New IRD Bill triggers confusion among taxpayers, administrators
View(s):The much-hyped and long awaited Inland Revenue Act, a joint product of the IMF and local authorities gazetted by the government last Monday is triggering confusion among taxpayers and government tax administrators, not resulting in an increase in revenue, but a revenue decline, tax experts say.
Far reaching changes have been introduced under the new bill, running up to over 200 pages, and is aimed at tackling tax base erosion and reviewing the country’s tax concession regime. But these changes will impact a wide range of business sectors and will also affect individual taxpayers.
A senior Inland Revenue Department (IRD) official, who is also a trade union leader, told the Business Times that tax officers will have to study and understand the new law for some time for them to implement it.
This could result in heavy revenue loss to the government during the interim period, he warned. According to the new bill, income tax shall be payable for each year of assessment by – (a) a person who has taxable income for that year; or (b) a person who receives a final withholding payment during that year.
Taxable income exceeding Rs. 600,000 is 4 per cent and it varies from 8 to 24 per cent for taxable incomes of over Rs. 600,000 to over Rs. 3 million.
A company shall be liable to be taxed separately from its shareholders. Subject to the provisions of this Act, all business activities of a company shall be treated as conducted in the course of a single company business.
An NGO shall pay additional tax on 3 per cent of amounts received in each year of assessment by way of grant, donation or contribution or in any other manner. The proposed Bill departs from the very foundation and fabric of the current Act. If implemented in its current form, any judicial precedence, interpretations, practices and principles relating to income tax established over almost a century ago could not be applied in the imposition, payment and recovery of income tax in Sri Lanka, eminent tax experts alleged.
The proposed law attempts to fundamentally change the sources of income, method of calculating the taxable income, claiming deductions, assessment procedure and the administrative provisions. “There were no reasons to make such drastic changes in the existing income tax,” one expert pointed out adding that the precedence always recalls the preservation of its uniform evolution.
The new Bill does not add any income sources to the existing revenue sources and it would not be able to close existing loopholes in revenue collection due to time constraints in drafting the new legislation, they disclosed. Further the new Bill provides undue priority to less important sections which have less relevance to the Sri Lanka economy and neglects the more important sections on tax law imposition and recovery, they emphasised.
However the IMF and the World Bank welcomed the new Bill stating that the new income tax law seeks to widen the tax base and consolidate the various income tax laws to facilitate the application and use of these laws. The IMF said the current Act hinders investors’ ability to understand the income tax system and local tax official’s ability to administrate, and is a contributing factor to Sri Lanka’s low tax-to-gross domestic product ratio.
The IMF said in its annual report for Sri Lanka that the legislation should enable the country to collect tax from a wider range of sources and could increase its tax revenues by 1.4 per cent of GDP. (Bandula)