Sri Lanka proposes tougher action against tax defaulters

Sri Lanka is set to strengthen enforcement of its tax laws through proposed amendments that would allow authorities to prosecute taxpayers who fail to register, file returns or respond to official notices, tax experts said.

The Inland Revenue (Amendment) Bill of 2026 introduces a new Chapter XVIIA on the “Prosecution of Offences”, including Section 185A, which lays out the legal process for instituting criminal proceedings against non-compliant taxpayers.

KPMG Sri Lanka Head of Tax and Regulatory Suresh Perera said the amendments marked a significant shift in the country’s tax administration framework.

“Section 185A represents a move toward a more rigorous tax administration system in Sri Lanka,” Perera said.

Under the proposed provisions, taxpayers could face prosecution for failing to register for a Taxpayer Identification Number (TIN) within 30 days after the end of their first taxable year or for not filing annual income tax returns within the required timeframe.

The amendments also apply to taxpayers who fail to appear before tax officials for inquiries or examinations, neglect to submit annual information statements or fail to furnish tax returns requested by the Inland Revenue Department (IRD).

Perera said the law establishes a formal warning mechanism before legal action is initiated.

“Under Section 185A (1), the CGIR must first serve a notice in writing to the non-compliant person. This notice must explicitly state that legal proceedings will be instituted unless the individual takes the necessary steps to comply with the Act within thirty days of the notice being served,” he said.

He noted that the 30-day period effectively acts as a final compliance window for taxpayers to regularise their affairs before criminal proceedings begin.

If a taxpayer fails to comply within the stipulated period without what the law describes as “reasonable cause”, the person would be deemed to have committed an offence under the Act.

Upon conviction following a summary trial before a Magistrate, offenders could face a fine of up to Rs.400,000 and  imprisonment for up to six months, or both.

Perera said the amendments clearly establish the link between administrative non-compliance and criminal liability.

“By clearly defining the path from administrative non-compliance to criminal prosecution, the Bill sends a strong signal regarding the importance of mandatory registration, timely filing, and cooperation with tax officials,” he said.

He warned that taxpayers could no longer treat official notices from the tax authorities lightly.

“For taxpayers, ignoring statutory notices is no longer merely a matter of potential interest or penalties, but a path toward the Magistrate’s Court,” Perera said.

The proposed changes come as Sri Lanka continues efforts to strengthen tax administration and widen the revenue base under ongoing fiscal reforms.