A total of nearly Rs. 2.1 trillion in outstanding tax arrears had been recorded by the Inland Revenue Department (IRD) as of the end of 2025, according to a new report issued by the International Monetary Fund (IMF).
The findings have been revealed in a recent IMF Technical Assistance Report, which states that nearly Rs. 1.6 trillion of the total defaults relates to tax assessments that are subject to appeals or other disputes.
The report further reveals that total outstanding tax arrears stood at nearly Rs. 1.1 trillion in 2024, of which approximately Rs. 947 billion was subject to such disputes.
Accordingly, the report highlights that appeals appear to be the largest barrier to collection.
It also points out that even undisputed tax arrears remain outstanding for extended periods, citing staffing constraints, weak prioritization and the absence of a risk-based framework to distinguish collectible debts from low-value, disputed, low-probability, or administratively uneconomic cases.
The report notes that under the Inland Revenue Act and the Value Added Tax Act, the Inland Revenue Department does not have the authority to directly write off unrecoverable tax debts, and such requests must instead be submitted to the Ministry of Finance.
The IMF has also observed that adequate recovery action has not been taken in respect of certain tax arrears that have remained outstanding for more than five years, even in cases where they are not subject to appeals or other disputes.
In view of these issues, the report recommends introducing a risk-based tax arrears management system that classifies outstanding taxes according to the length of time they have remained unpaid, whether they are subject to appeals or other disputes, their recoverability and the administrative costs involved in recovery.
Such a system would enable greater priority to be given to recoverable tax arrears while allowing low-value arrears, disputed amounts and debts with a low likelihood of recovery or those that are administratively impractical to recover to be managed separately, the report points out.
