Business Taxation By MAHESH RANAWAKAARACHCHI Deputy Commissioner Department
Business Taxation By MAHESH RANAWAKAARACHCHI Deputy Commissioner - Department of Inland Revenue B. B. Mgt. (Acc. ) Sp. Hon. , Finalist of CA Sri Lanka, ATII, FPFA, NCBS, CTA (CA Sri Lanka) MBA(Taxation)(PIM) and LLB Reading
INTRODUCTION OF TAX ATION
What is the Tax ? • Tax is a compulsory levy or a fee that imposed and charged by the Government from the public for common causes. • Cannot refuse to pay tax. Any refusal in this regard leads to punishment. • Tax impose a personal obligation on the tax payer. When a person become liable to pay tax, if it is the duty of him to pay it.
What is the Tax ? • Tax revenue is used for the general and common benefit of the people as a whole. • Tax is a legal collection. It can be levied only by the Government. • the payment of tax is regular and periodical in nature • Tax is levied on all people without any discrimination. but according to their ability to pay.
What is the Objective of taxation ? • Raising Government revenue • Removal of inequalities in income and wealth • Ensuring the economic stability • Capital accumulation • Creation of employment opportunities
Function and purpose of taxation Economic factors • Collection of taxes - withdrawal from the economy. • Government expenditure - Injection into the economy. - Provision of public goods and services. - Direct the economy towards policy objectives Social Factors • Redistribution of wealth
Principles of Taxation • Equity Tax system base on the ability to pay • Certainty time of payment , manner of payment and amount to be paid, should be clear and plain to contributor and every other person. • Simplicity tax system should be simple, easy and understandable
Principles of Taxation • Economy minimum expenses for tax collection & maximum revenue to Government Treasury • Stability tax structure once designed with care and long term objectives in view, must as far as possible be unchanged. • Progressivity higher income groups should pay proportionately more than the lower income groups.
Who bear the TAX Tax will be affected on two ways. • Direct affect : To pay the taxes if there is a liability to pay tax. Tax bear by the payee. It’s cant be transferred to other • Indirect affect : To compliance under special regulation available in the Tax law. Tax bear by the other person It’s can be transfer to other
Scope of Taxation legislation • Act • Gazette Notification • Ruling issued by the Department • Decided Tax Cases by courts • Departmental (IRD) procedures
Tax Authorities in Sri Lanka There are basically four tax authorities In Sri Lanka • Inland Revenue Department • Sri Lanka Custom • Excise Department • Provincial counsel – Revenue Department
Department of Inland Revenue (IRD)
IRD • Venue Inland Revenue Building , Colombo 02. • Mission To collect taxes in-terms of relevant tax and other related laws, by encouraging voluntary compliance while deterring tax evasion and tax avoidance, and To enhance public confidence in the tax system administered by the Department of Inland Revenue by administering relevant tax and other related laws in a fair, friendly and expeditious manner and thereby facilitate a beneficial tax culture
IRD • Main Objectives • Get assurance whether tax payer remitted the correct taxes , by correct way on due date. • Awareness of the Tax community and the General public • Information Source • www. ird. gov. lk • Tax Payer service Unit (1 st floor , IRD Building ) • Paper notification
IRD Tax System Since 1932 • Income tax was first introduced in Sri Lanka in 1932. (First year of Assessment 1931/1932). • The Income Tax Department was established in the same year to administer this tax. • Mr. N. J. Huxham was the first Commissioner. • Year 1972 -Introduction of the Self Assessment Scheme. • Year 1971 -PAYE scheme was introduced. • Year 1979 -Introduced current year basis taxation (79/80)
IRD Organization Chart Commissioner General (CGIR) Deputy Commissioner General (DCGIR) Senior Commissioner (SCIR) Commissioner (CIR) Senior Deputy Commissioner (SDC) Deputy Commissioner (DC) Assistant Commissioner (AC)
Taxes administrated • Income Tax (IT) - PAYE - Withholding Tax on Interest, Treasury Bills, Company Debts Security - Withholding Tax on Dividends • Value Added Tax (VAT) -Value Added Tax on Financial Services (VATFS) • Nation Building Tax (NBT) -Nation Building Tax on Financial Services (NBTFS) • Economics Service Charge (ESC) • Betting & Gamming Levy • Stamp Duty • Construction Guarantee Fund Levy IRD
Income Tax Profit and Income “profits” or “income” means the net profits or income from any source for any period calculated in accordance with the provisions of this Act. Accounting Profit Vs Taxable Profit
Income Tax Consequences for Non - Compliance If Non Compliance to tax law, that will be happen, • Imposition of penalties by both CGIR and Magistrate • Prosecution action (Legal Action) • Tax liability will be estimated and issue the additional Assessment by the IRD
Income Tax PERVILAGE For Good Tax Payers • Amount of tax paid more than Rs. 500, 000 – Silver Card Rs. 1, 000 -Gold Card for any year of assessment
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