Sri Lanka’s new revenue law augments govt revenue: Moody’s

LBO - Sri Lanka’s newly revised Inland Revenue Act will augment the country’s very low level of government revenues, Moody’s said.

Vice President, Sovereign Risk Group of Moody’s Investors Service, William Foster, commenting on the new law said it replaces the existing law with a more efficient, modern and broad-based tax framework.

“Through past additions of multiple tax exemptions, Sri Lanka’s income tax efficiency and tax collection are weak relative to other sovereigns,” Foster said.

“The general government revenue-to-GDP ratio was only 14.3% in 2016, one of the lowest among B-rated sovereigns.”

The reforms of the Inland Revenue Act offer prospects of higher revenues.

Foster highlighted that the implementation of revenue reforms that foster long-term fiscal consolidation will be critical to shoring up Sri Lanka’s credit profile, which is weighed down by the country’s large debt burden and relatively weak debt affordability.

On September 7, Island’s new revenue law passed in Parliament with amendments with the bill receiving 90 votes in favour while 25 votes against.

Sri Lanka to tax unit trust income at the hands of beneficiaries

ECONOMYNEXT - Sri Lanka will tax earnings from unit trust or mutual funds at the hands of beneficiaries, under a new income tax law that will come into effect next year, an official said.

Income from unit trusts will be taxed at the rate of corporate income tax in the case of companies or individuals in the case of persons, Thanuja Perera, Tax Policy Advisor at Ministry of Finance told a forum organized by the Ceylon Chamber of Commerce.

Perera said Unit Trusts themselves will not be taxed. Such unit trusts should have 'eligibe investments' such as financial instruments.

But taxes and withholding taxes on investments made by unit trusts will be charged. In the case of bank deposits for example withholding taxes would be charged, capital gains on shares will not be taxed.

However corporates will have to pay the balance tax on their income.

Unit Trust that where beneficiaries are not entitled to income will be taxed at 24 percent. Other unit trusts will be treated as companies and taxed at 28 percent.

Sri Lanka to tax foreign currency deposit interest

ECONOMYNEXT - Sri Lanka will tax foreign currency deposits in the future in the same manner as rupee deposits through a new income tax law that will come into effect next year, a tax expert said.

Non-resident foreign currency accounts are were exempted from tax as an incentive not to keep dollars earned abroad in foreign banks.

Sulaiman Nishtar, Partner at Ernst and Young said under the new law, a withholding tax of 5 percent will be deducted by banks as a final tax, up from 2.5 percent.

Companies will be liable at 5 percent, but it will not be final tax and will form part of the taxable income.

Clubs and associations will be charged 5 percent withholding tax on interest but, it will not be a final tax and they will have to pay tax on income at 28 percent.

Sri Lanka leasing companies to be taxed on par with banks: tax expert

ECONOMYNEXT - Sri Lanka's leasing companies will no longer be able to claim capital allowances on the leased assets for tax purposes, under a new income tax law that will come into effect next year, a tax expert said.

Shamila Jayasekera, Partner, Tax, at KPMG, an accounting firm said the tax treatment of leases will be the same as bank loans in the future.

Leasing companies were earlier able to claim capital allowances on assets such as vehicles leased to a customer, which becomes an expense of the leasing company, reducing their tax liability.

Leasing companies own the assets, until they are transferred to the customer at a nominal price at the end of the term.

Sri Lanka to charge 10-pct capital gains tax, unit trusts to be taxed

ECONOMYNEXT - Sri Lanka will charge a 10 percent capital gains tax on investments other than listed shares, under a new inland revenue bill to be effective from April 2018.

The principle residence of a person, which has been owned for more than three years and in which a person has lived for more than two years, will be exempt. The cost of the investment would be the market value on September 2017.

Capital gains of below 50,000 rupees per transaction and 600,000 rupees a year would be exempt.

KPMG: Dividends paid by a resident company to resident person shall be a final payment and will not be a part of taxable income. A deemed dividend tax has been withdrawn.

As withholding tax will be charged on dividends at 14 percent (up from 10 percent), a profit remittance by a non-resident will be charged 14 percent (up from 10 percent), KPMG said.

Resident persons (other than senior citizens, which will be on regulations issued) will be charged a withholding tax of 5 percent on bank deposits and non-residents 14 percent. The withholding tax on corporate debt securities will be 5 percent for residents and 14 percent from non-residents.

An existing 10 percent withholding tax on government securities has been withdrawn.

Royalties will be charged a 14 percent withholding tax, management and technical fees will be charged 14 percent for non-residents only. Fees for other services will be charged 5 percent.

Unit Trusts will be taxed at 10 percent on investment income and up to 24-28 percent on other income.

Sri Lanka Treasury bonds 10-pct tax removed

ECONOMYNEXT - Sri Lanka will end the practice of charging a 10 percent withholding tax on government securities under a new Inland Revenue Act to be effective from April 2017.

During the 'committee stage' of legislating the new bill, Finance Minister Mangala Samaraweera moved changes to clause 84 of the proposed bill last week.

The new section d) of clause 84 adds the exemption that 'discount interest or paid to a person on security of treasury bond under the Registered Stock and Securities Ordinance (Chapter 420) or Treasury bills under the Local Treasury Bills Ordinance (Chapter 417)'.

At the moment, a 10 percent withholding tax is in effect for Treasury bills. Interest is quoted in the market net of tax.

Interest income is part of taxable income under the new law. There is also a capital gains tax of 10 percent on investments. it is not clear yet how the final tax on government securities will apply.

Gems auctioned under the Gems and Jewellery Authority Act of 1933 will be subject to the withholding tax, as will be lottery proceeds (about 500,000), betting and gaming wins, rent, royalty, natural resource payments

Sri Lankan shares close little changed in dull trade; tax bill weighs on mkt

Reuters: Sri Lankan shares closed little changed in low turnover on Monday as investors waited for clarity on the new tax bill.

The parliament passed tax reforms on Thursday that should simplify the tax system, widen the tax base and increase government revenue, as agreed with the International Monetary Fund in exchange for a $1.5 billion, three-year loan.

The Colombo stock index ended 0.06 percent weaker at 6,372.24, snapping two straight sessions of gains.

Turnover was 290.8 million rupees ($1.90 million), the lowest since Aug. 28 and well below this year’s daily average of around 856.5 million rupees.

The Colombo stock index fell 0.2 percent last week, its eighth straight weekly drop.

“Investors are still waiting to see the clarifications on the tax bill and the exact implications of the bill,” said Dimantha Mathew, head of research, First Capital Holdings.

Shares of Ceylon Tobacco Co Plc fell 0.6 percent, while Overseas Realty Ceylon Plc ended 2.67 percent weaker.

Foreign investors net bought 49.4 million rupees worth of shares, extending the year-to-date net foreign inflow to 27.8 billion rupees worth equities. 

($1 = 152.7500 Sri Lankan rupees) 

(Reporting by Ranga Sirilal; Editing by Subhranshu Sahu)