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| Wednesday, 14 July 2004 |
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Less than 10% Lankan registered companies pay income tax by Shirajiv Sirimane Less than 10 percent of Sri Lankan registered companies pay income tax and this has created a discriminatory playing field among companies which pay income tax. There are 32,000 registered companies in Sri Lanka and less than 10,000 had filed income tax returns last year and only 2,850 paid income tax. The rest who also use the same infrastructure and other facilities provided by the government, make no contribution towards meeting the cost of these services. This also applies to other forms of businesses such as partnerships and sole proprietorships. M. Mathakasinghe, a financial consultant in an Audit company and a veteran on tax issues said that every business must make some contribution towards government revenue collection, even if the amount is small. "If this is not done a company has failed in fulfilling its social responsibility and have done an offence," he said. Many businesses that make substantial profits do not pay taxes because they set off these profits against losses incurred during the year and brought forward from previous years. Some partnerships currently distribute profits to fictitious partners and neither partnerships nor the partners pay tax on the profits earned. Any government is dependent on the collection of tax revenue to pay for the infrastructure, rehabilitation and other social services provided to the public. A significant shortcoming in the local tax revenue collection system is that the tax net is small. He said that it would be appropriate for the government to charge a 1 percent service charge (ESC) on turnover of total assets from any trade, business, profession or vocation that have a turnover in excess of Rs. 20 million or total assets exceeding Rs. 10 million and have been in commercial operation for more than two years. "The ESC should be set off against income tax payable for the year, limited to the full amount of tax payable without any carry forward provision. The minimum ESC payable by an entity which is liable to this charge will be Rs. 100,000 and the maximum amount payable will be Rs. 20 million," he said. He said that the government could collect around Rs. 3,000 in revenue. He said that the present personal income tax structure is too narrow. The tax free allowance for individuals is now Rs. 240,000 and this is unfair. "This should be increased to at least Rs. 300,000," he said. The tax slabs for terminal benefits from all such benefits should be expanded so that the first Rs. 3.5 million would be tax free," he said. However, an official of the Inland Revenue Department said that this measure would come in for high praise since it would reduce the tax burden on individual taxpayers and people who have retired. "However this will result in a revenue loss of around Rs. 300 million," he said. Finance Minister Dr. Sarath Amunugama, recently said that foreign donors including the International Monetary Fund (IMF) were satisfied with the plans adopted by the government to increase revenue. |
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