• Alleges corruption in SLUDI, e-NIC projects

The integration of the Taxpayer Identification Number (TIN) with the National Identity Card (NIC) has been a long-discussed policy measure aimed at enhancing tax compliance in Sri Lanka. 

However, despite legislative amendments and Government assurances, its implementation remains incomplete, according to Committee on Public Finance (COPF) Chairman Dr. Harsha de Silva.

“A final decision has not been made,” Dr. de Silva stated, emphasising the lack of concrete action on the initiative. 

“During the last parliamentary session, amendments were approved to existing legislation requiring 17 types of institutions, including banks, the Department of Motor Traffic (DMT), and the Land Registry, to report transactions to the Inland Revenue Department (IRD). 

“This means that when someone purchases a car, acquires land, or opens a bank account, the transaction should automatically be updated in the IRD system. However, during the COPF discussions, it was revealed that the implementation is not yet complete and the process is still ongoing,” he said.

According to Dr. de Silva, the delay is not due to the NIC-TIN conversion itself, since the NIC largely serves as the TIN already, but rather due to backend inefficiencies in data integration. 

“While the NIC appears on tax return forms, the question is whether transactions from various institutions, such as the Land Registry, are seamlessly linked to the IRD system. This requires a robust digital infrastructure, which is currently lacking,” he said.

Dr. de Silva also questioned the Government’s commitment to timely implementation. “It is unclear how committed the Government is to implementing this in a timely manner. It claims to be working on it, but progress is slow. The governance diagnostic has highlighted significant tax leakages. 

“The agreement between the International Monetary Fund (IMF) and the Government, following the third review, projected a 1.6% increase in revenue gains. However, actual results suggest an improvement of only about a quarter of the projected increase. This demonstrates the inadequacy of back-end integration and technological readiness,” he explained.

Dr. de Silva alleged that the Government, instead of widening the tax net, was instead making efforts to narrow it further. The Government recently announced increases in the tax-free threshold from Rs. 1.2 million to Rs. 1.8 million annually, with revised slab rates (0-36%). 

This change delivers substantial savings; for example, a 71% reduction for those earning Rs. 200,000 monthly. It was also revealed that out of a workforce of eight million Sri Lankans, only 800,000 persons were within the confines of the tax net.

“The Government is supposed to be widening the tax net, but instead it has narrowed the tax net. It took 200,000 people off taxes. That is the assessment of the Ministry of Finance. There are 800,000 people right now and according to the Treasury Operations Department they are taking out 200,000 people. 

“This is why I was being responsible when I wrote the blueprint for the Samagi Jana Balawegaya (SJB). I proposed keeping the tax threshold at Rs. 100,000, imposing tax at a rate of just 1% from Rs. 100,000 to Rs. 150,000, and charging 6% for those earning an additional Rs. 50,000. The idea is to keep everybody in the tax net instead of narrowing it,” he said.

Dr. de Silva added that the Government was bringing in further taxes to mitigate losses caused by the tax net being compromised. “The Government is losing about Rs. 60-70 billion in this exercise. In order to recover the loss, it is introducing a tax on service exporters, the Withholding Tax, and others,” he noted.

Dr. de Silva has been a vocal advocate for Digital Public Infrastructure (DPI) as a means to improve governance, transparency, and efficiency. He believes that Sri Lanka needs to adopt the Sri Lanka Unique Digital Identity (SLUDI) system, similar to India’s ‘Aadhaar,’ in order to facilitate digital transactions and eliminate fraud.

“The SLUDI is the foundation of digital public infrastructure. Once the foundational software is structured and biometric data – such as fingerprint, iris scans, and facial recognition – is captured, various systems can be built around it including Know-Your-Customer (KYC) processes and integration with land registries and tax authorities. The project began some time ago and is now progressing with support from the Indian Government. It is a good initiative,” he added.

However, Dr. de Silva criticised the Government’s parallel initiative to introduce an Electronic National Identity Card (e-NIC), which he considered a redundant and wasteful expenditure. He claimed the project was potentially corrupt.

“A major concern is the parallel initiative of the Government to implement the e-NIC, which involves procuring costly carbon smart cards with embedded chips. After it was declared during the debate in Parliament, we learnt that they wish to procure physical cards with chips and a variety of security features. 

“This is an unnecessary and wasteful expenditure. If people insist on having a physical card for cultural reasons, a simple PVC card, costing only a fraction of the price, should suffice. The real focus should be on SLUDI-based authentication rather than outdated smart card systems,” he asserted.

When asked whether chip-based smart cards offered better security, Dr. de Silva rejected the notion: “No, a chip is unnecessary. Once biometrics are stored, authentication happens through a smartphone or other digital means. This eliminates the need for physical chip-based cards. 

“India has already transitioned to this system, where transactions and identity verification are seamlessly conducted through mobile platforms. The parallel implementation of both the SLUDI and e-NIC systems raises serious concerns about corruption and wastage.”

Dr. de Silva believes that under a well-functioning SLUDI system, NIC-TIN integration will be fully automated.

“It must be fully automated under the SLUDI framework. The foundational software will serve a single purpose: authentication. For instance, if a person initiates a transaction, their biometric data will verify their identity in real time. Various personal records, such as a driver’s licence or national ID number, will be stored digitally and be readily accessible,” he explained.

Additionally, he elaborated on how the system would ensure transparency and compliance with tax regulations: “For tax purposes, the system will automatically log significant transactions, such as purchasing land worth Rs. 50 million, into the IRD database. This ensures transparency and allows tax authorities to assess compliance. The front-end system will authenticate individuals, while the back-end system will ensure seamless data sharing between relevant institutions.”

Addressing concerns about data privacy, Dr. de Silva acknowledged that such systems must be implemented with care. 

“Privacy concerns exist and India’s ‘Aadhaar’ system has faced legal challenges over such issues. However, it is important to understand that no personal information is stored directly in the authentication system and only biometric identifiers are used. The system simply verifies whether a person is who they claim to be. Unlike common names, biometric data is unique to each individual, ensuring precise identification,” he explained.

He also emphasised that Sri Lanka’s UDI system would be entirely Government-controlled, avoiding risks associated with private sector involvement. “The SLUDI system will be controlled entirely by the Government, with no involvement of private enterprises, ensuring greater security and oversight,” he noted.

“However, if the Government is aiming to establish both projects – the SLUDI and the e-NIC parallelly – then it is an absolutely corrupt deal. It is corruption and wastage. There is no compelling need to do this immediately. If the SLUDI project is expected to take 18 months to be implemented, it should then be given 18 months. There is no need for longevity as the SLUDI will be launched in less than two years. This is some deal that somebody is trying to do,” Dr. de Silva charged.

Addressing the matter, Ministry of Digital Economy Acting Secretary Waruna Sri Dhanapala said: “The Department for Registration of Persons (DRP) was placed under the Ministry of Digital Economy to streamline the implementation of both the e-NIC and SLUDI projects under a unified agenda. Cabinet approval has been granted to advance these initiatives cohesively and deliver their benefits to the public as swiftly as possible.”

“The DRP holds the legal mandate for identity issuance, while the ministry is tasked with facilitating the digital economy and broader digital transformation. There is no conflict of interest in this arrangement. Rather, it ensures alignment between legal identity frameworks and digital infrastructure,” he added.

When the allegation made by Dr. de Silva was raised, Dhanapala refrained from commenting on ‘political matters.’

Dr. de Silva argued that the focus should be on establishing a streamlined SLUDI-based authentication system that was both efficient and secure. “Instead of wasting resources on outdated smart card systems, Sri Lanka should focus on a modern biometric-based authentication framework that ensures efficiency and transparency, while being cost-effective,” he said.