The Inland Revenue Department (IRD) has issued a public notice explaining how the prosecution provisions introduced under the Inland Revenue (Amendment) Act, No. 11 of 2026 will be implemented, stressing that legal action will target deliberate tax evaders while allowing taxpayers time to rectify non-compliance.

The IRD said prosecution is a measure of last resort and that taxpayers will first receive a formal written notice before any legal action is initiated. They will then be granted a mandatory 30-day period to comply with outstanding tax obligations.

If a taxpayer fails to comply within the 30-day period, the offence may be prosecuted before a Magistrate’s Court, with penalties including a fine of up to Rs. 400,000, imprisonment for up to six months, or both.

According to the notice, prosecution provisions apply to specified failures, including not registering with the Commissioner General of Inland Revenue, failing to file income tax returns, and failing to submit annual statements, including Withholding Tax and Advance Personal Income Tax (APIT) returns.

The department said the enforcement strategy is aimed at individuals and businesses that intentionally fail to register, submit returns or conceal taxable income despite having tax liabilities, and not at cooperative taxpayers.

The IRD also clarified that individuals who have no tax liability and only require a Taxpayer Identification Number (TIN) will not be subject to these legal proceedings. Those with an income tax file but no tax liability may request their regional IRD office to close the file by providing the required information.

The Inland Revenue (Amendment) Act, No. 11 of 2026 came into force on June 3, 2026, introducing prosecution provisions for specified tax compliance failures.

7 key updates:

1. Formal written notice will be issued before any prosecution.

2. Taxpayers will receive a mandatory 30-day grace period to rectify non-compliance.

3. Failure to comply within 30 days may lead to prosecution.

4. Maximum penalties include a Rs. 400,000 fine, six months’ imprisonment, or both.

5. Prosecution applies to failures such as not registering, not filing tax returns and not submitting required annual statements.

6. The measures target deliberate tax evaders, not cooperative taxpayers.

7. Individuals with no tax liability who only require a TIN will not face prosecution, while those with inactive tax files may apply to have them closed.