Rates and taxes 2013

Assessment notices would be received by rate payers from the Municipal/Urban Councils in December 2012. When a notice of assessment is received, it has to be checked to see whether there is any increase in taxes payable (rates and taxes are usually revised every five years).

Increase in taxes is due to:

1. Increase in valuation of the property assessed.

2. Increase in rate applied on the valuation (say 25% to 30%). This cannot be challenged.

If the increase in valuation of the property is unreasonable, an appeal could be lodged within one month from the date of service of the notice of assessment.

An inquiry would be held and you could meet with the necessary documents either personally or through an attorney. If the appeal is successful a revised notice will be issued.

Municipal Councils and Urban Councils offer discounts on the following basis which should be checked with the relevant authorities (on the notices issued):

Full annual payment made on or before 31 January 2013: 10% discount

Full quarterly payment made on or before 31 January, 30 April, 31 July and 31 October 2013: 5% discount

Full quarterly payment made on or before 31 March, 30 June, 30 September and 31 December 2013: No discount

(Late payments are liable for spot penalty @ 10%).

Usually rate payers do not analyse these discounts against bank overdraft interest to arrive at the most beneficial method.

I furnish below the following particulars:

1) Annual rates (say)    

Rs. 400,000

2) Bank overdraft interest (say) 10%

Total payment of rates including interest would be:

Under Scheme a) 360,000 + interest at 10% on 360,000 for 11 months – Rs. 393,000

Under Scheme     b) 380,000 + interest at 10% on 95,000 quarterly for accumulated period of 26 months (11+8+5+2) – Rs. 400,583

Under Scheme     c) 400,000 + interest at 10% on 100,000 quarterly for accumulated period of 18 months (9+6+3+0) – Rs. 415,000

It will be observed that scheme (a) (10% discount) is the most beneficial one.

Using mathematical formulae you could arrive at:

i) Bank overdraft interest up to 16.10% – Scheme (a) is beneficial

ii) Bank overdraft interest 16.11% to 35.82%     – Scheme (b) is beneficial

iii) Bank overdraft interest over 35.83% – Scheme (c) is beneficial

However, taking into consideration the interest on interest basis (compound interest), these bank overdraft interest limits would be reduced to 14.74% and 31.200% instead of 16.10% and 35.82%.

Since bank overdraft Interest is in the region of 14% at present, it is beneficial to use the Scheme (a) (10% discount).

However, if the benefit between 5% and 10% is not material, it is better to adopt 5% method as more cash would be available till 31 December 2013 for trade one purposes. Never allow your tenant to pay rates and taxes in his name as it means that    you are recognising his rights to claim ownership to the property in the future.

I hope the rate payers would be benefited by this information.

S.R. Balachandran

BSc. FCA, FCMA

(Sri Lanka)