COLOMBO, May 11 -- A proposal to give Sri Lanka's Inland Revenue Department (IRD) priority over other creditors in recovering unpaid taxes under a new bankruptcy and corporate restructuring law has come under scrutiny at Parliament's Committee on Public Finance, with economists and legal experts questioning its impact on business recovery efforts.

The debate emerged during deliberations on the draft insolvency framework, which seeks to modernize Sri Lanka's bankruptcy laws and provide struggling companies with a clearer path to restructuring instead of liquidation.

Under the proposed legislation, companies undergoing restructuring would be required to settle one year's outstanding income tax and value-added tax (VAT) obligations before ...