Eran debunks myths about new Inland Revenue Act | Sunday Observer

Eran debunks myths about new Inland Revenue Act

8 April, 2018

State Minister of Finance and Mass Media, Eran Wickramaratne rebuking rumors on the newly passed Inland Revenue Act which came into effect from April 1, 2018 said that it will not tax migrant workers’ remittances as claimed by many.

“There have been concerns that migrant worker remittances are taxed. There is no truth in this at all. There is no remittance tax and there will be no remittance tax in the future too. I want to make sure that this is clearly understood,” the State Minister told the Sunday Observer.

Explaining the modality of tax imposed on interest earned by senior citizens, Minister Wickremaratne noted that this tax will only be applicable to those senior citizens earning an interest income in excess of Rs. 125,000 a month (equating to Rs. 1.5 million per annum). Given the present average market interest rates, it is learnt that for a person to earn Rs. 125,000 as interest monthly, they should have in excess of Rs. 20 million in his/her Fixed Deposit Account.

“It is natural that if there are higher earnings then there has to be taxation because we are moving away from the 82% indirect taxes to 60% gradually and direct taxes from a dangerously low 18% moving to 40%,” the Minister noted.

Shedding light on the re-introduced Capital Gains Tax (CGT), the Minister made it clear that the tax is chargeable only on the profit arising from the sale of investment properties and not on the total consideration from the sale of the particular property.

“If a property on September 30, 2017 was Rs. 900,000 and a year later if it is sold for Rs. 1 million, then the capital gained is Rs. 100,000. Therefore, you will only pay 10,000 on the sale of the property for Rs. 1 million. It is not on the value of the transaction but only on any capital gained,” the State Minister clarified.

Out of the 200 countries in the world, it is understood that almost 171 countries have imposed CGT while Sri Lanka’s 10% rate is still one of the lowest in the region whereas in Malaysia its 30%, UK 28%, Sweden 30% and in China 20%.

Speaking on the rationale behind increasing the Withholding Tax rate from 2.5% to 5%, the Minister said interest rate structures have moved up during the last three years since it was last reduced to 2.5% in 2015. While in 2015, the Average Weighted Fixed Deposit Rate (AWFDR) was 6.9%, it has almost doubled to 11.5% today, Wickremeratne, a banker by profession prior to entering politics, noted.

Elucidating on the several incentives granted through the Investment Incentive Scheme, the Minister said the New Inland Revenue Act has shifted to an open and transparent rule-based system by defining what the investment incentives are, as opposed to the tax free incentives being doled out on an adhoc basis in the past. 

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