ECONOMYNEXT – Sri Lankan insurance companies are likely to face higher tax expenses under a new tax law that was passed by parliament last week, experts said.
Insurance firms which till now paid tax on investment income minus expenditure, will in future be taxed their profits, said Shamila Jayasekera, Partner-Tax at KPMG.
“You are also liable to pay tax on the surplus transferred to shareholders and to policy holders,” she told a forum on the new Inland Revenue Act organized by the Ceylon Chamber of Commerce.
But policyholders will be taxed at the concessionary rate of 14% for the first three years.
“It is possible some insurance companies did not pay tax now because they only pay tax on investment income minus expenses. So for most it was a loss,” Jayasekera said.
In future, most insurance firms will definitely have to pay tax although they will also be entitled to claim any loss.
There are also changes in the basis of deducting losses under the new Act.
Under the old law, losses from life insurance businesses, as well as leasing, could be set off only against the profit and income from such businesses
The new tax law allows full deduction of business losses and then there is no income tax liability but with the limitation that any balance can be carried forward only to six years unlike indefinitely previously, said Sulaiman Nisthar, Partner at Ernst & Young.
Insurance firms which till now paid tax on investment income minus expenditure, will in future be taxed their profits, said Shamila Jayasekera, Partner-Tax at KPMG.
“You are also liable to pay tax on the surplus transferred to shareholders and to policy holders,” she told a forum on the new Inland Revenue Act organized by the Ceylon Chamber of Commerce.
But policyholders will be taxed at the concessionary rate of 14% for the first three years.
“It is possible some insurance companies did not pay tax now because they only pay tax on investment income minus expenses. So for most it was a loss,” Jayasekera said.
In future, most insurance firms will definitely have to pay tax although they will also be entitled to claim any loss.
There are also changes in the basis of deducting losses under the new Act.
Under the old law, losses from life insurance businesses, as well as leasing, could be set off only against the profit and income from such businesses
The new tax law allows full deduction of business losses and then there is no income tax liability but with the limitation that any balance can be carried forward only to six years unlike indefinitely previously, said Sulaiman Nisthar, Partner at Ernst & Young.
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