Sri Lanka insurance firms face higher tax bill under new law
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 on their profits, said Shamila Jayasekera, Partner-Tax at KPMG.
“You are also liable to pay tax on the surplus transferred to shareholders and to policyholders,” 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 percent 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 the future, most insurance firms will definitely have to pay tax although they will also be entitled to claim any losses.
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 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.
(COLOMBO, September 12, 2017)