SL3 – CORPORATE TAXATION

STATUTORY PROVISIONS UNDER INLAND REVENUE ACT NO.24

OF 2017.

STATUTORY PROVISIONS – PART 06

RECOVERY OF TAX

DISCUSSION CONTENTS
▪ EXTENSION OF TIME FOR PAYMENT – SECTION 151
▪ NOTICE OF TAX IN DEFAULT – SECTION 152
▪ COLLECTION THROUGH COURT PROCEEDINGS – SECTION 163
▪ SEIZURE OF PROPERTY-THROUGH A LIEN – SECTION 164
▪ EXECUTION AGAINST TAX PAYER’S PROPERTY – SECTION 165
▪ SALE OF SEIZED PROPERTY – SECTION 166
▪ DEPARTURE PROHIBITION ORDER – SECTION 167
▪ PRIORITY IN BANKRUPTCY – SECTION 168
▪ OFFSET AGAINST PAYMENT – SECTION 169
▪ COLLECTION FROM THIRD PARTIES – SECTION 170
▪ COMPLIANCE WITH NOTICE – SECTION 171
▪ PRESERVATION OF ASSETS – SECTION 172
▪ NON –ARM’S LENGTH TRANSFEREES – SECTION 173
▪ TRANSFERRED TAX LIABILITIES – SECTION 174

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1. Extension of time for payment - (Section 151)

The taxpayer may apply, on a form specified by the Commissioner-General, for an
extension of the time for payment of tax beyond the date on which it is required to be
paid

The Commissioner General may, with good cause, extend the time for payment as
requested under above and may grant an extension period different from the period
requested by the taxpayer, pending resolution of an appeal, and may make other
arrangements to ensure payment of the tax, including arrangements requiring the person
to pay the amount due in instalments or by requiring security.

Where the Commissioner-General does not notify the person, who made application
under above, of the decision in writing within thirty days, the application shall be
deemed to be granted.

Where a taxpayer has been granted an extension under above interest shall be payable
notwithstanding the extension of time.

If an extension is granted by permitting the taxpayer to pay the tax by instalments and
the taxpayer defaults in paying any of the instalments, the amount of the outstanding tax
shall become payable immediately.

2. Default in Payment – (Section152)

The Commissioner General may send a notice to the taxpayer demanding payment when
a tax is not paid by the date on which it became due and payable.
The notice shall state:
(a) the name of the taxpayer;

(b) the taxpayer identification number (TIN), if such number has been issued to
the taxpayer;

(c) the date of issue of the notice;

(d) the amount of tax, interest, and penalties payable, and the tax period or periods
to which they relate;

(e) a demand for payment of these amounts;

(f) the place at which payment is to be made; and

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(g) that the taxpayer is on notice that, if payment is not made within twenty one
days after service of the notice, the Commissioner-General has the right to
institute action to collect the amounts specified in the notice.
The taxpayer shall be in default, twenty one days after service of the notice in respect
of any amounts remaining unpaid as of that date.
The above provision shall not apply where the taxpayer has,

(a) entered into a payment arrangement with the Commissioner-General; or

(b) received an extension pursuant to section 151” Extension of Time for Payment”
and complied with terms of the arrangement.

3. Order of Payment of Tax Debts – (Section 154)

discusses about the order of payment of tax. That is,

1. Interest,
2. Penalty,
3. Principal Amount

4. Priority of Tax – (Section 153)

This section shall apply to the following amounts,

(a) withholding tax;

(b) an amount that a payer is required to pay under a notice issued under section
170 (Third Party Debtors).

A person owing, holding, receiving, or withholding an amount to which this section

applies shall hold the amount in trust for the Republic of Sri Lanka and, in the event of
the liquidation or bankruptcy of the person, the amount:

(a) shall not form part of the person’s estate in liquidation or bankruptcy; and

(b) shall be paid to the Commissioner General before any distribution of property
is made.

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Notwithstanding any other written law, withholding tax withheld by a person:

(a) shall not be subject to attachment in respect of any debt or liability of the
person;

(b) shall be a first charge on the payment or amount from which the tax shall be
withheld; and

(c) shall be withheld prior to any other deduction that the person may be required
to make from the payment or amount under an order of any court or any law.

PROCEDURE OF RECOVERY OF TAX

1. General – (Section 160)

The CGIR may proceed with any remedy once the tax payer is in default pursuant to sec-
152. “Default In Payment”.
2. Period of Limitation - (Section 161)
Institution of action commence within five years of the date on which the tax payer was
in default
3. Extinguishment of Uncollectible Amounts – (Section 162)
Where the CGIR is unable to recover an amount of tax, interest, or penalty due and
payable by a person under this Act, the Minister may, on recommendation of the
Commissioner-General and approval by the Cabinet, order the extinguishment of the
liability as a debt due to the Government.

Where the CGIR determines that a person whose debt was extinguished under above has
assets that may be attached to recover all or part of the unpaid amounts, the liability for
the debt may be reinstated by an order of the Minister, approved by Cabinet, revoking
the order made under above.

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4. Collection through court proceedings - ( Section 163)

Tax that is due and payable shall be a debt to the Government and shall be payable to
the CGIR.

Where a person fails to pay tax when it is due, the CGIR may commence proceedings in
a court of competent jurisdiction to recover the debt outstanding in respect of the amount
owing.

In any proceedings under this section, the production of a certificate signed by the CGIR,
stating the name of the defendant and the amount of tax owing, shall be sufficient
evidence that the amount is due for the court to give judgment in that respect.

In any proceedings for the recovery of tax it shall not be a defence for the defendant that,

(a) the tax, the taxable income or other tax base is incorrect;

(b) the tax charged is excessive; or

(c) the assessment is the subject of objection or appeal

5.Seizure of property-Through a lien (Section 164)

▪ A lien in favour of CGIR is created in that amount (Interest +penalty+ cost of
collection) on all property belong to tax payer.

▪ A lien shall arise at midnight at the commencement of the date of default.

▪ A lien is not valid against the interest of a person who is a purchaser from the
taxpayer, if the interest arises before the person had actual knowledge of the lien,
or before notice of the lien has been duly registered y the Registrar of the High
court and the Registrar of Lands, which occurs first.

▪ CGIR may file notice of a lien at any time after a taxpayer is determined to be in
default pursuant to section 152(tax is not paid on or before the due date)

▪ At least 15 days prior to registering a lien, CG should send a notice of the intention
to register lien to the taxpayer.

▪ Notice for lien should not apply when CG believes that the ability to collect tax is
in jeopardy.

▪ CG may file action in the High Court to enforce the lien created.

An affected person may apply to the CG for a release of the lien on the person’s property.
If the decision of the CG is not to release, taxpayer can go to High Court.

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6. Section 167 - Departure Prohibition Order

If CG is of the opinion that any person who is a defaulter is about to or likely to leave
without paying tax that is payable by him or tax that is payable by a company in which
that person is a controlling member, then CGIR may issue a certificate to a Magistrate
who then issue a direction to the controller of Immigration and Emigration to take such
measures to prevent the such person leaving from Sri Lanka.

7. Collection from Third Parties - (Section 170)

▪ CGIR may serve a notice in writing on a third-party debtor. the third part debtor
should remit such moneys to the CGIR to the least of below three

✓ the amount in default

✓ the money owed to the third party
✓ the amount specified in the notice

▪ CGIR has to issue a copy of such notice to the taxpayer

▪ The third party debtor shall not pay any amount to the tax payer until the CGIR
withdraws the notice.

▪ A notice be served on the tax payers employer required to withhold and pay to
the CGIR . However, first Rs 75,000.00 of the wages per month shall not be subject
to withhold.
7.1 Compliance with Notice - (Section 171)
▪ A third party who pays CG pursuant to the notice shall be treated as having acted
with the authority of the taxpayer.

▪ This section shall apply irrespective of any other written law, contract, or
agreement.

▪ If the third party is unable to comply with the notice due to lack of money in the
name of tax payer, the third party shall notify the CGIR in writing with the reasons
for inability.

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8. Preservation of Assets - (Section 172)

▪ The CGIR may make an ex-parte application to the District Court requesting for an
“Asset preservation order” to preserve the Assets if he sees that the taxpayer will
not pay the full amount and taxpayer takes steps to frustrate the recovery of tax.

▪ In this application CG may request the Court for preservation of the asset and
prohibiting any person holding, controlling or managing assets belonging to the
taxpayer from transferring, withdrawing, disposing or otherwise dealing with
assets.
▪ This preservation order valid for 90 days and may be extended by the court on
application by the CGIR.
▪ A person who fails to comply with the preservation order shall be personally
liable.

9. Non –arm’s length transferees - (Section 173)

Where the taxpayer’s liability has not been satisfied after levy of execution on property
known to the CG, a person who has received assets of the tax payer in a transaction that
is not arm’s length in the period of one year preceding the date of the levy shall be
secondary liable for the tax to the extent of the value of the assets received.

10. Transferred tax liabilities – (Section 174)

When a taxpayer has a tax liability in relation to a business and has transferred all or
some of the assets of the business to associate (transferee), then the transferee shall be
personally liable for the unpaid tax liability of the tax payer in relation to the business.