Cash transactions on the rise
High taxes have pushed individuals to perform more cash transactions to evade the banking system and thereby dodge taxes.
Many try to avoid the banking system as the bank statements officially give the transaction records. Large traders and certain businessmen always encourage cash transactions, a businessman said.
An economist said the withholding tax of 5 per cent is stopping many professionals from taking money through the banking system. “Now, professionals, like doctors, always insist on cash more than before,” a banker said.
There is a new provision introduced to the Inland Revenue Act to deny deductions for cash transactions by denying the tax deductibility in computing the taxable income and excluding such payment from being considered as ‘cost of the asset’ if criteria laid down is not complied with, Suresh Perera, Principal of the Tax & Regulatory Division of KPMG in Sri Lanka, told the Business Times.
Accordingly, if a sum aggregating Rs. 500,000 or more is paid after this law is introduced, in a day or for a single transaction or series of single transactions for one event other than through a bank will not be allowed as a deduction when computing the taxable income to the person making such payment. Mr Perera added that it also would not be allowed to be considered as part of the ‘cost of an asset’.
However, this would not be applicable for any payment by the Government of Sri Lanka or any Government institution, any payment by a bank or financial institution, and such classes of persons or payments as may be prescribed by the Minister.
The economist suggested that the Income Tax Department upgrade its Risk Management Information System (RMIS) to integrate and record these types of payments. “The department needs to insist that the 5 per cent withholding tax has to be deducted.”
Certain bankers said that the payments in cash have been happening during the pandemic time. They point out that when the markets were stressed, people did not give credit and they always insisted on cash payments.
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