New Inland Revenue Act

asked Jul 20, 2017 in Income Tax by wmthushara (3,770 points)
The government has proposed a new inland revenue act , it can be recognized as a paradigm shift as it is entirely different to existing law. And this act has removed all exemptions except gain received from investments on quoted shares.

1 Answer

0 votes
answered Jul 20, 2017 by wmthushara (3,770 points)
Highlights Of The Proposed Act
Composition of taxable income,
o    Business Income
o    Investment Income
o    Employment Income (only for individuals)
o    Other Income

Business income
New disallowable expenses
•    Building maintenance limited to 5% of written down value (WDV)
•    Other Assets Maintenance limited to 20% of WDV
•    Financial cost limited to 3 times of share capital and reserves for manufacturers (others 4 times)
•    Capital allowances for building is reduced to 5%
•    Entertainment expenses
•    Expenses other than those expressly permitted by the act

Withdrawn Disallowances
•    Foreign travelling
•    Management Fees
•    25% of advertising
•    Finance lease rentals
•    Fixed rentals in respect of any travelling purpose vehicle or asset

Concessions
•    Concessions are given through accelerated capital allowances for minimum investment starting from USD 3 million. No other tax exemptions for investments given.

Rates
•    14% SME, Direct Exports, IT, agriculture, education etc...
•    28% Standard rate for all other income (Indirect exports, services to exporters also included)
•    40% Betting, gaming, liquor and tobacco


Tax Administration
•    CGIR (commissioner) has power to disregards schemes where the purpose is getting tax benefits.
•    Associated undertaking determination is based on judgment in addition to share ownership.
•    Losses can be deducted in full against profit (currently limited to 35% per year)
•    Technical review committee to be reviewed findings prior to issue assessments
•    Assessments can be issued without mentioning reasons.
•    Time bar for assessments increased up to 4 years (currently 18 months)
•    No tax benefits given for transfer pricing adjustments.
•    Penalty provisions to be introduced for noncompliance with transfer pricing provisions.



Investment Income
Dividend Tax
•    Rate is 14% and it is considered as final tax and companies to be acted as tax agents.
•    Dividend distributed out of dividend received is not liable for dividend tax, (but if the dividend received from foreign investment it is liable)

Withholding taxes on investments
•    For individuals the rate is increased to 5%, and it is a final tax
•    For Companies the rate increased to 14%, the withholding tax credit cannot be claimed. Net income is taxed at 28%, hence the effective tax rate is 38%.
•     Foreign currency investments, ordinary government securities and corporate bonds also to be liable for tax.


Capital gain taxes
•    Includes gains realizing from non-depreciable assets such as lands... and other assets not connected to the business.
•    Here the realization means sale, transfer, exchange, gifting, dead of owner (if individual) considered
•    Tax rate is 10%
•    No tax in imposed if the asset is principle place of residence and owned for at least 3 years and lived for at least 2 years

Exemptions for companies
•    Gain on investments in quoted shares, invested in Colombo stock market
•    Interest income from sovereign bonds denominated in foreign currencies
•    Dividend paid out of dividend received
Search Forum

Welcome to Lanka Tax Forum, where you can ask questions and receive answers from other members of the community. Although no registration is required to ask questions or provide answers, we kindly request you to take few seconds to get registered as a member.
...