From left: ICC Sri Lanka Secretary Shanil Fernando, Tax and Regulatory Principal Suresh R.I.
Perera, Access Engineering PLC Managing Director
R.S.
Hapuarachchi, Tax and Regulatory Director
I. Perera, and Tax and KPMG Regulatory Director
The presentation covered all taxes that have been subjected to reforms in the past three months, such as Income Tax, Value-Added Tax, Nation
In addition to the 32 notifications, there are five tax bills (i.e.
VAT, NBT, ESC, Finance Act, and PAL) that have been published but are still pending legislation. However, the Income Tax Bill is yet to be issued.
The key changes introduced were discussed at length during the presentation delivered by
Rifka Ziyard explained the mechanisms of the withholding regime in
withholding on employment income, withholding on investment returns, and withholding on service fees.She mentioned that post the tax reforms, the withholding of taxes under investment and service fees has been fully removed for a 'tax resident' other than withholding for winnings on betting, gaming and lottery and the sale of gems.
The withholding on employment has also been removed for a resident, however the retention by the employer of terminal benefits will continue.The web notice of 12 and 18 February stated: "WHA is not required to deduct WHT on the above payments and taxpayers are required to declare the income from above sources also in their income tax return and make the income tax payment in quarterly instalment basis subject to the provisions of the IRA.
Those who have not registered for tax are required to register with IRD for this purpose."
He pointed out that Section 86 (4) should be amended in order to ensure a withholdee is not considered a tax defaulter. Withholding on employment incomeThe withholding on employment on a resident employee is removed with effect from 1 January.
The web notices indicate that any tax withheld for the month of January to be returned to the employee. Rifka Ziyard, in the presentation, pointed out that by advancing the WHT removal from April to January, an additional complexity has arisen in computing the annual Income Tax liability for the Year of Assessment 2019/20 (period from
As taxes have already been paid for nine months ending
These obligations include registration for a TIN, filing of Statement of Estimated Income Tax Payable, process quarterly payments, filing a Return of Income, etc.The withholding by employer will continue for a non-resident employee.
The non-resident employee, if a citizen, will be entitled to a tax relief of
While a non-resident/non-citizen will not be entitled for such relief. The slab rates provided in Table 1 will be applicable for non-resident employees.
Individual TaxationAn individual filing an Income Tax return, who maybe self-employed or a person who is a resident employee not subject to employer withholding, will be entitled to a
Further, their income will be taxed as per Table 1.Further, a resident individual is entitled to a qualifying payment relief up to Rs.
1.2 Million for a Year of Assessment from:(a) health expenditure including contributions to medical insurance(b) educational expenditure incurred locally, for such individual or on behalf of his children(c) interest paid on housing loans(d) contributions made to an approved pension scheme(e) expenditure incurred for the purchase of equity or security.
Investment ReturnsFurther to the tax reforms, a resident will not be subject to withholding tax on payments of dividend, interest, discount, charge, natural resource payment, rent, royalty, premium or retirement payment received and or on service performed by such individual.The presenters explained that the withdrawal of withholding tax is only the removal of a mechanism but each individual is liable to pay taxes by self-declaring their income and filing the Return of Income.
There are instances in relation to interest where some may have to pay higher taxes since under the withholding scheme, the interest was subject to 5% tax and an individual was not called upon to pay any further tax.A non-resident will continue to be subject to withholding on sources other than dividends.
Dividends paid to a non-resident is exempt while interest paid to a non-resident is taxed 5% (subject to the threshold of
750,000 for the three-month period, ending 31 March). Any other payments, such as royalty or rent to a non-resident person, will be subject to 14% withholding.
Interest ExemptionsThe proposals seeks to exempt the interest accruing to or derived by any person outside
Furthermore, an exemption is granted to any person who receives interest/discount on any sovereign bond denominated in foreign currency, including Sri Lanka Development Bonds, issued by or on behalf of the Government. Both above exemptions are with effect from
Dividend exemptions from and gains on the realisation of shares in a non-resident company has been extended to any person (with substantial participation).In addition to the above, dividends paid by a resident company to a member who is a non-resident person are also exempt.
Service feesWithholding on service fees paid to a resident has been fully removed from 1 January. Hence an individual who receives service income will have to file the Return of Income if such income is beyond the tax relief threshold of Rs.
3 million per annum.An exemption has been made available for gains and profits received by any person for any service rendered in or outside
However, the payment of service fees or management fees to a non-resident will continue to be subject to withholding tax of 14%. Payment made to a non-resident person in respect to land, sea or air transport or telecommunication service is subject to WHT at 2% of the payment.
Any withholding of taxes from a payment to non-resident will be subject to the provisions of relevant DTAA. Corporate Income TaxThe Corporate Tax Rates in
The standard Corporate Income Tax rate is 24% (has been brought down from 28%) the manufacturers enjoy an 18% rate and the concessionary rate of 14% is extended to certain activities. The sin industries, such as betting, gaming, liquor and tobacco, will now be taxed at 28%.
Certain activities, such as information technology and enabled services and agro-farming, have been granted an exemption from Income Tax. Value-Added TaxSuresh Perera explained the recent VAT reforms in relation to the VAT rate changes and the threshold.
He explained the reasons as to why a price reduction was not experienced although VAT rate was reduced, taking the example of the stocks purchased by paying a VAT rate of 15% prior to December 2019.The zero rating provided to the hotel industry currently has been issued as a Gazette notification under Section 2 A of the VAT Act. He further added it is important that the zero rating status should be granted through Section 7 of the VAT Act, and in drafting the law, the same needs to be considered.
Other areas in relation to VAT exemptions, such as voluntary registrations, SVAT inactivation, etc., were also discussed.
Abolition of taxesCertain taxes have been removed from the tax system in
While the Debt Repayment Levy, which was a charge on the VAT on FS basis, has also been removed from 1 January. The DRL was introduced in
Further, Economic Service Charge, which is a percentage tax on the turnover, has also been abolished with effect from 1 January.Rifka Ziyard, in her presentation, stated that the banks and financial institutions were faced with additional compliance burden when NBT was extended to financial services in 2014 and DRL was also introduced in 2018. On the same Value-Added Tax basis calculated for financial services, a bank or financial institution was paying VAT at 15%, NBT at 2%, and DRL at 7% with separate returns, computations and payments, etc.
The collection of NBT on financial services and DRL for the nine months, ending
The removal of NBT and DRL will provide major relief to banks and financial institutions.The presentation was followed by an intellectual and interactive panel discussion with the audience posing multiple questions to the panellists.
The panel comprised eminent personalities from key industries, including Inland Revenue Department Deputy Commissioner General D.R.
In his opening remarks pertaining to the reforms, Hapuarachchi said the reforms, which take the nature of a significant tax cut, focus on the long-term economic policy of the Government as opposed to short-term Government revenue.He further added that although there may be a sudden drop in revenue, these tax cuts would eventually result in the creation of jobs as well as an improvement of the economy.
In addressing a question in relation to the number of press notices issued by the DIR, he said that while the Government does have a policy for the development of the economy and the country, the proposed changes are initially approved by the
Joshua, in speaking on his observations, welcomed reforms introduced by the Government, particularly the reduction in the Income Tax rate for the construction industry from 28% as per the Inland Revenue Act to 14%.He elaborated on the history of the Income tax rate of the construction industry, stating that prior to 2018, the industry was taxed at the rate of 12%.
He also addressed the removal of withholding tax on the payments made to contractors and stated that measures, such as the removal of NBT, WHT and the reduction of the corporate Income Tax rate, would all help to drive prices down, resulting in an upturn in the construction industry. Joshua expressed his gratitude to the Government and also added that companies would now be encouraged to venture overseas and engage in foreign investments.
Sanath Ukwatte expounded on impact the tax concessions would have on the tourism industry and concluded that the reforms were a positive move but stressed that a gestation period of approximately five years would be required in order to observe the intended result of the changes. He further mentioned that the tourism industry has been hit hard by the recent coronavirus scare and that the Government has been continuously supporting the tourism industry.
Ukwatte stated that with the reforms,
However, he requested for consideration to be paid to other provisions of the IRA 2017 in order to bring them in line with the provisions and regulations of the CBSL and maintain consistency across the board.He mentioned that banks and financial institutions have adopted IFRS at the request of the CBSL from 2018 and have therefore presented financial statements and declare dividends on the basis of IFRS 9.
However, for the purposes of taxation, institutions are required to revert back to provisioning as per the CBSL methodology. In order for the benefit to be wholly passed on to the financial sector, the IRA methodology for computing Income Tax for financial institutions must be revised.
He welcomed all the tax changes subject to the revision of certain IRA provisions.Nandika Buddhipala, in reasoning to a question raised by the moderator on the impact to the banking sector, stated that the events in an economy directly impact the banking sector.
The construction and consumption industries are the driving forces of the economy and any concessions offered to these industries would have a positive impact on the performance of the banking industry.He echoed the sentiments expressed by Lakshman and stated that the disparity between the requirements of the IRA and the CBSL as well as the excessive taxes imposed are negatively impacting overall activity of the banking sector.
He mentioned that it obvious to see that the Government has jumped into the deep end in increasing the attractiveness of
He also suggested that with the implementation of
The audience raised multiple questions to the panellists, who helped to dispel misinformation as well as provide clarity to those in attendance. In fielding a question from the audience,
He further added that although
© Pakistan Press International, source