ECONOMYNEXT – Some tax payers may end up paying a higher 18 percent tax on interest income after withholding tax deduction of 5 percent was ordered to be removed by the revenue office, a senior tax consultant has warned.
Sri Lanka had withholding tax at 5 percent on interest income, which was ordered to be lifted from January by the Department of Inland Revenue, as part of broad range of tax cuts and changes, before it was approved in parliament.
Sri Lanka also cut the highest marginal tax rate for individuals from an earlier 24 to 18 percent, while also changing the charging slabs.
“..[C]onsequently there are some increases in taxes that are coming,” N R Gajendran, senior partner of Gajma, a tax consultancy said at a business forum at the Ceylon Chamber of Commerce.
“People may have not realized it yet.”
He said in the case of withholding tax on interest at 5 percent tax will no longer be deducted, as a result such earning will have to be declared as part of total taxable income.
“And interest income is going to be on liable (for tax). So you can get taxed even 18 percent depending on your income,” he explained.
Whenever a withholding tax is a final tax, the payer need not add such earnings for the total person income that is liable for tax.
While cutting the marginal income tax rate, the income slabs had also been changed. It may also have impact on the tax liability, though those who were on a 24 percent marginal rate may benefit.
As part of so-called stimulus measures, value added tax, income taxes and withholding taxes were removed or changed. (Colombo/Feb11/2020)