South Asia Gateway Terminals (SAGT) has been informed by the Department of Inland Revenue (DIR) that it claimed tax concessions under its Board of Investment (BOI) agreement after knowingly failing to fulfill BOI conditions for tax exemptions. The BOI agreement was signed on September 5, 1999. According to an assessment carried out by the Department of Inland Revenue (DIR) on the company’s accounts for 2007/2008, the tax concession for that year alone amounts to over Rs.2 billion.
In a letter dated March 30, 2010 to SAGT’s Chief Financial Officer (CFO), the DIR informed the company that upon examination of its financial statements for 2007/2008 prepared by KPMG Ford, Rhodes & Thornton, the BOI observed that SAGT failed to achieve 70% of income in foreign currency through the years 1999/2000 to 2008/2009. This was communicated to SAGT by the BOI in a letter dated March 11, 2010.
In terms of the agreement signed by the BOI and SAGT, the DIR letter states that SAGT was to comply with the following conditions: The project cost of the enterprise was not to be less than Rs.5,000 million and that such investment shall be made within a 3 year period from the date of the agreement.
urthermore, at least 70% of the income of the company was to be received in the form of convertible foreign currency from the services it provided.
These two conditions can be found in Section 2(iv) and Section 3(iv) of the regulations of the gazette notification on November 10, 1995 relating to the BOI Law No.4 of 1978.
SAGT is controlled by John Keells Holdings (JKH) which has a 42.2% stake in the terminal operator. A JKH official declined to comment on the story until the issue could be closely studied.
The DIR letter to SAGT said it has transpired that the company has claimed exemption for the profit of the business though not entitled to do so and that KPMG and SAGT’s CFO have falsely declared the profit as exempt under the BOI agreement. The DIR said due taxes have not been computed and have not been paid.
It was also the opinion of the DIR Assessor that the declaration by KPMG and the CFO has amounted to commit fraud evasion or willful default on behalf of the company. In the letter, the DIR shows that profit from business for 2007/2008 was Rs.6.55 billion. The income tax on Rs.6.55 billion amounts to Rs.2.29 billion. With the social responsibility levy and the dividend tax, the total amount of taxes comes to around Rs.2.7 billion.
According to the latest available statistics, SAGT’s March 2010 volumes increased by 26% year on year to 181,991 teu’s (twenty-foot equivalent units). Volumes also increased by 35.2% to 509,124 teu’s in 1Q10. The lower margin transshipment traffic accounted for 77.3% of SAGT’s 1Q10 throughput.