Sri Lanka’s five mobile telecommunication service providers sighed in relief last week with the government withdrawing its earlier proposal spelt out in the interim-Budget in January this year to legally bind operators to absorb the 25% of taxes payable on pre paid reloads.
Addressing Parliament on Tuesday, Leader of the House, Lakshman Kiriella announced that the bill was being withdrawn though he did not cite a reason for the move.
“The reason why the Minister of Finance has decided not to submit and implement this is because if you can remember, the companies (telecom operators) had offered this to consumers already in the last three months and the Minister therefore felt it unnecessary to enact a bill in this regard,” Deputy Secretary to the Treasury, S R Attygalle told The Nation Gain.
Presenting the Budget speech in January, Finance Minister Karunanayake proposed that the mobile facility operators should desist from passing the tax of 25% payable on reloads to the government from the consumer so that it would provide relief to the people of Sri Lanka, especially the younger generation.
“The company has to bear this cost on behalf of the client. The mobile facility providers’ assistance at this hour to help the liable consumers bring down their day to day expenses would be appreciated by our government”, he said at the time.
Following the proposal, analysts estimated that the telecom sector, with margins already shrinking from harsh competition, will take a severe beating as each mobile operator was also asked to bear a one time tax of Rs. 250mn.
“Although from the government’s point of view, the withdrawal of the Bill has no revenue implications, the companies concerned have agreed to absorb the tax voluntarily. I don’t think they can lose their pre-paid subscriber base since it amounts to almost 70% of their total base,” Attygalle said.
Attempts by The Nation Gain to receive responses from several mobile operators whether or not they had actually agreed to the condition, proved futile as operators sought more time from the newspaper to respond.
Meanwhile, Attygalle said that several other controversial one time retrospective taxes proposed by the government in January will however be kept intact and presented in Parliament for debate during the week commencing October 20, 2015.
“The Finance Act amendment, Inland Revenue Act Amendment and others would be tabled and taken up for debate at this time. We are anticipating a total revenue of Rs. 60-70bn by passing all the pending proposals and the companies would be asked to pay the dues by December 31, 2015,” the Deputy Secretary to the Treasury said.
Sri Lanka’s largest private sector Chamber, The Ceylon Chamber of Commerce (CCC) had recently opposed the enactment of the Finance Bill of March 2015 calling for amendments before its passage in Parliament. Referring to the Super Gains Tax (SGT) in particular, the CCC argued that it is based on profits declared during the financial year 2013/14 whilst the proposed threshold of Rs. 2 billion and the rate of 25 percent are both arbitrary and deviate from the generally accepted principles of taxation.
“In terms of the provisions of the Bill, subsidiaries of group companies, with individual profit levels below the threshold will also be liable for SGT if the aggregate profit of the group exceeds Rs. 2 billion and the absence of marginal relief makes the SGT inconsistent with the existing taxation policy,” the Chamber said in a statement.
Sri Lanka’s Inland Revenue Department (IRD) has so far not disclosed the names of the companies who would be affected by the SGT.
“Due to the confusion in calculation methods, as of now we cannot both ascertain who would be affected by SGT and the value a particular company would finally incur,” a research analyst said on the condition of anonymity.
When questioned from the Deputy Secretary to the Treasury whether the government hoped to disclose the breakdown of tax liabilities arising from SGT in future once the bill is passed, Attygalle replied in the negative.
“These are confidential information that we cannot share. In any case, it is the IRD that is handling it,” he said though pointing out that most of the firms who were liable to pay had already set provisions for the costs in complying with Sri Lanka’s Accounting Standards in their quarterly statements released to the Colombo Stock Exchange this year.