Budget 2019 : Tax experts welcome measures to support biz community | Sunday Observer

Budget 2019 : Tax experts welcome measures to support biz community

The 2019 Budget has shown some consistency in policy and incorporated proactive measures to support the business community which in turn could contribute to the Government’s coffers to sustain social welfare services to the country, tax experts said.

The reduction in the Economic Service Charge (ESC) rate from 0.5 percent to 0.25 percent, the 14 percent tax concession on income derived from exports and extending the word ‘exports’ to entrepot trade, logistics services, freight forwarding, ship agency services, ship repairs, refurbishment of marine cargo amd services provided to exporters.

IT services under KPO/BPO to be eligible for the 14 tax concessions were hailed by tax experts at post budget fora last week.

Principal Tax and Regulatory, KPMG, Suresh Perera said the Budget has provided an ESC relief for exporters and others who pay income tax at the rate of 14 percent and added that a reduction in the ESC rate from 0.5 percent to 0.25 percent will have a positive impact on the cash flow of companies and would support growth.

He said the ESC is now payable at the point of importation of any article and added that this would have a cash flow impact on manufacturers who have a time lag between the import of raw material and the time of actual sale of the finished products.

He also said that following the implementation of the new Inland Revenue Act which was introduced on April 1, 2018, an exporter could enjoy the lower income tax rate of 14 percent. However, the exporter would qualify for the tax concession only if over 80% of the gross income comes from exports.

“The Budget proposal provides a clarification that in calculating the gross income from exports, investment income should be excluded and that the investment income will be taxed at 28 percent,” Perera said.

Tax experts also pointed out concessions granted to the gem and jewellery industry and the tourism industry have the potential to contribute a larger share to the economy. “The 2019 Budget proposals seek to remove the NBT on foreign currency receipts by a tourist hotel registered with the Sri Lanka Tourism Development Authority. However, there are other limitations imposed by the Foreign Exchange Act and the Monetary Law Act to implement this proposal,” Perera said.

Another proposal that was extensively spoken of at various fora was the Nation Building Tax (NBT) of 3.5% on foreign payments via credit cards and debit cards.

Perera said that currently a 2.5% stamp duty is imposed on foreign payments made via credit cards. The charge-ability scope of stamp duty and NBT is different. The NBT is on the liable turnover of the manufacturer, importer, service provider and the wholesaler and the retailer.

NBT is also levied on financial services on ‘value addition’ too. The Budget speech refers to a statement that this proposal will help address taxation of offshore digital services. In the context of this statement, the proposal is ambiguous and needs clarity as to who will pay the NBT on the foreign payments. Hence it is important to assess how the same will be incorporated into the law. He also said that there have been changes to the sugar tax imposed on sweetened beverages which is not unique to Sri Lanka. Many other countries have imposed taxes on sugar. The sugar tax is imposed on beverages where the sugar content is either more than 6g or 9g per 100ml, and the tax is 30 cents per gram.

Perera said that the current Inland Revenue Act will be amended to incorporate interest income exemption on sovereign bonds, NRFC accounts, RFC accounts, minors’ accounts (up to Rs. 5,000) and foreign loans (sans related companies).

He added that as per the Foreign Exchange Act, NFRC and RFC accounts have been replaced with the Personal Foreign Currency accounts and we will have to observe how this exemption will be incorporated into law.

Another important amendment to the Inland Revenue Act is in relation to the WHT of Rent and Royalty. Perera said a threshold of Rs. 50,000 per month or Rs. 500,000 per annum has been introduced in applying the WHT deduction. The betting and gaming industry also has some tax changes. The casino entrance fee of USD 100 which is not collected administratively is proposed to be reduced to USD 50. The annual levy on the business of gaming has also been revised.

Taxes on the automobile industry came under the scrutiny of tax experts who noted that the Government has increased taxes of the automobile industry and the liquor/tobacco industries which contribute up to 71% of the tax revenue proposals.

“The significant proposal in relation to the automobile industry is the luxury tax on motor vehicle which was introduced in Budget 2018 and enacted via the Finance Act No 35 of 2018.

The provisions of the Act stipulate that the rates will be prescribed via a gazette notification. The Budget Speech 2019, provides the rates and it states that the effective date of the proposal is March 6, 2019,” Perera said.

However, the importance of executing budget proposals was reiterated at all post budget fora as the gap between promises and delivery has been widening in every subsequent budget resulting in a waste of public funds which could have been used on productive ventures. Director, Research Verite Research, Subashini Abeysinghe said when it comes to November each year no one knows what and how many proposals were executed.

“There is no practice in the country to present the progress made on Budget proposals to the people. There is an allocation and spent gap each year.

There was a 40 percent gap in promise and delivery of the proposals for the agriculture sector in the 2013 Budget. There is little transparency in what proposals get executed and what gets dropped,” Abeysinghe said, adding that the 76 proposals announced in this year’s Budget valued at around Rs. 96 billion is about three percent of the total expenditure of the Government for the year. 

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