Conversation with Taxation expert, Hulangamuwa

If the recently passed Inland Revenue Act is allowed to settle down and not changed every year, Sri Lanka will be able to achieve the required consistency in taxation, Duminda Hulangamuwa, Chairman of the Taxation Steering Committee of the Ceylon Chamber of Commerce said

Over the years, successive governments failed to ensure the consistency of taxation due to arbitrary tax amendments. It was seen that major tax amendments were introduced mid 2017, including changes to the Value Added Tax (VAT). The inconsistency in terms of taxation not only adversely affected business planning, but also contributed significantly to the downgrade of Sri Lanka’s performance in the Ease of Doing Business index.  

The New Inland Revenue Act which came into effect from April this year has introduced a three-tier system for income taxation (14%, 28% and 40%). Although certain tax experts and economists are hoping for a simplification of the taxation system, Hulangamuwa is of the view that simplifying tax laws is an over emphasized statement made too often. 

“In my view any tax law is complicated and would remain so. When industries and economies grow complicated and fragmented, applying a uniform code becomes difficult, and a simple law today can develop into a complicated law later. As with everything else, the tax law will also evolve with the environment,” he said. 

Commenting on the concerns raised by Chamber regarding the way in which export and agriculture industries were taxed through the new Inland Revenue Act, Hulangamuwa stated that concerns have been addressed to a certain degree. 

“The answer is yes and no. According to the initial draft, these sectors would have been taxed at 14% only if the company engaged in export/agriculture had a revenue of 100% from export/agriculture. After our submissions and subsequent discussions, the requirement to qualify for the 14% tax rate was brought down to 80%.  As per the law passed, if 80% of the gross earnings of a company is from exports, then the entire profit will be taxable at 14%. The same is true for agriculture, education, tourism and IT related functions,” he added further.

The Ceylon Chamber of Commerce

Economic Intelligence Unit

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