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Wednesday, 8 February 2017 00:00 - - {{hitsCtrl.values.hits}}
From left: KPMG Principal - Tax and Regulatory Suresh R.I.Perera, Laugfs Group Finance Director Dilshan Perera, KPMG Senior Manager - Tax and Regulatory Rifka Ziyard (Moderator), Finance Ministry Tax Policy Advisor Thanuja Perera, Royal Ceramics Lanka Head of Finance and Treasury Haresh Somashantha and Jetwing Hotels Executive Director Sanjeewa Anthony - Pix by Kithsiri de Mel
UTO Edu Consult organised a seminar under the theme ‘Latest Developments in Taxation’ in order to enlighten the public on the currently applicable tax rules.
Suresh R.I. Perera, KPMG Tax Attorney, commenced the presentation by providing a snapshot of the legal and the implementation status of each tax i.e.Income Tax, Value Added Tax, Economic Service Charge, etc.
He mentioned that the Stamp Duty on share certificates and credit transactions have been gazetted to be operative from 1January 2016. However, the abolishing of Land Lease Tax is administratively being implemented, and the bill presented for the same has to be passed by Parliament.
He also pointed out that both Budget proposals 2016 and 2017 are pending legislation, along with Budget proposals 2017 pertaining to VAT and NBT. Vat and NBT amendments to the respective statues was passed in to law 2016.
Perera pointed out that due to the methodology used for ensuring that most of the elements of healthcare services are to be free of VAT for the patients, hospitals will be in a position to claim all the attributable input VAT without apportioning the same between liable services and exempt supplies.
With effect from 1November 2016 out of the gamut of services that would fall within the ambit of healthcare services only fees paid to medical practitioners, medical consultation fees, channeling fees and hospital room charges would attract VAT and all other aspects of healthcare services would be free of VAT. The methodology used in drafting provides relief to the tax payers is to exclude the majority of the health care services from the value of supply, attracting VAT excluding the aforesaid four services.
Perera in his presentation mentioned that the VAT and NBT thresholds have been revised to Rs. 3 million per quarter while the VAT threshold for wholesale and retail has been reduced to Rs. 12.5 m per quarter from Rs. 100 m. The NBT threshold of Rs. 25 million which was previously applicable for four sectors will now apply only to processing of any locally procured agricultural produce for sale. The threshold of Rs. 25 m is now revised to Rs. 3 m for hotels, guest house, restaurants, educational services and supply of labour.
Pereraexplained the concept of deemed Input Tax credit to allow wholesalers and retailers to claim a deduction in computing the vat liability to the Inland Revenue Department on account of purchases made from unregistered VAT suppliers. The mechanism works by permitting a deduction equivalent to purchase price multiplied by the VAT fraction as a deduction when paying to IRD though no VAT has been paid to suppliers.
He also pointed that the legal interpretation of the deemed Input Tax provision which enables wholesale and retailers to claim a VAT deduction on account of purchases of VAT unregistered persons is open for interpretation, though the Inland Revenue Department will be permitting the deemed Input VAT deduction for only those wholesalers and retailers that newly registered after 2May 2016.
In relation to the dairy industry, Perera in his presentation mentioned that as foreign yoghurt, butter, dairy spreads are subject to Special Commodity Levy at the point of importation and these products which are subject to special commodity levy are exempt from VAT. However, imported powdered milk is subject to VAT with effect from 1November 2016.
Local milk powder, containing added sugar and sweetening matter also became liable to VAT from 1November 2016. He also pointed that once the proposals are enacted, all types of local milk powder will be cease to enjoy the VAT exemption. Locally produced yoghurt, curd and dairy spreads, cheese will continue to be exempt.
The removal of the exemptions of the locally manufactured jewellery was reversed in the Budget proposals and this will be enacted with the 2017 amendments. During the panel discussion Thanuja Perera, Senior Tax Advisor to Ministry of Finance, pointed out that raw gold and raw precious metal would be exempt.
RifkaZiyard, Senior Manager – Tax & Regulatory, KPMG, the moderator for the event, mentioned that tax policy and tax administration are the two vital limbs of a tax system and that the appointment of a Tax Ombudsman which has been proposed in the Budget 2017 is a key proposal to boost the tax administration.
Suresh Perera mentioned that the role of the Tax Ombudsman will be to handle complaints on maladministration by the tax officers and that the appointment of a Tax Ombudsman will help to enhance taxpayer confidence. He also mentioned that it is important that the Tax Ombudsman should be established by Act of Parliament. Thanuja Perera mentioned that this proposal is at discussion at the moment and that it will be implemented before the next budget.
The new levies proposed in the Budget includes Financial Transaction Levy which Thanuja Perera explained will be applicable on all transaction processed by the banks and financial institutions and she mentioned that the rate proposed in the Budget proposals will be reduced to 0.02%.
She further mentioned that it is a tax on banks and financial institutions and that a tax similar to debit tax will be introduced on all withdrawals exceeding Rs. 5 million by the customers which should be borne by the customers. The vehicle entitlement fee which is currently collected by the banks will be collected by Director General of Customs.
Thanuja Pereraclarified that as proposed in the Budget once the law is passed the proposed 14% withholding will apply for companies on Treasury bills, bonds and corporate debt securities and there will not be any credit in the secondary market and the net amount will be taxed.
Sanjeewa Anthony, Executive Director, Jetwing Hotels mentioned that tourismwas one of the top three key sectors which attracts foreign currency to Sri Lanka and that it was important to regularise the informal hotel sector. He highlighted the importance of promoting only Tourist Board listed hotels on the online platforms.
Suresh Perera mentioned that from the proposal it was not clear whether the intention was to tax the online travel agent or to tax the informal hotel sector.Thanuja Pereraadded that the proposal in relation to online travel agents was at discussion stage and they would be gradually brought under the current tax systems and formalising the informal sector was also a key objective.
The Budget proposal to confine Income Tax exemption to individual unit holders in relation to investments in unit trusts was discussed at the panel discussion whereHareshSomashantha, Head of Finance and Treasury – Royal Ceramics Lanka, stated that unit trusts are for small investors and therefor confining the exemption to only individual unit holders was a good move. Currently the Income Tax rate applicable on the unit trust is 10% while the unit holders’ income is exempt.
Somashanthamentioned that attracting FDIs was vital for the country and tax concessions should be aligned to achieve FDI targets. He also affirmed that local industries should be encouraged to achieve economies of scale.
Dilshan Perera, Group Finance Director – Laughs Group mentioned that tax policies should be certain and that tax holidays maybe granted only if the outcome is certain. He further mentioned that the private sector expectation from the National Tax Council would be the assistance to draft consistent tax policies. Anthony also called for certainty and consistency in tax policies and mentioned that such attributes are vital for attracting FDI. 
