When a business delays a tax registration, misses a filing deadline, fails to submit a required return, or does not respond to a request issued by the Inland Revenue Department, that failure has often been viewed as a regulatory lapse with financial consequences.

That position is changing.

The Inland Revenue (Amendment) Bill, which has already been passed by the Parliament and is awaiting the endorsement of the Speaker, signals a more stringent enforcement approach. With the introduction of section 185A, certain tax compliance failures that were previously dealt with largely through administrative mechanisms may now expose taxpayers to criminal proceedings before the Magistrate’s Court.

For companies, directors, senior management, and tax teams, this is not simply a procedural amendment. It is a significant shift in the legal consequences of non-compliance.

A missed filing may now lead to formal notice. A failure to respond within the prescribed period may trigger prosecution. What begins as an internal compliance lapse may become a court matter, with reputational, operational, and potentially personal consequences.

By that stage, the issue is no longer limited to tax administration. It may affect governance, management accountability, regulatory standing, and business continuity.

Tax compliance should therefore be treated as part of a company’s core legal and governance framework. Where statutory obligations are ignored or internal systems fail to respond in time, the resulting exposure may extend well beyond penalties and interest.

What changed under the 2026 amendments?

The key development is the introduction of section 185A, which provides for summary criminal proceedings in relation to certain specified failures.

Based on the available material, the provision applies to the following:

• failure to register with the Inland Revenue Department;
• failure to submit annual statements;
• failure to file income tax returns or other tax returns;
• failure to furnish requested returns; and
• failure to appear before the Commissioner-General of Inland Revenue when summoned.

These are compliance failures that many businesses would previously have regarded as administrative defaults. Under the amended framework, they may now become prosecutable offences if the taxpayer does not remedy the non-compliance within the statutory notice period.

This marks an important departure from the prior position under the Inland Revenue Act, No. 24 of 2017, where such matters were generally handled through assessments, civil penalties, interest, recovery action, and administrative procedures.

From administrative default to criminal exposure

The significance of the amendment lies not only in the nature of the failures identified, but in the legal consequences now attached to them.

Under the material presently available, the penalty for these offences may be:

• a fine of up to Rs. 400,000;
• imprisonment for up to six months; or
• both.

The matter is also triable summarily before the Magistrate’s Court.

This means that conduct that may once have been treated internally as a filing delay or an overlooked notice may now create criminal exposure if not addressed promptly after formal notice is served.

For corporates, this has obvious implications for internal compliance systems. For directors and management, it also raises broader governance concerns. A company’s approach to tax administration can no longer be treated as a purely operational matter.

The notice requirement matters, but it is not a comfort

The amendment includes an important safeguard. Criminal proceedings cannot be commenced immediately upon default. The Commissioner-General of Inland Revenue must first issue and serve a formal notice, and the taxpayer must be given 30 days to comply.

This notice mechanism was central to the constitutional review of the amendment. The Supreme Court reportedly held that there was no inconsistency between section 185A and the Constitution, observing that criminal proceedings could be instituted only after notice had been issued and time had been granted for compliance.

That safeguard is important, but it should not be misunderstood.

The 30-day period is not simply another extension of time within an administrative process. It is likely to be the final statutory opportunity to cure the non-compliance before criminal proceedings may follow. Any such notice should therefore be treated as urgent and escalated immediately to those responsible for legal, tax, and management oversight.

The available defence: reasonable cause

The material available indicates that the principal defence is to show “reasonable cause” for the failure to comply with the notice issued by the Commissioner-General.

This is likely to depend heavily on the facts and the supporting records available. Businesses that do not keep proper documentation, do not maintain clear internal responsibility for tax matters, or fail to preserve evidence of their attempts to comply may find it difficult to establish a credible defence.

The amendment therefore increases the importance of good compliance records, internal reporting lines, and prompt legal or tax review where there is uncertainty.

Why this matters in practical terms

For many businesses, tax risk is still understood primarily in financial terms. The assumption is often that if a filing is missed or a registration is delayed, the result will be a surcharge, interest, or some form of administrative follow-up.

The 2026 amendments change that risk analysis.

A company that overlooks a return, ignores a formal request, or fails to respond to a summons may now find itself confronting criminal process rather than administrative recovery alone. That in turn may affect:

• the company’s reputation with regulators, banks, investors, and counterparties;
• the confidence of directors and officers responsible for compliance oversight;
• the company’s readiness for due diligence, investment, acquisition, or restructuring;
• internal management time and legal costs; and
• the ability to respond quickly once proceedings are initiated.

In short, tax non-compliance now carries a wider business risk than before.

The implications for boards and management

The practical effect of section 185A is that boards and senior management should review whether their current systems are fit for purpose.

This includes considering:

• whether the entity or entities are properly registered for relevant tax purposes;
• whether statutory filing calendars are actively monitored;
• whether tax notices received by branch offices, finance personnel, or operational staff are escalated centrally;
• whether there is a clear person or team responsible for handling Inland Revenue correspondence;
• whether disputes are addressed promptly through the proper legal or administrative channels rather than left unattended; and
• whether records are maintained in a manner that supports a future explanation, objection, or defence if required.

Where these systems are weak, the legal risk is no longer theoretical.

A broader policy message

The amendment reflects a broader enforcement message from the state: procedural tax compliance is not optional, and non-compliance will no longer be addressed solely through financial sanctions in every case.

For taxpayers, this signals the need for a more disciplined and proactive approach. It is no longer sufficient to regard registration, return filing, information requests, and summonses as matters that can be dealt with later when time permits. Once the statutory process begins, delay may carry consequences that are far more serious than before.

The importance of early review

Businesses would be well advised to review any existing gaps now, before they become enforcement issues.

This may include checking whether:

• there are outstanding returns or statements that remain unfiled;
• any registration obligations have been overlooked;
• unresolved notices from the Inland Revenue Department are pending response;
• prior correspondence has not been followed up; or
• internal responsibility for compliance is fragmented or undocumented.

Early identification and regularisation of issues is likely to be far more manageable than responding after formal notice has been issued.

Final thoughts

The introduction of section 185A marks a meaningful shift in Sri Lanka’s tax compliance regime. Certain failures that businesses may once have regarded as administrative oversights now carry the possibility of criminal prosecution if not remedied in time.

For companies and directors, the central lesson is clear. Tax compliance is no longer merely an accounting function or a matter of late payment exposure. It is an area of legal risk that now requires active governance, timely escalation, and disciplined internal controls.

Businesses that treat tax compliance as part of their broader legal risk management framework will be better placed to avoid disruption, protect reputation, and respond appropriately when issues arise.