New Inland Revenue Act

asked Jul 20, 2017 in Income Tax by wmthushara (3,830 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.

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answered Jul 20, 2017 by wmthushara (3,830 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Withdrawn Disallowances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

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