Sri Lanka’s latest tax reform initiative is poised to introduce tougher penalties for individuals and businesses that fail to meet their tax obligations, with proposed laws paving the way for criminal prosecution against persistent offenders. The Inland Revenue (Amendment) Bill of 2026 introduces sweeping measures aimed at strengthening enforcement powers and compelling greater taxpayer compliance as the country seeks to stabilise public finances.
INLAND REVENUE (AMENDMENT)
The proposed legislation includes a new section titled “Prosecution of Offences,” which empowers authorities to initiate legal proceedings against taxpayers who fail to register, submit tax returns, provide required information or cooperate with tax investigations. Tax specialists say the amendments reflect a more aggressive approach by the Government toward tax administration and enforcement.
Under the Bill, individuals who fail to obtain a Taxpayer Identification Number (TIN) within 30 days after the end of their first taxable year may face prosecution. Similar action could also be taken against taxpayers who delay filing annual income tax returns or fail to furnish information requested by the Inland Revenue Department (IRD).
The law further targets individuals who ignore summonses or fail to appear before tax officials during inquiries and examinations. Failure to submit annual information statements or other required tax documentation could also trigger legal action under the proposed framework.
KPMG Sri Lanka Head of Tax and Regulatory Suresh Perera explained that the Bill introduces a formal procedure before criminal proceedings can begin. According to him, the Commissioner General of Inland Revenue (CGIR) must first issue a written notice to the taxpayer, informing them that prosecution will follow unless they comply with the law within 30 days.
The notice period is expected to function as a final warning mechanism, allowing taxpayers an opportunity to rectify outstanding issues before facing court proceedings. However, if the taxpayer continues to remain non-compliant without a valid or “reasonable” explanation, the individual would be considered to have committed an offence under the Act.
Upon conviction by a Magistrate’s Court following a summary trial, offenders could be fined as much as Rs. 400,000 and sentenced to up to six months in prison. Analysts say the inclusion of imprisonment provisions underlines the seriousness with which the Government now intends to treat tax offences.
Experts believe the proposed amendments represent a major departure from previous practices where many instances of non-compliance resulted primarily in administrative penalties or interest charges. The Bill instead creates a direct legal route from non-compliance to criminal accountability.
The tougher measures are being introduced as Sri Lanka continues implementing broader fiscal reforms aimed at improving state revenue collection and strengthening economic stability. Policymakers have repeatedly argued that expanding the tax net and improving compliance are critical for restoring confidence in the country’s financial system.
Tax professionals warn that the new legal framework will require taxpayers to pay far greater attention to official notices and filing deadlines. Under the proposed system, failing to respond to communications from tax authorities may no longer be treated as a minor oversight but as conduct carrying serious legal and financial consequences.