Sri Lanka’s proposed Inland Revenue (Amendment) Bill of 2026 signals a decisive shift toward stricter tax enforcement, introducing criminal liability for taxpayers who fail to comply with key obligations such as registration, filing returns and responding to official notices. Tax professionals say the legislation marks one of the strongest compliance drives introduced in recent years as the Government attempts to widen the tax base and improve revenue collection amid ongoing economic reforms.
At the centre of the proposed legislation is a new Chapter XVIIA titled “Prosecution of Offences,” particularly Section 185A, which establishes the legal framework for prosecuting individuals who repeatedly ignore tax obligations. Under the new provisions, taxpayers who fail to register for a Taxpayer Identification Number (TIN) within 30 days after their first taxable year, or neglect to submit annual income tax returns within the stipulated deadlines, could face criminal proceedings.
The Bill also extends liability to those who fail to cooperate with Inland Revenue Department (IRD) investigations. Taxpayers who refuse to appear before officials for inquiries, fail to submit annual information statements, or ignore requests for additional tax documentation may also be prosecuted under the proposed law.
Tax experts describe the amendment as a major transformation in the country’s revenue administration framework. KPMG Sri Lanka Head of Tax and Regulatory Suresh Perera noted that the proposed law creates a direct pathway from administrative non-compliance to criminal prosecution, significantly raising the consequences for taxpayers who disregard statutory obligations.
According to the draft legislation, legal action cannot begin immediately. Before prosecution is initiated, the Commissioner General of Inland Revenue (CGIR) must issue a formal written notice to the taxpayer concerned. The notice will clearly state that legal proceedings will follow unless the individual complies with the law within 30 days.
Experts say this period effectively serves as a final opportunity for defaulters to regularise their affairs before facing court action. However, failure to comply within the specified timeframe, without what the law terms a “reasonable cause,” would amount to an offence under the Act.
Those found guilty after a summary trial before a Magistrate could face a fine of up to Rs. 400,000, imprisonment for up to six months, or both. Legal analysts believe the inclusion of custodial punishment demonstrates the Government’s determination to discourage habitual tax avoidance and improve compliance levels.
The proposed amendments arrive at a time when Sri Lanka is under pressure to strengthen public finances and increase state revenue under broader fiscal restructuring efforts. Authorities have repeatedly highlighted weaknesses in tax collection and the need to improve compliance among individuals and businesses.
Observers say the legislation sends a strong warning that ignoring tax notices will no longer result merely in administrative penalties or interest charges. Instead, persistent non-compliance may now carry criminal consequences, placing taxpayers directly within the reach of the judicial system.
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