Brace for tax onslaught in personal wealth management, warn experts

Gajma and Co Senior Partner N.R. Gajendran

Beyond Wealth Director Indrajith Fernando

Beyond Wealth Chief Wealth Architect Marina Goonewardena

People are warned to brace for a tax onslaught on personal wealth management, according to experts.

Lay aside any money you get in any substantial tranche for taxes, said tax-specialist and Chartered Accountant (CA) R. Gajendran, at a recent seminar titled ‘Individual Financial Planning and Crisis Management’ organised by Beyond Wealth Ltd. The seminar held at BBQ Station Colombo, offered insights to clientele on how to manage domestic and small business budgets in times of economic stress amounting to a limbo, until the country is on a proper path to economic recovery.

“Beyond Wealth has been inundated with requests to offer something more than independent financial advice in these times,” says the company’s Director Indrajith Fernando. “Our clients want to know the state of the economy, and then how to react to it.” In a lighter vein, speaking of evasion and the tax-net, Fernando, past President of ICA, said that Chartered Accountants were mentioned recently in parliament because they were mischievously identified as those who reduce revenue collection for the Government.

The comment however underlined the issues that would come into play, as Fernando opined, “… when personal taxes are drastically increased and the tax net is not widened as of necessity, and the sustainability of such measures have been ill-considered.”

The seminar focused mostly on the taxation aspects of post-Budget personal wealth management.

The entire concept of Wealth Management has undergone a transformation, says Fernando. His co-director at Beyond Wealth Rizan Jiffrey is of the opinion that the Budget in some ways accentuates the need for solid wealth-management related advice that relates to the unprecedented levels of economic uncertainty.

“The crisis faced by the country is both at a personal level and a level of public-perception calling for solutions that are hitherto untested,” he said.

Gajendran in his presentation stated that the impact on an individual’s taxes and as a result their personal wealth has been severe even though many people may have not realised it. He said that the envisaged tax-related legislation, if it goes through by December as expected, would mean people would be paying much more taxes than they currently think they would.

“You would be paying eleven times more than the taxes you are paying now particularly if you are in the lower income strata,” he said. “In the upper income strata the increase would be less,” he explained.

He said these taxes are not tenable and the matter would be taken up in Court and even the Judges’ Associations are concerned and have made representations because it impacts them as well.

With regard to the quarterly payments that are due in the immediate term, many people realise that they don’t have the money to pay taxes as the currency deprecation issues and demand and supply disparities have drastically reduced the value of money. If you had Rs. 100,000 its value has come down to around Rs. 25,000, he said.

“Even though we do not have a right to life clause in the constitution it’s the first time a tax-regime has been challenged in Court,” Gajendran opined.

He said the legislators have to hold the executive to account according to the recent Court judgment on VAT, and they have to ensure that the taxes imposed are justified.

When you go through the Budget they use the word ‘corruption’ in one place only and they don’t talk about the expenditure side much, only about the Inspector General, he pointed out.

“You have to go to Court to litigate these matters,” he said emphatically, explaining that there is not much to take away from the Budget in terms of impact on your personal finances, except to say that your taxes have been substantially increased.

Speaking earlier Jiffrey said that all concessions such as VAT exemptions have been removed so the tax-component of private enterprise, etc. would be all the more steep.

All taxes such as on capital gains, etc. with regard to personal wealth that were pegged at 14% have been standardised to 30% he said. All the exceptions given such as for computer software development which were at 14% have been standardised and the new rate is 30% he added.

Gajendran in his presentation further stated that if economic growth is impeded as a result of this tax-regime there would be resistance and that’s inevitable. “Those issues would be in the political realm,” he said.

Beyond Wealth is a provider of Independent Financial Advisory service in Sri Lanka and overseas. “Beyond Wealth is all about achieving one’s dreams and personal goals. By advising clients the company enables them to realise their dreams and goals. We are absolutely and in every sense of the word’s meaning, independent, and we maintain that status by offering a wide array of financial instruments, through our specially selected partners,” Beyond Wealth Ltd. Chief Wealth Architect Marina Goonewardena said.