Municipal tax on businesses to go up

By Bandula Sirimanna

The government in its 2012 Budget plans to increase business tax and licence fees levied on all business enterprises and hotels within municipal council limits, a top official said. Currently all business enterprises, and trade stalls pay a fixed tax rate of Rs. 5,000 to municipal councils irrespective of whether they are large, medium or small scale trade and businesses.

The Finance Ministry is planning to increase this tax to a maximum of Rs.50,000 from Rs. 5,000 onwards a year, based on the size of the business, a Finance Ministry official said.
This was discussed at a top level budgetary meeting chaired by Treasury Secretary P.B. Jayasundara. The license fee not exceeding 1% from the annual revenue of hotels registered with the Tourist Board would also be revised, he said.

Colombo Municipal Commissioner (CMC) Indrani Jayawardena said municipal councils had been requesting business enterprises including hotels to submit their audited accounts and balance sheets to enable the council authorities to compute the licence fee and the business tax in accordance with Municipal Councils and Urban Councils (Amendment) Act (No. 42 of 1979).

She said these documents would help to make assessment on land and property, machinery, fixed plants and other assets and compute the business tax and the licence fee. Ms. Jayawardena said the CMC was following this practice since 1979, but the procedure had been streamlined recently to take stringent action against tax defaulters in the city. According to the Act, movable property of the defaulters will be auctioned to recover unpaid taxes. Of the 120,000 households in the city, only 60,000 are paying their rates and taxes, from which we have to spend for the balance 60,000 households and also for the floating population,” she said. According to another senior CMC official, the council collects Rs. 60 million annually through the licence fee and business tax. These two taxes are being levied in addition to the assessment tax on the property.

He said some tourist hotel owners and business enterprises were evading these taxes, taking advantage of loopholes in Clause 247 A of the Municipal Council Amendment Act No. 42 of 1979 which refers to a licence fee not exceeding 1% of the total revenue or total takings of Tourist Board-registered hotels. According to this clause municipal councils can levy any percentage less than or at 1% as licence fee from hotels. Under this setup municipal councils are compelled to issue gazette notifications indicating the percentage that will be recovered from hotels as licence fee. He said he hoped that this discrepancy would be sorted out under the 2012 budget proposal on local government institutions and provincial councils.

The Dehiwala- Mount Lavinia Municipal Council is also facing the problem of several tourist hotels evading the licence fee. A senior official said Clause 247 A of the Municipal Council Amendment Act could be interpreted in different ways and some business enterprises are taking advantage of the loopholes by hiding the actual income and expenditure. Therefore the council has made it mandatory for owners of businesses to submit audited accounts. “Otherwise we have no other way to verify the annual income to compute the licence fee,” he said.

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