Tax Privilege Systems in Sri Lanka and Other Countries: How They Work and What Sri Lanka Can Improve

Many countries today use tax privilege and recognition systems to encourage taxpayers to comply voluntarily. Instead of depending only on penalties and audits, tax authorities also reward honest and responsible taxpayers through special status, administrative support, and public recognition.

Sri Lanka has recently reintroduced such a system through the Tax Privilege Card issued by the Inland Revenue Department (IRD). Similar systems operate in countries such as South Korea and Pakistan, each following different operational models.

This article explains how Sri Lanka’s system works, how other countries operate their programs, and what Sri Lanka can learn from them

1. Sri Lanka: IRD Tax Privilege Card System

Sri Lanka’s Tax Privilege Card is designed to recognize taxpayers who maintain good compliance records and fulfill their tax obligations on time.

Main Features

  • Official recognition by the Inland Revenue Department

  • Issuance of a Privilege Card to eligible taxpayers

  • Encouragement for voluntary tax compliance

  • Limited administrative facilitation

Purpose

The main objective of this system is to improve the relationship between taxpayers and the IRD and to promote a positive tax culture based on trust and cooperation.

It represents a shift from a purely enforcement-based approach toward a more supportive compliance model.

2. South Korea: Exemplary Taxpayer Program

South Korea operates one of the most advanced taxpayer recognition systems in Asia, known as the Exemplary Taxpayer Program.

How It Operates

  • Taxpayers are selected based on long-term compliance records

  • Nominations are made by tax offices, citizens, and taxpayers themselves

  • A formal review committee evaluates candidates

  • Winners are announced annually on Taxpayer’s Day

Key Benefits

  • Audit exemption for up to three years

  • Reduced security requirements for tax payments

  • Priority service at tax offices

  • Public recognition and awards

Purpose

South Korea’s system is designed to reduce compliance costs for honest taxpayers and to make tax compliance economically beneficial.

3. Pakistan: Tax Honour Card System

Pakistan’s Federal Board of Revenue operates the Tax Honour Card scheme, which focuses strongly on public recognition and prestige.

How It Operates

  • Top taxpayers and exporters are selected annually

  • Categories are defined based on tax contribution and sector performance

  • Awardees are recognized at national-level ceremonies

Key Benefits

  • Fast-track immigration clearance

  • Access to VIP airport lounges

  • Official or free passport facilities

  • Invitations to Prime Minister’s award events

Purpose

The Pakistani model aims to motivate high-value taxpayers by enhancing their social status and public image.

4. Comparison of the Three Systems

After understanding how each country operates its system, the differences become clear.

Area Sri Lanka South Korea Pakistan
Main Objective Encourage compliance Reduce compliance burden Promote prestige
Audit Relief Not clearly defined Up to 3 years No
Priority Services Limited Strong Moderate
Travel/Lifestyle Benefits Minimal Limited Strong
Public Recognition Low High High
Digital Integration Limited Advanced Moderate

5. Weaknesses in Sri Lanka’s Current System

Although Sri Lanka’s initiative is positive, several weaknesses limit its effectiveness.

1. Limited Practical Benefits

Unlike South Korea, Sri Lanka does not clearly provide audit exemptions or major administrative relief. As a result, the perceived value of the Privilege Card remains low.

2. Lack of Transparency

Selection criteria and evaluation methods are not clearly published, which reduces confidence in the system.

3. Weak Public Promotion

The system lacks strong national-level promotion and media coverage, reducing its motivational impact.

4. Limited Digital Integration

Applications and evaluations are not fully automated within IRD systems, increasing administrative delays.

5. Weak Link to Long-Term Compliance

Long-term compliant taxpayers do not receive significantly higher rewards than short-term compliant taxpayers.

6. What Sri Lanka Can Learn from Other Countries

Sri Lanka can strengthen its system by adopting selected international best practices.

From South Korea:

  • Introduce defined audit relief periods

  • Reduce compliance-related administrative burdens

From Pakistan:

  • Improve public recognition and visibility

  • Strengthen national-level award platforms

Additionally, Sri Lanka should:

  • Publish transparent eligibility criteria

  • Digitise evaluation processes

  • Set measurable service standards

7. Conclusion

Sri Lanka, South Korea, and Pakistan all operate tax privilege systems, but with different operational priorities.

  • Sri Lanka focuses on encouragement and relationship-building

  • South Korea focuses on efficiency and compliance cost reduction

  • Pakistan focuses on prestige and visibility

Sri Lanka’s Privilege Card system is a positive foundation. However, to become an effective compliance tool, it must evolve toward a more transparent, incentive-based, and digitally integrated framework.

With appropriate reforms, it can play a significant role in strengthening Sri Lanka’s tax culture and revenue sustainability.

Read More : Privilege Card Scheme for Individual Taxpayers

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