#AskWatchDog - 03

#AskWatchDog - 03

@June 9, 2022

Read this article in English | සිංහල| தமிழ்

Research by Umesh Moramudali Edited by Aisha Nazim Translated by Mohammed Fairooz & Nishadi Gunatilake

You asked:

1. How do the new taxes work ?

Our answer:

Last week, the Ministry of Finance introduced a series of tax changes with the objective of increasing tax revenue. Tax changes included an increase of Value Added Tax (VAT) rate to 12% from 8%, increase standard Corporate Income Tax (CIT) rate to 30% and concessionary CIT rate to 15%, reintroduction of PAYE, increased Personal Income Tax (PIT), reintroduction of Withholding Tax (WHT) and increased import duties on selected items.

Let’s look at these one by one.

  1. VAT changes include increased rates and a reduction of VAT liable threshold to sales of Rs. 30 million per quarter, from Rs. 75 million per quarter. Reducing the threshold means that more businesses will have to pay VAT, thereby increasing the business’s disclosing income. For businesses which did not pay VAT earlier, prices of goods will increase as the VAT is passed down to the customer. Think of your local bakery — if this bakery hypothetically made sales worth of Rs. 35million per quarter, and did not have to pay VAT before, they will now have to impose VAT as their sales revenue exceeds the VAT threshold. That means the prices of goods sold in the said bakery will be increased approximately by 12%. However, VAT change will not significantly affect the prices of many essential foods such as rice, dhal, onion, sugar and others — as such  goods are taxed under Special Commodity Levy (SCL)
  2. Reintroducing PAYE will result in deducting an income tax from your salary if you earn over Rs. 150,000 per month; and taxes will be imposed progressively. The first Rs. 100,000 will be taxed at 04%, and this will increase up to as much as 32% for each Rs. 100,000 you subsequently earn above that. While there is no confirmed explanation about the way  PAYE is re-imposed, as per the previous PAYE system, from a person receiving Rs.250,000, only Rs. 100,000 is liable for PAYE. This means, that only Rs. 4000 will be deducted as PAYE tax. Furthermore, as the maximum tax rate was increased, those who receive a monthly salary of approximately more than Rs. 850,000 will pay tax at 32%, as opposed to 18% before. These changes will come into effect from 01 October.
  3. There will be a 05% deduction on interest earnings with the WHT on interest income. For example, if you get an interest income of Rs. 25,000 for a fixed deposit, Rs. 2,500 will be deducted and you will receive only Rs. 22,500. It is important to clarify that this tax is not deducted from deposits, but only from the interest. Furthermore, WHT is also imposed on consultancy services; and 05% of the consultant’s fee will be deducted when the payment is made. WHT is also imposed on rent income above Rs.100,000 a month. In all these cases, those who make the payment will deduct 05% tax from the payment and will pay this to the Inland Revenue Department (IRD).
  4. Along with these income tax changes, there is a surcharge imposed on certain imports. Existing custom import tariffs will be increased according to the surcharge imposed. For example, if the surcharge is 100%, the existing customs duty will increase by 100%. According to the gazette issued regarding surcharge, 100% surcharge is imposed on washing machines. As the existing custom duty on washing machines is 15%, a surcharge increase will make it 30% of the landed cost of the washing machine. In most cases, this does not double the price. Let’s look at washing machines again, for example. If the landed cost was Rs. 100,000, and the previous custom duty was Rs.15,000, the tax on it now will be Rs. 30,000. Such surcharges were imposed on a number of items including air conditioners, shavers, vacuum cleaners, cheese, and several imported food items. Here’s the complete gazette. Given that the SCL of certain imported foods were also increased, the prices of these items will also increase. The list includes apples, grapes, oranges, dates, and more.

2. What happened after the attacks on 09 May, and who was arrested for them?

Our answer:

Following the attack on GotaGoGama on the 09 May, police and the Criminal Investigations Department (CID) arrested number of people involved in the attack. In our earlier analysis, we identified public figures who were involved in it.

On 16 May, the Attorney General instructed the police to arrest 22 people if there was reasonable suspicion about their involvement. These individuals included Senior DIG in charge of the Western Province Deshabandu Thennakoon, former Minister Johnston Fernando, former State Minister Sanath Nishantha, MPs Sanjeewa Edirimanna and Milan Jayathilake, Moratuwa Mayor Saman Lal Fernando, Colombo Municipal Councillor Mahinda Kahandagamage, and Dan Priyasad.

On 17 May, Sanath Nishantha and Milan Jayathilake were arrested by the CID and were further remanded till 01 June. Mahinda Kahandagamage was arrested by the CID on 25 May. While the day of the arrest is not clear, Dilip Fernando was also arrested and remanded till 08 June. On 02 June, the court ordered to remand both Kahandagamage and Fernando till 08 June. Sri Lanka Podujana Education Services Union President Wasantha Handapangoda was arrested on 31 May and remanded till 08 June. Saman Lal, Manjula Prasanna and Dan Priyasad were arrested on 16 May and further remanded till 08 June after being produced to court.

As of 07 June, Johnston Fernando was not arrested even after the CID identified him as a suspect. However, on 08 June, the Fort Magistrate Court issued a warrant for his arrest. Sanjeewa Edirimanne and Senior DIG Deshabandu Thennakoon are also not arrested as of yet. Senior DIG Tennakoon was questioned  by the CID. The Attorney General also directed the Inspector General of Police (IGP) to transfer him from the post of Senior DIG of Western Province.

According to reports as of the time of this writing, MP Milan Jayatilleke and the 12 others who were remanded were granted bail by Fort Magistrate's Court on 08 June 2022.

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