishing to make complaints is always encouraged to complain to the CIABOC by communicating with it, as the CIABOC is the relevant authority to investigate such complaints. A complaint box has been fixed at the IRD premises (ground floor) by the CIABOC so that any complaint can be made by using it. 
• Had the allegation been made by a taxpayer against a tax official who was involved in the auditing of such a taxpayer’s business (as the proprietor, partner, director, authorised representative, or any other principal employee), such audit proceedings shall be stopped forthwith if the prima facie evidence for the allegation was established or apparent, for the purpose of elimination of the fear of harassment to the complainant-taxpayer by fellow employees of the IRD and for encouraging the taxpaying public to come forward against corruption. 

The IRD also said that special attention shall be paid to allegations of corruption against an employee of the IRD even in instances where the complainant is anonymous, provided the complaint is accompanied either with the name, address, and contact details of the complainant or with supporting documents of the complaint.

All such allegations and charges are to be investigated by the committee. On submission of the preliminary report where the prima facie case against such an officer was established, he/she shall be transferred to the pool until the completion of the formal inquiry. 

If more than 50% of the members of the committee are satisfied that there was substantial truth in the allegation, such a case should be referred to the CIABOC/Public Service Commission (PSC) with its report for further action. 

Minimisation of human interventions as much as possible and maximisation of the use of e-services with the IRD – including e-registration, e-filing, e-payment, and e-correspondence – are encouraged, as more discretionary powers lead to more corruption. Therefore, circulars and guidelines are issued aiming at ensuring cohesive and consistent administration of tax, fairly and equally for all. 

For ensuring transparency and accountability, all instructions, circulars, and guidelines of the IRD which are related to affairs of taxpayers – such as assessments, administrative reviews, rights, and obligations – shall be made available on the IRD website. Employees are also encouraged and incentivised to make complaints with evidence against taxpayers who attempt to offer bribes.

Govt. not bound to keep up with GDA deadlines

Speaking to The Sunday Morning, Verité Research Lead Economist Raj Prabu Rajakulendran said that the Government action plan in response to the GDA recommendations was part of the IMF programme, but of the total of 16 IMF recommendations, only 14 had been addressed by the plan.

He said that the recommendation to institute short-term anti-corruption measures within each revenue department to strengthen internal oversight and sanctioning processes and linkages with the CIABOC and related criminal investigation and enforcement processes had been left out.

However, he added that the deadlines given in the GDA to implement the recommendations did not matter as there was nothing holding the Government to conform to them.

Attempts by The Sunday Morning to reach out to the Finance Ministry for comment on the progress by revenue collection agencies on the recommendations proved futile.