Tax system needs to be revamped - Tax chief

by Lalin FERNANDOPULLE

Sri Lanka is well placed to be the epicentre for international and multinational corporates which have identified the immense local potential to do business, said Chairman International Fiscal Association (IFA), N.R. Gajendran addressing a seminar on Taxation recently.

He said that from a fiscal point of view there is enormous untapped resources such as exemption from capital tax, wealth tax and off-shore profit tax.

“Sri Lanka is virgin territory for fiscal policy and it is ready to take off towards economic prosperity”, Gajendran said.

The Commissioner General, Inland Revenue Dept. (IRD) K.M.S. Kandegedara said that tax consultants play a major role in the tax administration which is essential to attract foreign investors.

A simplified and investor-friendly tax culture is a prerequisite to woo foreign investors who are at present, very optimistic in view of the peaceful environment in the country.

Tax experts have been lobbying for a simplified and business friendly tax system which would help broadbase the tax net and generate more revenue to the government.

He said the double taxation agreements with countries pays off which is undergoing major changes in the tax administration.

The Income Tax, Value Added Tax (VAT), Economic Service Charge and the Nation Building Tax have been amended under the 2011 Budget to create an effective tax system in the country.

According to tax experts the tax system is still complicated and is not helping to create a tax-friendly culture in the country. The VAT system should be simplified and made business-friendly.

According to a senior tax consultant Sri Lanka has a VAT system which works on a statutory invoice without the intervention of the Inland Revenue Department.

A similar system must be adopted for simplified VAT. He said that a corporate has to pay Rs. 10 m upfront for a Rs. 100 m loan on a 10 percent interest which is not conducive to create a sound business environment.

Kandegedara said that the Inland Revenue Department is faced with many challenges which should be addressed speedily to create a better environment for tax administration.

He said dearth of staff, outdated computers, lack of a proper cafeteria and ample parking facilities are some of the major shortcomings which need to be urgently addressed.

Deputy Commissioner General of IRD, H.B.A. Seniviratne said that income tax on profits from any undertaking of agriculture, manufacture of animal feed, promotion of tourism and construction is reduced to 12 percent. According to the Income Tax Amendment Act profits from any undertaking for fishing is exempt for a five-year tax holiday from April 1, 2011. Profits from any undertaking for producing any agricultural seeds, planting materials or primary processing is granted a five-year tax holiday.