Lanka Marine Services Ltd (LMSL), which had an effective monopoly for bunkering in the Colombo Port, owes taxes amounting to Rs. 1,526,416,949 (Rs 1.5 billion) from the financial year 2002/2003 onwards to the Inland Revenue Department (IRD) – a payment that must be made in line with a Supreme Court ruling.

This amount includes a Economic Service Charge of Rs.137 million, IRD sources said. The outstanding Income Tax of the company amounts to Rs.1.1 billion and Income Tax surcharge is Rs. 2 million. The company has to pay Rs. 186 million as Value Added Tax (VAT). The Supreme Court judgment, which overturned the privatisation of LMSL and ordered the company to pay all its taxes from the date of privationsation, quoted LMSL annual reports as saying the firm had made Rs 2.4 billion rupees in profits in the four years to the end of 2005/2006 financial year.

However the sources said LMSL is likely to dispute this amount -- as in previous practice for all corporates and individuals when tax claims are furnished by the department -- which would then lead to negotiations with the department after which a final rate would be fixed. The sources said that the computed amount includes taxes on exports, in which LMSL had said it should receive an exemption.
In the meantime, a shortage of bunker oil stock has led to rising prices in Colombo, Industry sources said the shortage has led to a price hike of between $150 to $300 for bunker oil with the shortage being caused due to an element of chaos after LMSL – which had a monopoly - was asked to shift its stock outside the oil tank premises. LMSL is supplying oil from an offshore barge but stocks are short, the sources said, adding that prices are far higher than Singapore industry rates.

In a press release issued on August pertaining to the financial impact based on the judgment, LMSL’s owning company – John Keells Holdings (JKH) - said the company had received from the Department of Inland Revenue (IRD), an intimation of assessment which -- based on applying a normal tax rate and the quantified tax liability -- is Rs. 750 million.

“Based on opinions from independent legal counsel and tax consultants, it is LMSL’s view that the supply of bunkers to foreign vessels is an export and therefore income is liable for tax at 15 per cent as provided in the Inland Revenue Act. At the 15 %, the additional tax liability is Rs. 384 million against the IRD intimation. A further Rs. 137 million of income tax at 15 % falls due for the year 2007/08,” the statement said.

It said additional customs duty, asset impairment (if LMS does not continue in business) and other costs associated with the vacating of the premises is estimated at Rs. 187 million. “Based on the foregoing, in our view, the impact on the consolidated income statement and / or reserves of the group as a result of the additional tax liability, additional customs duty, asset impairment (if LMSL does not continue in business) and other costs associated with the vacating of the premises is estimated at Rs. 704 million (consolidated at 99.44 %).” JKH said if LMSL’s export status is not immediately accepted, then a further Rs. 606 million will have to be treated as a contingent liability till the matter is finally resolved in terms of the Inland Revenue Act.