Finance Act No. 18 of 2021

Description:

In July 2021, a Finance Bill was placed on the Order Paper of Parliament, seeking to grant a tax amnesty to those who hold undisclosed assets abroad, enabling them to bring such assets into the country at a tax rate of 1% if they voluntarily disclose them with the promise that no questions will be asked. This measure was taken amidst widespread concerns about money laundering, in the background of a worsening economy due to the Covid-19 pandemic.

What is the corruption? 

A tax amnesty is usually granted in order to bring a wider group of people into the taxpaying category. As such, the target of such an amnesty are people who have earned money through legitimate means, but have evaded paying the due taxes.

However, an amnesty could be abused by criminals, to bring proceeds of crime into the financial system. This was the major corruption concern on the tax amnesty being granted. If no proper measures are taken by regulators to track and monitor the sources of the assets being disclosed under the amnesty scheme, it could result in the scheme being abused to launder black money (i.e., ‘wash’ proceeds of crime, meaning money earned through unlawful means, and make it look clean, by allowing it to enter the legitimate financial system).

Who are the victims? 

  • The public at large – If the tax amnesty scheme is abused to launder proceeds of crime, there can be adverse impacts on the people, as they could be proceeds from terrorist financing, drug financing, human trafficking, abuse of public funds, etc. It can also result in genuine tax payers being demotivated to pay taxes and an unfavourable economic environment for business, reducing the confidence of clean investors, affecting the economy in turn.

What has been done?

  • Eight petitions were filed against the Tax Amnesty Bill in the Supreme Court challenging its constitutionality. The Samagi Jana Balawegaya, the JVP and the Center for Policy Alternatives were among the list of petitioners. The supreme Court determined that the bill could be passed subject to certain minor amendments.[1] [2]
  • The Bill was passed in the parliament with minor changes in September 2021.[3]
  • TISL issued a press release highlighting the potential money-laundering risks, and recommended enhanced scrutiny in the operation of the tax amnesty.[4]

What can be done?

TISL’s key recommendations to the authorities to mitigate the corruption risks brought by this law:

  • Ensure effective application of Anti Money Laundering and Counter Terrorist Financing preventive measures
  • Ensure domestic co-ordination and co-operation between relevant authorities
  • Secure international co-operation on tracing the transfer of black money

[1] https://www.ft.lk/front-page/Centre-for-Policy-Alternatives-challenges-tax-amnesty-bill-in-SC/44-720884

[2] https://economynext.com/sri-lanka-tax-amnesty-bill-allowed-with-changes-by-supreme-court-85147/

[3] https://economynext.com/sri-lanka-parliament-passes-tax-amnesty-bill-opposition-abstains-from-sec-bill-85901/

[4] https://www.tisrilanka.org/tisl-recommends-enhanced-scrutiny-in-operation-of-the-tax-amnesty/

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