The Need to submit an electronic tax return and its challenges

By Sanjeewa Jayaweera

The Inland Revenue Department (IRD) has decided that compliant taxpayers who submit their Return of Income for 2023-24 (01 April 2023 to 31 March 2024) can only do so electronically by submitting an e-return.

Whilst it is undoubtedly a step in the right direction, no consideration has been given to the fact that such a move should be made in a phased manner. In typically cavalier fashion, the department’s mandarins want to go from zero to a hundred, forgetting that many individual taxpayers have no experience submitting tax returns, let alone e-returns. I assume many new taxpayers who have not previously submitted tax returns annually have been inducted into the tax net.

Even if an individual has registered as a taxpayer voluntarily with the IRD or where the IRD has on their own allocated a tax identification number (TIN) based on information available to them, the taxpayer still needs to request a Personal Identification Number (PIN) to be issued to access the IRD eService at their website to submit an e-return. The PIN can be received by email or by post. If you elect to receive the PIN by email, a separate process must be followed to register your email address with the IRD. If you elect to receive the PIN by post, this can take several days. Some taxpayers who were unaware that submitting an e-return was compulsory did not have the luxury of time on their side to receive the PIN by post.

The IRD had forgotten that many senior citizens either don’t have a computer at home or are not computer savvy enough to navigate the e-return. In addition, there are supporting documents to be uploaded, which require a scanner or going to an external party to get the documents scanned, which is not ideal as most documents are personal and confidential.

Due to several complaints by senior citizens (over 60 years), the IRD has finally agreed to accept a manual tax return if the taxpayer is willing to give a written declaration as to why they cannot submit an e-return.

Entering AIT details to the e-return and non-standardization of AIT certificates

Once you have managed to access your account, the frustration starts. For some strange reason, when disclosing income from fixed deposits, the IRD wants many columns of information ranging from the name of the bank, the bank TIN, the gross interest, the amount of advance income tax (AIT) deducted, the date when the bank had paid over the AIT deducted to the IRD, the certificate number that the bank had issued to you and so forth. You need to enter twelve rows of information if you have a fixed deposit where interest is paid monthly. If you have ten fixed deposits generating monthly interest, you must enter 120 rows of information! It is insane.

Your frustration is further accentuated when you realize that the bank has not given all the necessary information in the certificate issued that the IRD wants from you. This is an utterly unacceptable state of affairs as the IRD should have agreed with the banks as to the format of the AIT certificate to be issued to the customers. I assume that this has not been done because most of the banks are not issuing AIT certificates that comply with the requirements of the IRD. While appreciating that banks face a challenge in modifying their computer-generated reports, they must prioritize this aspect to support the government’s drive to collect taxes and induct non-compliant taxpayers into the tax net. This is an area in which the banks must play an important role.

Banks should compulsorily obtain customer TIN and their excessive charges

As an initial but essential step, the banks must, in my opinion, request all their customers who have fixed deposits to provide their Tax Identification Number (TIN). This is mandatory in several other countries. Once the customer’s TIN is known, the bank can submit their monthly computer returns to the IRD, including the TIN, enabling the IRD to upload the taxpayer’s interest income and AIT deducted as pre-filled information to your tax return. The IRD has attempted to do so but has miserably failed in their attempt as, presumably, the returns submitted by the banks did not have the necessary information.

Another concern is when banks charge customers excessive amounts as bank charges to issue a confirmation of their deposits and bank balances as of 31st March. This certificate is necessary to support your declaration of assets in the tax return. Some banks charge as much as Rs. 750 to confirm a balance. The charge is basically for a printout from their computer system of your money they hold!

The need to settle Income Tax by Online Transfer or by Bank Pay Order

Another inconvenient and inconsiderate move by the IRD impacting individual taxpayers during the year was to introduce a rule requiring that income payments be made to the IRD only by online transfer or by a bank pay order. The initiative is undoubtedly due to a high incidence of dishonoured cheques. However, in my view, the IRD should allow individual taxpayers whose payments are less than Rs. 5 million for a quarter to pay by personal cheque. This would no doubt again help senior citizens who either don’t have online banking facilities or are reluctant to make electronic transfers.

The IRD must be sensible and considerate of individual taxpayers in making these decisions. I also find the rule applied only to income tax payments rather strange, as the IRD’s revenue from value-added tax is more or less the same as income tax, but there is no mandatory requirement to pay VAT by online transfer or bank pay order. Therefore, it is rather difficult to comprehend the IRD’s thinking in this.

I hope that by the time the next income return for 2024-25 is due in November 2025, the IRD and the banks will have resolved many of the issues I have highlighted. Citizens must be tax compliant and pay their taxes; however, the IRD must also make the process a bit simpler for individual taxpayers.