Sri Lanka tax enforcement confusion affects business, society
Sri Lankan taxpayers are becoming increasingly confused with the lack of clarity in the implementation of tax proposals and subsequent amendments proposed with effect from January 1 this year. Drama and confusion continues to plague policy-making decisions governing Sri Lanka’s economy with the latest being an Inland Revenue Department (IRD) circular relating to the revision of income tax proposals made in 2016 budget removed hours before its implementation on Thursday. This development was exclusively reported on www.sundaytimes.lk. The IRD withdrew the March 28 circular on the implementation of the revised income tax proposals in the budget in accordance with the cabinet decision on March 4 without giving reasons. It was also removed from the IRD website.
According to this circular, income tax rates on sectors other than banking and financial services, insurance, liquor, tobacco, lottery, betting and gaming have been increased to 17.5 per cent from 15 per cent with effect from January 1. Prime Minister Ranil Wickremesinghe had also proposed to increase statutory income tax to 17.5 per cent and it was endorsed by the cabinet, IRD sources said adding that the reason for withdrawal of the circular may have been the delay in the enactment of a necessary tax amendment bill in parliament. When asked for the reason behind the withdrawal, Commissioner General of Inland Revenue, Kalyani Dahanyake told the Business Times that the implementation was withheld on the directions of the Finance Ministry. She said the present income tax of 15 per cent will remain until further notice.
Government should shed some light on the way forward of its tax plans for this year as several tax and revenue proposals in the budget and post-budget phase are yet to be given legal status and is thus causing confusion, an eminent tax consultant who wished to remain anonymous said. Meanwhile the deadline on the implementation of new revisions introduced in the 2016 budget for new company registration, annual licence fees and the payment for the cancellation of registration has been extended on Thursday till June 31. Registrar General of Companies D.N.R. Siriwardena told the Business Times that the Treasury has directed the Department of Registrar of Companies in a letter on Wednesday stating that the deadline for these company payments which expired on Thursday, March 31 has been extended by three months.
He noted that the number of new registrations is around 40 per day (over the past few months) and his staff has been rushed to finalize the surge of various applications that were presented by the public who were eager to beat the deadline. However he noted that the implementation of the 2016 budget proposal relating to the voluntary cancellation of business registration by paying a penalty of Rs. 250,000 will be time consuming as the department has to consider the affidavits of such companies case by case and refer it to the IRD to verify tax liabilities. According to the Section 394 of the Companies Act, there is an obligation on the side of the Registrar of Companies to send a letter to a defunct company and wait for one month and if there is no reply then publish the name in the government gazette and within a 3-month period take the company out of the register.
He disclosed that around 70,000 private companies have been registered with the department while a large number of firms were not submitting annual reports and other relevant details regularly. In the meantime, Sri Lanka’s main supermarkets have informed manufacturers of fast moving consumer goods to absorb the 4 per cent VAT increase or raise their prices as it cannot bear the costs. Tax chief Ms Dahanayake said the present VAT rate of 11 per cent will remain as it is, adding that traders and supermarkets cannot charge more from consumer product manufacturers or consumers. Economic experts and tax consultants revealed that amendments made so far to the 2016 budget and the failure to enact amendment bills and issue circulars with guide lines bills are impacting on the country’s economy due to negative impact on 21 revenue proposals prepared by the Treasury to raise estimated revenue of Rs. 223 billion.