The government is struggling to meet its tax revenue targets amid a sharp rise in tax arrears and disputed tax claims in recent years.
According to a report by the Inland Revenue Department (IRD), outstanding tax arrears stood at Rs 94.95 billion as of fiscal year 2024/25. This amount includes unpaid taxes, late fees, and additional charges that the government has yet to collect from taxpayers.
In addition, disputed tax claims—amounts challenged by taxpayers and currently under administrative review by the IRD or under consideration by judicial bodies—have surged to Rs 180.10 billion. Taxpayers have sought reviews of these assessments, arguing that the tax amounts fixed by tax offices are unjust.
Together, unpaid arrears and contested tax claims account for more than Rs 274 billion in taxes that the government has yet to recover.
The mounting tax dues have contributed to weak revenue performance in recent years. In the last fiscal year, the government recovered only Rs 8.71 billion in income tax arrears against a target of Rs 22.76 billion, achieving just 38.29 percent of the goal.
Similarly, in value-added tax (VAT), the government collected Rs 10.33 billion in arrears out of a target of Rs 16.33 billion, recording a progress rate of 63.28 percent.
On disputed amounts, the government settled 78.1 percent of contested income tax claims. Of the disputed income tax worth Rs 27.38 billion, settlements amounted to Rs 21.39 billion. In VAT, however, settlement performance exceeded expectations. Against a target of Rs 18.17 billion in disputed VAT, the government settled Rs 22.29 billion during the review period.
Revenue collection has remained below target in the current fiscal year as well. In the first four months—from mid-July to mid-November—the IRD collected only 81.76 percent of its projected revenue. While the department had set a target of Rs 190.42 billion for the period, actual collection reached Rs 155.69 billion, leaving a shortfall of Rs 34.73 billion.
Under Section 96 of the Income Tax Act, 2002, individuals earning taxable income from business, employment, or investment are required to declare their income and submit statements within the stipulated deadline. Taxes that are not declared or paid on time, as well as amounts assessed by tax offices but left unpaid, are classified as tax arrears under the law.
