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corporate earnings in the year concerned (2013/14), at least the aggregate bottom line of top 50 companies in LMD magazine’s popular list was down by 6% to Rs. 171 billion. Of the list (see box) nine companies have actually seen their after-tax profit contract.
The criticism is not against the imposition or quantum of the tax but the rational, the terminology and the categorisation of these companies as those with ill-gotten gain.
“Since the Budget is a national document those who are required to pay this tax have been publicly shamed as those who have enjoyed ill-gotten or super gain,” analysts said adding that all those who comply by default will admit the alleged illegal gains.
In presenting the Super Gain Tax, Finance Minister Ravi Karunanayake said: “Honorable Speaker, we have observed that there are very few companies/businesses in Sri Lanka which have earned super normal profits during the last several years with the undue patronage of the previous regime at the expense of the development of many other companies/businesses in the country.
“This is not a tolerable situation by any means. As a responsible Government, we have a duty to provide justice to society through a proper mechanism,” he said.
Accordingly, the Finance Minister proposed a Super Gain Tax, which will be a one-off payment. Any company or individual who has earned profits over Rs. 2,000 million in the tax year 2013/2014 will be liable to pay 25% of their profit. This will help reverse the ill-gotten gains of these companies back to the general public. The expected revenue from this will be Rs. 50 billion in 2015.
Broking firm’s research divisions estimated over 20 or 30 listed companies will come under this threshold of Rs. 2 billion profit. Once the unlisted companies are included the total taxable base would be slightly higher. The Budget proposal wasn’t clear whether 25% will be charged on the original 2013/14 taxable earnings or post-tax. See table for list of companies who have made Rs. 2 billion and above after tax profit.
At Friday’s public forum on the Budget organised by the Ceylon Chamber of Commerce, Karunanayake estimated around 42 companies may be subjected to the Super Gain Tax. He emphasised that there was no witchhunt. He also clarified that the tax will be on single entities and not consolidated group results.
A official announcement is expected from the Ministry of Finance.
Nevertheless, corporates are still smarting over the label slapped on them. Corporate analysts said if there was any growth for companies’ profitability then business strategies and/or market conditions as well as lower finance cost or even extraordinary capital gains by virtue of sale of assets may have contributed.
“Without a proper assessment, a blanket labelling them and bringing them under Super Gain Tax is very amateurish and exposes the vindictive nature,” another opined.
The new Maithri Government could have admitted they needed revenue badly to finance much relief measures to the people and simply termed it as an additional tax if at all,” analysts added. The term ‘Super Gain Tax’ exposes the true intentions of the Government and publicly vilifies the private sector and in this case the listed companies, among whom are the country’s most respected brands and corporates as well as global award-winners. They have also gained global investor credence for good governance as several have large foreign shareholding. Some of them are multinationals.
Perhaps to set the record straight at Friday’s Ceylon Chamber Forum, its Chairman Suresh Shah was bold to say that not all companies had made alleged ill-gotten gains. He was concerned about the perception created in the country that all businesses had ill-gotten gains. Shah is also a Director on the Board of Carson Cumberbatch which figures in the list.
