Sri Lanka businesses in quandary after tax deferment

ECONOMYNEXT – Sri Lanka’s business are wondering what to do after collecting value added and a turnover tax new, based on a notice from the revenue authorities after the finance ministry said yesterday that the higher rates would be deferred.

Companies that collected taxes at higher rates are wondering whether they should be refunded and those that paid lower rates are wondering whether extra taxes should now be paid, business and accounting sources said.

An 11 percent value added tax was changed to 8 and 12.5 percent in the budget, further complicating the framework and wholesale and retail trade was told they would be freed from VAT in another regressive move.

A so-called Nation Building Tax was raised from 2 to 4 percent for some businesses.

Businesses started charging the tax from January 01 after revenue authorities published a newspaper advertisement announcing the rates, though taxes were not yet made into law.

The finance ministry yesterday said the taxes would not go into effect until the relevant laws were passed by parliament.

Now businesses are wondering whether to refund the higher taxes charged from January and also what to do for the input taxes paid at higher rates. In the case of the lower 8 percent input tax businesses are wondering whether another 3 percent has to be paid to customs.

Tax consultants said they are scrambling to find answers from authorities.

In Sri Lanka some taxes are also charged by midnight gazette and parliament informed later in a shoot-first-ask-questions later move, which is against the fundamental democratic principle of ‘taxation by consent’.

In 2015, after the time for informing parliament lapsed on several such taxes imposed by gazette, the government was exposed to refunds in case a tax payer went to court, legislators said.
 

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