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Sri Lanka ‘super gains’ tax to be applied to groups, individual firms

COLOMBO (EconomyNext) – Sri Lanka’s ‘super gains tax’, a 25 percent additional income tax will apply to individual entities and consolidated accounts of groups of companies, according to proposed to tax laws approved by the cabinet of ministers.

The tax will apply to any person or company who has a taxable income of more than 2.0 billion rupees in taxable income based on audited financial statements in the tax year starting April 2013.

It will also apply to groups of companies, where aggregate before income tax profits of the holding company and all subsidiaries exceeds 2.0 billion rupees or where the profits of each subsidiary and the holding company in that group of companies exceeds the threshold.

Subsidiary companies are companies where a holding company either directly or indirectly has more than 50 percent of the voting shares.

The tax shall be charged on every subsidiary and the holding company of a group of companies.

Board of Investment companies approved under section 17 of its law will have to pay the levy under taxable income coming after the expiration of exemptions and in the case of other companies, the residual assessable tax.

No specific mention has been made of foreign subsidiaries.

The tax has to be paid in three equal instalments by the 15th of May, July and September 2015.

The ‘super gains tax’ was one of the new taxes proposed in a revised budget in January 29, where salaries of state workers were raised by over 40 percent.

The controversial tax has come under fire for undermining rule of law and predictability by being applied retrospectively and for creating a precedent for the elected ruling class to tax unarmed citizens in ad hoc ways in the future to fulfil election promises.

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However in financing the spending needs of the elected ruling class, analysts say taxes are better than printing money, which depreciates the rupee and generates inflation.

Income taxes only destroys a specific amount of investible capital generated by a citizen during a specified period, and directs them to consumption spending of rulers.

But currency depreciation destroys all past savings that can be invested to generate jobs and value, including the savings of weak and old citizen who can no longer work as well as current and future real value of salaries of wage earners.