Govt. to impose taxes all the way until you die
Sri Lankans need to now start assessing the only “wealth” they have in the form of land, buildings, investments, shares and even the cost of inheriting parent’s property or the only provident funds that once realised could be taxed when the next budget comes around!
Authorities in line with the International Monetary Fund (IMF) recommendations will be readying to impose a set of new taxes namely Wealth Tax, Inheritance Tax, Gift Tax and Capital Gains Tax that has already received Cabinet approval, KPMG Tax and Regulatory Principal Suresh Perera said during a recent webinar discussion on taxes.
The IMF has called to “Introduce a nationwide real property tax including a review of related fiscal transfers and Introduce gift and inheritance tax with a tax free allowance and minimal exemptions by 1st January 2025 under the heading Property, Wealth & Wealth Transfer Taxes in the tax reforms to be implemented in the period of year 2022 to 2025”.
Wealth Tax
The Wealth Tax is imposed on tax payer’s net wealth and this is an annual tax that can be charged from children, married couples/individuals, companies, trusts and partnerships.
Mr. Perera explained that possible exemptions will be property held for charitable or religious purposes; agriculture land and crops animals, artwork, antiques, paintings, government securities, interest in property for a short duration, an annuity right, residential house, foreign investments, and assets not linked to the business of the company.
He said in India there was an exemption for agricultural land. This would mean any bare land or land not cultivated on could be taxable.
General deductible liabilities are loans, bank overdrafts; retirement benefit obligations; trade payables; related parties due; and deferred revenue.
Countries that today levy a Wealth Tax are Norway, Argentina, Luxembourg, Spain and Switzerland while numerous other countries including India introduced it in 1957 but removed in 2015/2016.
The introduction of Wealth Tax ” has to be done cautiously not haphazardly – else it can be worse than the good it will achieve”.
Mr. Perera explained that though the Provident Funds are usually exempted from Wealth Tax, however, upon realization it is liable for Wealth Tax.
Inheritance Tax
Singapore and India have already abolished the Estate Tax when it is to be introduced in Sri Lanka today through the Inheritance Tax which Mr. Perera explained is a tax the recipient of the inherited property will have to pay depending on the inherited amount and the relationship to the deceased.
In addition, another query on the imposition of Wealth Tax on residential house owned and where one already resides is usually not subject to Wealth Tax in other countries; but when this same property is being passed onto the heir it is subject to an Inheritance Tax in the UK as a result of which most are disposing of their assets.
Gift Tax
The Gift Tax had been introduced with the purpose of ensuring that the tax payers are somehow made to pay their dues that would be avoided due to any loopholes in other taxes.
The purpose of this tax was also to prevent the transfer of assets by way of gift and the tax is imposed on the property based on the value of the property at the time of transfer, it was noted.
In Sri Lanka there was a Gift Tax in 1958 and later abolished in 1985 with exemptions, it was noted.
Property Tax
This tax was introduced to discourage foreign ownership of land in Sri Lanka. However, according to the IMF Property Tax this tax is being levied on properties that could be identified like lands and buildings and it could get extended to vehicles as well.
Capital Gains Tax (CGT)
The formula for CGT is consideration – cost = gain or loss and in this respect, the rates had increased to 30 per cent for companies and 10 per cent for individuals.
The capital asset is held as part of an investment and lived in at least two years and owned continuously for three years is subject to this tax.
Deferments would be in the case of divorce or separation; transfer on death of an individual; transfer on land and building by individual to a close individual or associate; and if it is made as a gift of any asset to a charitable institution.
The government will also find it difficult to say no to the imposition of these taxes as the collection of taxes at present is not in line with the required targets.
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