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New tax bill: Sri Lanka’s corporates wary about ‘subtle’ non-deductions

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Say draconian powers drafted to be given to Inland Revenue Chief

Calls for independent body to get a fair hearing

By Sanath Nanayakkare

The new tax bill is one that demotivates taxpayers from being compliant and one that restricts existing taxpayers from their legitimate deductions, Nisreen Rehmanjee, head of corporate finance, group tax and social entrepreneurship project, John Keells Group said on Tuesday.

She said so at a webinar hosted by the Ceylon Chamber of Commerce (CCC) titled,” Implications of Amendments to the Inland Revenue Act.”

Predominantly taking a corporate view of the bill, she said,” Considering the financial situation of the country, I think that everyone has to pay more tax. That is a policy issue and I don’t have any problems with that. But we are concerned about proposed provisions on deductions, tax administration and taxpayer rights. The bill is attempting to collect taxes from those who are already paying and deny legitimate deductions that are incurred in the production of income. For example, in terms of new provisions, interest is considered to be a revenue expense and it is not a capital expense because it is basically what you pay for use of money for a year; and so it’s revenue. When it comes to capital assets it bears a condition that it has to be in use. I think that they have actually restricted this because interest is not a capital expense; it is not something you need to capitalize on because the new law recognises it as a revenue expense under section 12 and allows you a deduction. So I think it is a more restrictive deduction than an enabling provision.”

Further speaking she said,” There is a lot of significant uncertainty right now as to how exchange rate gains and losses are taxed. If one had losses why not allow those losses against gains and allow taxes to be paid on a net amount considering the very high rate of tax? The corporates are very concerned about such subtle non-deductions.”

“You should put your effort into actually broad-basing the tax net, but you are going after the people who are paying taxes. Shouldn’t that time and effort be actually spent on looking at people who are not paying taxes and who don’t have files?”

“Going to the Inland revenue Department and getting an estimate is a very judgmental call now. If you are saying that my profits this year are going to be lesser than last year, and therefore, I am estimating lower. If the assessor disputes that and the taxpayer has to go to the Tax Appeals Commission, it is an additional burden on a compliant taxpayer. We are getting crazy kind of assessments which are not defendable. IRD has a period of 30 months to make an assessment, but the tax payer is given only 14 days to analyse it, do the legal consulting and draft the appeal and submit it. That is very unfair. If the process is to be tightened then let’s reduce the time given to IRD to dispute the tax return to 18 months and make it more efficient. I think taxpayers need an independent body where they can go to and get a fair hearing before they go to the Tax Appeals Commission,” she said.

Sulaiman Nisthar, partner-tax, Ernst & Young said that agro farming, agro- processing and agro manufacturing would continue to enjoy tax concessions, but the definitions of these wordings need to be carefully evaluated.

Suresh Perera, principal of the tax and regulatory division of KPMG Sri Lanka said,” A particular provision of the bill gives draconian powers to the Commissioner General of IRD to come up with an estimate and there is no provision for it to be challenged. You have to pay taxes according to that estimate and if you don’t pay, then it is considered non-compliance. You don’t have a holdover relief position. In such a situation, you get only an extension period of six months to pay that amount. This is going to be a methodology for Commissioner General to collect taxes; just make any estimate that he wants which can’t be challenged. This is something that you need to act now and not later on because once this becomes law under article 88(3) of the Constitution, it will be too late to do anything about it.”

Duminda Hulangamuwa, senior partner and head of tax, Ernst Young & Sri Lanka said, “We made representations to the President, the Governor of the Central Bank and the Treasury Secretary on behalf of middle income individuals who are liable to pay high taxes when the new bill becomes law, but the message we got from them was they also didn’t like to increase taxes, but they were left with no other choice given the current economic realities and discussions with the IMF.”



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CDS signs up with Lanka IOC to act as Registrar

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The Central Depository Systems (CDS), a fully owned subsidiary of the Colombo Stock Exchange (CSE), recently signed a service agreement with Lanka IOC PLC as the registrar for Lanka IOC PLC, with effect from 01st of January 2023. Lanka IOC PLC, with a corporate history spanning 20 years, is the only private sector auto fuel retailer in Sri Lanka. Over the years, the company has made a significant impact on the socio-economic landscape by enabling mobility, economic activity, and development. With an island-wide footprint of 213 retail outlets, the company services 12% of the country’s retail fuel demand.

Reasoning on appointing CDS, as the Registrar for Lanka IOC PLC, its’ Managing Director, Manoj Gupta, said, “we engaged CDS to conduct our virtual annual general meetings during the period of COVID 19 pandemic where all listed companies were not in a position to convene any physical meeting as it was most essential to maintain social distance. We found the services rendered to us by CDS were highly satisfactory. Thus, we are happy to appoint CDS as the Registrars of the company.” “CDS has provided the service of handling the dividend payments to shareholders consecutively for the last
three years and carried out the functions in a very good manner, coordinating well with the bankers and shareholders,” added the Company Secretary of Lanka IOC PLC, Ms. Amali Liyanapatabendi

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SLT-MOBITEL honoured at Asian Technology Excellence Awards 2022

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Reiterating its leadership in innovative broadband deployment solutions, SLT-MOBITEL, the National ICT Solutions Provider was honoured with the prestigious ‘Technology Excellence Award for Network and Broadband – Telecommunications’ at The Asian Technology Excellence Awards 2022. The recognition is in appreciation of SLTMOBITEL’s innovative use of LTE 850MHz broadband solution which provides extensive coverage to rural areas of the country.

Understanding the need to provide superior rural connectivity to support the nation’s ongoing digital transformation and bridgingn the digital divide, SLT-MOBITEL’s innovative LTE 850MHz network strategically combined the underutilized spectrum from obsolete CDMA fixed line operations and forfeited its resources to obtain a new noninterfered 5MHz band for 4G LTE deployment from The
Telecommunication Regulatory Commission of Sri Lanka (TRCSL). This enabled, SLT-MOBITEL to significantly enhance rural connectivity across Sri Lanka, empowering every Sri Lankan to avail the benefit of SLT-MOBITEL’s Sub1GHz 850MHz LTE network especially during Covid-19 travel restrictions where broadband had become a necessity for everyone. In addition, SLTMOBITEL’s LTE 850MHz solution recovered valuable national spectrum resources which was interfered and exhausted earlier. With the coverage enhancement the mobile arm was able to connect an additional 700,000 subscribers who did not have access to broadband services earlier. With the LTE 850MHz deployment, SLT-MOBITEL was able to further bolster its support during COVID-19, providing rural communities especially the school children, people who worked from home and national authorities to immediately respond to Covid-19 emergency situations, thereby narrowing Sri Lanka’s digital divide

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Lingering debt-restructuring worries trigger share market volatility

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By Hiran H.Senewiratne

CSE trading was characterized by a marked degree of volatility yesterday. The CSE started trading on a positive note but by mid-day the market had turned negative, only to register some recovery during the latter part of the day. But the recovery could not be fully sustained, market analysts said. Market volatility could be traced to the worry among traders that the Chinese government is yet to respond
positively to the Sri Lankan government’s debt restructuring plan, although the Chinese Exim Bank responded positively to the IMF bailout proposition, analysts said. Stock market mid- day shares fell on
profit- taking after the market had continuously been on green after debt restructuring assurances by major creditors, an analyst said. “However, the anticipated rate cut wasn’t met and the
market over- reacted and moved to red, the analyst added.

Amid those developments both indices indicated a downward trend.The All- Share Price Index went down by 11.5 points and S and P SL20 declined by 2.78 points. Turnover stood at Rs 1.2 billion with two crossings. Those crossings were reported in Melstacorp, where 594,000 shares crossed to the tune of Rs 29.7 million, its shares traded at Rs 50 and Horana Plantations 300,000 shares crossed for Rs 21 million, and its shares traded at Rs 70. In the retail market, top seven companies that mainly contributed to the turnover were, Lanka IOC Rs 269 million (1.3 million shares traded),Softlogic Life Insurance Rs 147 million (1.3 million shares traded), Softlogic Capital Rs 122 million (eight million shares traded), LOLC Holdings Rs 71.9 million (158,000 shares traded), Expolanka Holdings Rs 54.4 million (289,000 shares traded), Browns Investments Rs 41.9 million (six million shares traded) and JKH Rs 41 million (298,000 shares traded). It is said that high net worth and institutional
investor participation was noted in Agstar, Melstacorp and JKH. Mixed interest was observed in Lanka IOC, Expolanka Holdings and LOLC Holdings, while retail interest was noted in LOLC Finance, Browns Investments and Softlogic Capital.

The Materials sector was the top contributor to the market turnover (due to Agstar), while the sector index gained 0.18 per cent. The share price of Agstar increased by 50 cents (3.23 per cent) to
close at Rs.16. The Diversified Financials sector was the second highest contributor to the market turnover (due to LOLC Holdings), while the sector index increased by 2.16 per cent. The share price of LOLC Holdings appreciated by Rs. 21.75 (5.11 per cent) to close at Rs. 447.25. During the day 41 million share volumes changed hands in 14000 transactions.

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