Seeks engagement with Finance Ministry to discuss recommendations and concerns
Wide-ranging changes to come into effect on 1 April
Weighs in with 11-page document highlighting many issues including tax on capital, levying of capital gains tax, credit on Withholding tax
The Ceylon Chamber of Commerce (CCC) yesterday said it had submitted a series of recommendations to the Government on the proposed Inland Revenue Bill and sought to open up space for engagement with the Finance Ministry and Inland Revenue Department ahead of its implementation.
“Given the wide implications of a new Act governing the Inland Revenue regime, on business operations and investor confidence, we believe that consultations with the private sector is important, prior to finalizing a new statute,” a statement from the CCC said.
It also referred to the recent International Monetary Fund (IMF) statement issued on 7 March 2017 winding up its Sri Lanka Mission, that said: “…advancing the legislative process for the new Inland Revenue Act, with effective public consultations, is a critical step towards rebalancing the tax system toward a more predictable, efficient and equitable structure.”
The Chamber was alerted by its members that the Government is in the process of formulating a new Inland Revenue Bill, to be implemented with effect from 1 April 2017.
The Taxation Steering Committee of the Chamber, which has member representation across many sectors, and has all professionals with expertise in this area, met several times, deliberated on it in detail and compiled a set of comprehensive observations and recommendations on the draft bill. As with all Chamber submissions, the viewpoint was of the entire private sector, but bearing in mind national needs for enhancing revenue, the statement added.
“The Chamber fully supports efforts to modernise the tax system - both in terms of tax policy, tax law and tax administration. We look forward to an early opportunity to engage with the authorities to discuss our suggestions and concerns and hope that the Ministry of Finance and the Inland Revenue Department opens up this space.”
Among the main points raised by the CCC in its recommendations, which were seen by the Daily FT, is the method of claiming capital allowances. Referring to the Generally Accepted Accounting Principles, the CCC recommendations point out that the current act deals with capital assets fairly easily but that the new legislation “complicates” the process.
“In the new Act the method of claiming capital allowances, the sale of the asset and treatment of the resulting gain/loss has been unnecessarily complicated. If section 25 of the current Act is maintained then complication introduced by the new Act can be avoided. In fact there is one schedule and a chapter unnecessarily allocated for capital assets when this could be dealt with very simply under the current Act,” it said.
“In the new Act no credit is granted for Withholding Tax deducted on interest income arising on treasury bills, Cooperate debt securities and on fixed deposits for companies. As a result the effective tax rate of investment income in the above instruments for a corporate will be around 38% (28% and 14%). If no credit were granted against tax deducted on interest income, such law would be against all forms of equity and justice.”
Several concerns have also been raised with regard to dividends, EPF and terminal benefits paid to employees and interest income for individuals. The 11-page document, which can be found on the CCC website, also deals with interpretation of tax laws, the definition of final withholding tax, insurance business and the registration of transfer of capital assets.
On the sale of shares in public quoted companies, “The new Act appears to be exempting from income tax the gains arising on the sale of shares only if it is held as an investment. However, the understanding with the Minister was to maintain the current status and exempt the gains from the sale of a quoted share whether it is business or investment and whether it arises to an individual or a company,” the CCC proposal said. It also wants changes on how capital gains tax would be levied. (Daily FT)