Spotlight on recent amendments to tax statutes

Monday, 14 July 2014 01:48 - - {{hitsCtrl.values.hits}}

The CIMA Sri Lanka conducted a seminar on recent changes introduced to tax system in Sri Lanka on 11 July with the participation of many eminent corporate personalities. The event commenced with a presentation by Suresh R. I. Perera, Principal Tax and Regulatory at KPMG. In his presentation he analysed the new changes introduced to the Inland Revenue Act, Value Added Tax Act, Nation Building Tax Act, Telecommunication Act, etc. He carried out an in depth analysis of the concessionary 16% tax rate granted to the professionals. Perera raised the issue whether the actual concession the policy maker intended for professionals in the budget proposal had been narrowed down by the drafters of the Amending Act by including many restrictive conditions. He also analysed the amendments introduced to achieve the tax neutrality for the process of segregation of the business of life insurance from general insurance and pointed out further amendments that may be considered to ensure the tax neutrality.

The panel discussion that followed after the presentation was moderated by Brandix Lanka Chief Financial Officer Hasitha Premaratne and Lanka Milk Foods Director and Hatton National Bank Director Sanjivani Jayawardena, Union Assurance Director/CEO Dirk Pereira, Department of Inland Revenue Secretariat Branch Commissioner D.R.S. Hapuarachchi and speaker Perera expressed their views at the panel discussion. During the panel discussion it was pointed out that Sri Lanka has moved out of granting liberal tax holidays unlike in the past and tax holidays are granted on a selective basis. There is a school of thought that investors do not look at tax holidays but they wish for tax certainty and stability

in the political situation of a country in carrying out their investment decisions. The point was also raised whether retrospective tax law amendments and the lack of an independent advance ruling authority, though a ruling committee comprising of tax officers is in existing, assist the cause of creating tax certainty in Sri Lanka. On the other hand the existence of discretionary element in awarding tax concessions could lead to abuse and many disputes. However tax concessions granted under the Inland Revenue Act have predefined criteria and the discretionary element is in the Strategic Development Projects. Hapuarachchi pointed out steps are being taken to introduce Revenue Administration Management Information System (RAMIS) that was mentioned in the Budget Proposals and the first meeting of the committee has been held. Under this project a unique number will be given to each individual and there will be information sharing among Department of Inland Revenue, Registrar of Motor Vehicles, Land Registry etc. Another topic subjected to discussion was the simplification of the tax system and the reduction of tax rates and the consequential loss of revenue to the Department of Inland Revenue. The point was made that the solution lies in strengthening the tax administration and bringing in more tax payers into the tax net as opposed to increasing the tax rates and introduction of new taxes. The discussion also focused on the fact that many Government institutions are engaged in businesses and the desirability of the same also came under scrutiny. Panellists pointed out that government should not exercise its influence to eliminate competition from private sector in the process. The view was also expressed that in areas where private sector is reluctant to carry on businesses the Government should engage itself to serve the communities. Should Sri Lanka as a policy gather lion portion of tax revenue from direct taxes or indirect taxes? Perera expressed his views, answering the point raised by the moderator, that Sri Lanka in its context should focus more on direct taxes as opposed to indirect taxes. Indirect taxes impact everyone equally but is it desirable in the context that Sri Lanka being a developing country and given a significant disparity in the distribution of wealth among population should be analysed further. Adam Smith’cs Canon of Taxation of Equity was cited in justifying the tilting the scale in favour of direct taxes. As per Adam Smith, taxes should be collected according to the ability of the person to pay. Broad shoulders should bear more burden. In developed countries where there is no such big disparity in distribution of wealth, it is acceptable to rely more on indirect taxes to fill Government coffers but not in Sri Lanka.