IRDS Faces Digital POS Rollout Challenges
As Sri Lanka moves forward with its digital tax efforts, the Inland Revenue Department (IRD) finds itself grappling with significant obstacles in implementing its much-anticipated point-of-sale (POS) and real-time Value Added Tax (VAT) invoicing system. Following a recent report from the Committee on Public Finance (CoPF), concerns have been raised regarding the timeline and technical requirements necessary for a nationwide rollout.
Two Years to Full Implementation
Acknowledging the daunting task at hand, IRD officials admit that full onboarding of VAT taxpayers could stretch out over a two-year period. Currently, the rollout hinges on receiving detailed hardware and software specifications from the Digital Economy Ministry, which remain pending.
Once these specifications are finalised, the government intends to issue a Gazette notification compelling VAT-registered taxpayers to comply within three months. However, CoPF members expressed skepticism as to whether the system will be adequately prepared for such a tight timeline, suggesting that the fundamental technological groundwork is still in its infancy.
A Slow Start
In its pilot phase, only a handful of companies have been onboarded—including just five wholesale and retail businesses, 15 apparel sector companies, and five tea exporters. With 36,656 registered VAT taxpayers in the country, this slow initialization raises questions about the effectiveness of the current approach.
MP Ravi Karunanayake emphasised that a limited number of entities are being targeted, potentially overlooking a larger revenue gap within the broader business community. Members of the CoPF highlighted the importance of integrating all businesses, especially those in wholesale and retail, into the digital tax system.
Technical Hurdles Persist
Integrating the necessary software with existing business systems, enhancing security measures, and providing support for smaller enterprises are ongoing points of contention. The CoPF underscored the need for consultations with service providers to mitigate potential bottlenecks before the system’s nationwide launch. Furthermore, officials noted that many businesses operate existing POS and accounting systems that will need to be modified or upgraded to comply with IRD requirements.
Significantly, the Committee has called for the new system to be “faceless,” reducing human intervention, which is critical for revenue collection and minimizing leakage. They also stressed the necessity of public awareness campaigns to prepare businesses for the impending shifts in invoicing practices.
The Path Forward
The IRD remains committed to realizing an efficient, real-time electronic invoicing system, with steps being taken to connect businesses directly to its databases. However, challenges remain in addressing diverse needs, particularly for smaller businesses that may struggle with compliance costs and technical capabilities. As the IRD prepares for a more digital tax landscape, stakeholders will be watching closely to see whether it can overcome these hurdles and successfully transition into the future.