Inland Revenue Amendment Bill 2026 has come under constitutional scrutiny as a tax expert files a petition before the Supreme Court, raising concerns over judicial independence, taxpayer rights, and fiscal transparency.
Inland Revenue Amendment Bill 2026 challenged over key clauses
A significant legal challenge has been mounted against provisions of the proposed legislation, with petitioner Prasad Dasanayaka, a Fellow Member of the Institute of Chartered Accountants of Sri Lanka, arguing that key clauses violate fundamental constitutional principles. The case brings renewed attention to the evolving landscape of tax reforms Sri Lanka and the legal frameworks governing fiscal policy.
Central to the petition is Clause 31 of the Inland Revenue Amendment Bill 2026, which introduces provisions allowing the Commissioner General of Inland Revenue to issue certificates confirming tax defaults. Under the proposed mechanism, such certificates would be treated as conclusive evidence in court proceedings. The petitioner contends that this effectively removes judicial discretion, preventing Magistrates from examining the validity, accuracy, or fairness of the tax assessments in question.
According to the filing, this provision risks undermining judicial independence by reducing the role of Magistrates to a procedural formality. The concern is that courts would be compelled to accept administrative determinations without the ability to scrutinise them, even in cases where disputes or appeals may exist. Legal observers note that this raises substantive constitutional questions, particularly regarding the separation of powers.
The petition argues that Clause 31 amounts to an unconstitutional transfer of judicial authority to an administrative body, in potential violation of Articles 4(c) and 105 of the Constitution. These provisions explicitly vest judicial power in courts and legally established institutions, forming a cornerstone of constitutional governance. The challenge therefore situates itself within broader constitutional law Sri Lanka debates on maintaining institutional checks and balances.
In addition to concerns over judicial authority, the petition also targets Clause 4 of the Bill, which proposes a redefinition of “reserves” for the purpose of calculating allowable interest deductions. The amendment seeks to include negative retained earnings—effectively accumulated losses—within the definition of reserves. This technical adjustment, while seemingly narrow, could have wide-ranging implications for corporate taxation.
The petitioner argues that the proposed change would disproportionately impact loss-making companies by limiting their ability to deduct interest expenses. In practical terms, companies with identical capital structures and borrowing levels could face different tax liabilities depending solely on whether they report profits or losses. Such differential treatment, the petition asserts, lacks a rational basis and may violate Article 12(1) of the Constitution, which guarantees equality before the law.
A comparative example presented in the filing illustrates how two firms with similar financial structures could be taxed differently under the revised framework. This, according to the petitioner, introduces an element of inequity into the tax system, potentially distorting business decision-making and financial reporting. The issue is particularly relevant in the context of tax reforms Sri Lanka, where policymakers are seeking to balance revenue generation with economic recovery.
Beyond the substantive provisions, the petition also raises procedural concerns regarding the legislative process behind the Inland Revenue Amendment Bill 2026. It alleges that the proposed amendments effectively introduce new tax burdens without adequate disclosure in the national Budget. The petitioner points out that the 2026 Budget speech and accompanying fiscal documentation did not signal any intention to redefine reserves in a manner that would increase corporate tax liabilities.
This omission is characterised in the filing as a form of “stealth taxation,” suggesting that the changes bypass established norms of fiscal transparency and accountability. The argument is that such measures undermine Parliament’s exclusive authority over public finance, as enshrined in Article 148 of the Constitution. This dimension of the case underscores the intersection between fiscal policy and constitutional governance, a recurring theme in constitutional law Sri Lanka.
Legal analysts indicate that the outcome of this case could carry significant implications for both tax administration and legislative practice. A ruling in favour of the petitioner may compel greater scrutiny of how tax laws are drafted, disclosed, and implemented, particularly in relation to taxpayer rights and institutional oversight.
The petition ultimately calls on the Supreme Court to declare the contested clauses unconstitutional unless they are approved by a two-thirds majority in Parliament and, if required, endorsed through a public referendum. This reflects the gravity of the constitutional issues raised, as well as the potential impact on the broader legal and economic framework.
As the Supreme Court prepares to take up the matter in the coming days, attention is likely to focus on how the judiciary interprets the balance between administrative efficiency and constitutional safeguards. The case represents a critical test for the Inland Revenue Amendment Bill 2026 and its alignment with established legal principles, with outcomes that could shape the trajectory of tax policy and governance in Sri Lanka.