P OST G RADUATE D IPLOMA IN BUSINESS & FINANCE Taxation

S YLLABUS 1. Taxation 1.1. Sources of income 1.2. Preparation of Income Tax Return of an Individual 1.3. Preparation of Income Tax Return of a Company 1.4. VAT, ESC, TT and NBT

F UNCTION 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

Direct taxation Based on income and profits, gains or wealth – Tax only those who have these resources. Indirect Taxation Paid by customer (VAT) – discourage spending and encourage saving Progressive taxes Proportion of income or gains paid over in tax increases as income/gain rise, to target those who can afford to pay. T YPES OF TAXES AND SOCIAL EFFECTS

P RINCIPALS AND TYPES OF TAXATION Principles of Income tax - Equity - Progressivity - Simplicity - Stability - Types of taxes Income tax Value added tax Nation Building tax Economic service charge Import duty Cess Port and aviation levy Stamp duty Excise duty Telecommunication levy Tourism development levy

A DMINISTRATION & SOURCES OF REVENUE LAW Administration of the tax system - Department of Inland Revenue - Department of Customs - Department of Excise Sources of revenue law - Legislation - Judicial precedence - IRD’s internal statements of practice and public pronouncements

I MPOSITION OF INCOME TAX Charging section: Section 2 of the Income Tax act No 10 of 2006, specifies that income tax is charged at specified rates for every year of assessment on the profits and income of every person: -Wherever arising in the case of person resident in Sri Lanka, and -Arising in or derived from Sri Lanka, in the case of a person not resident in Sri Lanka

I NTERPRETATION OF T AXING S TATUTE “ In a taxing act one has to look merely at what is clearly said” There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in or implied. One can only look fairly at the language used. In the case of Cape Brandy Syndicate V IR “no subject can be taxed unless the crown can find a clearly charging section and once that is found the subject cannot escape taxation unless he can find a clearly exempting section.”

S COPE OF I NCOME T AX 1. There should be a taxable person. 2. The tax must be for a year of assessment. 3. There should be appropriate rates “specified”. 4. Tax has to be imposed on profits and income. Who is a taxable person (section 17) An individual, local or public authority, body corporate or collegiate, any fraternity, fellowship, association, society whether incorporated or not. Also include a receiver, trustee, executor, liquidator or agent. Partnership businesses also included as a taxable entity under section 78.

R ESIDENCE STATUS -In the case of an individual he/she should be physically present in Sri Lanka for more than 6 months (183 days) or more in a tax year.(section 79(2)) -Where an individual is deemed to be resident for 2 or more consecutive years of assessment, then he is deemed resident until such time as he is absent from Sri Lanka for an unbroken period of 365 days. (section 79(3)) -In case of a company its registered in Sri Lanka or principle office is in Sri Lanka, or its control and management is exercised in Sri Lanka. Calcutta Jude Mills V Nicholson Unit Construction company V Bullock

Y EAR OF ASSESSMENT Current year basis 1 st April to 31 st March of the following year (Section 28(02)) Unless special approval is obtained to use a different basis. What are appropriate rates of income tax? The rate of income tax is specified in the Schedules to the act and the subsequent amendments.

S OURCES OF INCOME  Income from employment All cash and non cash taxable benefits derived out of employment will be charged.  Income from self employment All profits derived out of trade, business, profession or vocation will be charged.  Income from property Net annual value and rent under the provisions of the act will be charged for income tax  Investment income Dividends and interest derived out of investments will be charged  Other income Annuities, Royalties, and income derived from any other source will be charged under this.

I NCOME TAX COMPUTATION Part 01 : Statement of taxable profits and income Rs. Income from employmentXX Profits from Trade, Business…XX Net Annual value/ RentXX DividendsXX InterestXX Annuities, Royalties etc.XX Income from any other sourceXX Total statutory income XXX

I NCOME TAX COMPUTATION CONT.. Part 02 : Deductions from statutory incomeRs. Total statutory income XX Deductible losses on trade, bus..XX Interest, Annuities & Royalties, Ground rent paidXX Total deductions from statutory Income (XX) Assessable incomeXX Less : Tax free allowance500,000 Qualifying paymentsXX Total deductions from assessable Income (XX) Taxable Income XX

I NCOME TAX COMPUTATION CONT.. Part 03 : Calculation of tax payableRs. Taxable income XX Tax on once and for all receipts From employmentXX Tax on remaining income XX Gross income taxXX Tax Credits (XX) Final tax payable/Refund claimedXX