Inland Revenue Department cites economic challenges and legal disputes as VAT and income tax defaults climb sharply
Sri Lanka’s tax collection woes intensified in 2024, with total collectible tax defaults and penalties reaching a staggering Rs. 175.6 billion, according to the Inland Revenue Department (IRD). The department’s annual report highlights a growing fiscal concern, with Value Added Tax (VAT) emerging as the largest contributor to the default figure at Rs. 59 billion.
The IRD noted that the Rs. 175.6 billion in collectible taxes and penalties reflects amounts that are either undisputed or have completed the appeals process, thereby becoming confirmed liabilities. Of this, Rs. 79.2 billion comprises penalties imposed on defaulters.
“These collectable taxes represent confirmed liabilities that the IRD expects to collect,” the department stated, adding that persistent economic challenges since 2019 have severely hampered compliance and collection.
A breakdown of the collectible defaults reveals that VAT defaults and penalties alone amounted to Rs. 113.8 billion by the end of 2024. Income tax defaults were recorded at Rs. 34.9 billion, with associated penalties of Rs. 22.8 billion, while PAYE (Pay-As-You-Earn) tax arrears and penalties stood at Rs. 2 billion.
In addition to the collectible defaults, the IRD report flagged a concerning Rs. 974.3 billion in disputed taxes and penalties that remain tied up in legal proceedings. The lion’s share of these disputed sums arises from income tax, with Rs. 347.1 billion in disputes and Rs. 199.5 billion in associated penalties.
The IRD emphasized that it is intensifying recovery efforts and implementing strategic measures to improve compliance, but acknowledged that systemic and macroeconomic pressures continue to undermine tax enforcement and revenue targets.