Turnover tax of the Western Provincial Council

S. R. Balachandran

In accordance with the gazette notification dated April 23 (appeared in the press on June 9, 2010) two amendments have been made effective March 8, 2010 to the turnover tax of the Western Provincial Council.

The relevant details are set out below.

In the past Turnover Tax was payable on or before 15th of the month following the end of the each quarter. Now, if the turnover of the previous quarter exceeds Rs 10 million, advance payments equal to 1/3 rd of the Turnover Tax payable for the said quarter has to be paid on or before 15th of 2nd and 3rd months of the current quarter. The balance is payable as usual on or before 15th of the month following that quarter.

In case where Turnover for the said quarter cannot be computed on time, advance payments should be made based on previous quarter basis to avoid penalties. (An amendment has to be effected accordingly). A similar procedure is followed when making quarterly income tax payments.

It should be noted that only persons (individual or institution) engaged in wholesale or retail business are liable for this Turnover Tax (importing or buying and selling). Manufacturers and Service providers are not liable for Turnover Tax.

Withholding turnover tax

When an individual or institution (say A) transfers goods to another individual or institutions (say B) who is liable for turnover tax, A is expected to include a tax levy at the specified rate (1 percent or 5 percent) on the sales invoice.

There should be an agreement between A and B to sell goods in the Western Province (distribute stockist). However Transfers may be effected between holding company, subsidiary companies, associate companies and companies where directors have material interests, without any agreement.

These transactions also have to be included.

Further, if the Western Province Commissioner Revenue is of the opinion that there are regular material transfers, he may request that such persons be included in the list even though there is no agreement.

In case A is a manufacturer (not service provider) he is also obliged to include the levy in the transfers. The important fact here is that B should be liable for turn over tax.

This levy imposed should be paid to the western provincial revenue department on or before 14th day of the transaction.

However taking into consideration of the difficulties faced, an appeal has been made to the Commissioner of Revenue to accept payment on a monthly basis on or before 14th day of the following month.

When A makes a payment to B where that income is liable for turn over tax for B withholding tax at the specified rate (1 percent or 5 percent) should be deducted and paid on or before 14th day of the deduction. An appeal has been made to the Revenue Commissioner to accept payment on monthly basis on or before 14th day of the following month.

However this deduction is not required in case the payment does not exceed Rs. 50,000.

The following documents are required:

a. The supplier A should be registered with Western Province Revenue Department within 30 days of subjugation. The commissioner after close scrutiny will allocate a number and issue a certificate of registration to A.

Any changes such as place of business, name etc should be advised to commissioner within 14 days of such change.

b. When goods are transferred by A (say to B) A should issue a voucher setting out:

i) The date, place of transaction, description of goods

ii) The total value of transaction and the Turnover Tax levied (analysed accordingly to rates)

iii) Registration number of A

iv) Name, address and the Turnover Tax File number of B

c. A copy of said voucher should be sent to the Revenue Commissioner within 14 days. Taking into consideration of the material number of vouchers to be received by the Department of Revenue an appeal has been made to the Commissioner to rule that vouchers need not be sent but should be made available when demanded for inspection.

d. Monthly Statements or Certificates be issued to B giving the invoice numbers, date, value and the Turnover Tax levied and paid.

e. After making monthly payments to the department, A should submit a statement to the Revenue Department setting out

i) Names of all suppliers,

ii) Total value of goods, transferred (analyzed according to turnover tax rates)

iii) Turnover tax levied (analysed according the to the turnover tax rates)

iv) Turnover tax files numbers

The total turnover tax levied as per list should agree with the total payment made. Under deduction and short payment are liable for penalty.

Claim for deduction

a. When A supplies goods to B, the voucher issued to him as mentioned in the above paragraph could be used by B to claim deduction against his Turnover tax liability. A could issue a monthly statement showing the details of vouchers in total to the Revenue Department.

b. When A makes payment which is liable for Turnover Tax in the hands of B, the Certificate issued by A could be used to claim deduction by B.

It is important to note that the rights of the Western Province Revenue Department in respect of Turnover Tax with necessary changes be related similarly to the Withholding Turnover Tax.

Whilst making an appeal to all who are engaged in business to co-operate with the Revenue Department Western Province the Revenue Department is also requested not to impose penalties at the early stages as there is always a possibility for making mistakes at the start.

Cordial relationship between the Revenue Department and tax payers is very important.

It is suggested that readers obtain clarification from their tax consultants or the Revenue Commissioner for proper compliance.

(The writer is a Council Member of the National Chamber of Commerce of Sri Lanka)