Budget Highlights 2007

* Port and Airport Levy….
Port and Airport Development Levy has been increased from 2.5% to 3% aimed at developing Ports and airports.

* Tax on lower dividend payout below 25 percent …
The budget proposal for the fiscal year 2007 expects companies to pay out 50 percent on their distributable profits as dividends to the shareholders. However it was proposed that 25 percent of the profit available for distribution should be paid as dividend. In case of any underpayment below 25 percent will be taxed at 15 percent, i.e. the difference between the dividend payout rate and 33.3 percent will be taxed at 15 percent. In conclusion any companies who pay out less than 25 percent will be taxed at 15 percent for the difference.

* Institutional Participation in the CSE to improve…
Unit trusts are facilitated with the exemption of income taxes from ‘revenue generated from sale of share’. ESC will also be reduced to 0.5 % on Unit Trusts.

* Changes in Economic Service Charge…
ESC can be set off with Income of a company. ESC charged on wholesalers and retailers will be reduced to 0.25% except motor vehicle and Liquor.

* Relaxing policy towards Withholding Tax…
The lower withholding tax was revised from Rs 108,000 to Rs 300,000. The gap between an interest income of Rs 300,000 and Rs 600,000 will be taxed at a lower 5 percent. In contrast any income above Rs 600,000 will be taxed at current 10%.

* Health Sector is encouraged to expand…
VAT on high tech medical equipment was lowered to 5%. This will positively impact on companies in the health industries, which are in the expansionary move.

* Tax concessions on Construction sector…
Relevant adjustments in the Withholding Tax on the Construction industry from 5% to 1% will benefit the companies in the construction industries.

* Increases in VAT base of companies…
Input claims of VAT on Electricity cannot be set off against the output tax of the companies.

* More favourable proposals on Plantation sector…
A Plantation sector is expected to benefit from lower ESC of 0.25 % from a previously higher 0.5%. Machinery imported by plantation companies (Tea, Rubber and Coconut) will be exempted from VAT.

* Leather companies to benefit…
Leather and Apparel industries are expected to benefit. Ceylon Leather, who recently announced their expansion plans, will get benefited.

*Special levy on Motor Vehicles ….
VAT on Motor vehicles or lease payments cannot be claimed against their output VAT. A special levy of 2.5% will be charged on motor vehicles on the original cost.

* Employee Share Options will be facilitated…
Employees will be exempted from income taxes on exercising the Employee Share Option Schemes. This will improve public companies to come out with ESOP, which are mutually beneficial to the company and the employee. (Courtesy – SC Securities)