Principles of TaxationBusiness Taxation - EDBA
Business School
CA Sri Lanka
Damith GangodawilageMBA, PGD (BFA), EDBA, ATII, HNDA, FMAAT, ACPM, AIPFM(UK)
Dy. Head – Corporate Finance, Compliance and Regulatory AffairsSecretary to the Executive Council – Sri Lanka Institute of Taxation
Principles of Taxation_Business Taxation3/19/2016 1
- Economic and Social Functions of Taxation.
- Difference between Accounting Profit and Taxable Profit.
- Principles of Taxation.
- Basis of recognition of profits and income
- Residential status
- Difference between direct and indirect tax.
Module - 1 Outline
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What is Tax
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Tax is a Price Paid by the Citizen
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for thier well being and Civilization.
21st Century Government
pressure
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M.1 - Principles of TaxationEconomic and Social Functions of Taxation.
Ageing population
Pressure to support for education and social welfare
Pressure for Infrastructure
Pressure to reduce taxes
Transition from manufacturing based economy to services based economy
Fiscal pressure of the 21st Century Government.
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Functions of Taxation.
Principles based on
tax polices
Equity
Progressivity Simplicity
Convenience
Certainty
Stability
Good tax system is based on the people’s ability to pay
Taxpayer should able to understand the rules clearly
Tax should be collected in convenient manner
Tax structure should not be changed regularly
Tax should be charged according to the income distribution
Tax system should not have any adverse effect
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Source of Statutory Provisions.
Secondary Sources Primary Sources
Statutory Sources
Inland Revenue Act
Administrative Sources
Revenue Ruling
Gazette Notifications
Interpretation of provisions
Judicial SourceDecided Case
Guidelines
Commentaries
Text books /Handbooks
Legal dictionaries
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Difference between Accounting Profit and Taxable Profit.
Accounting Profit is the amount reported in accordance
with accounting standards.
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Difference between Accounting Profit and Taxable Profit.
Accounting Profit is
the amount reported in
accordance with
accounting standards.
Taxable Profit is the Net
Profits & Income derived
from any sources for any
year of assessment.
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S217/2006-10
Profits or Income means the net profit or income from any source for any period calculated in accordance with the provisions of the Inland Revenue Act.
Measurement of Profits & Income
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Define the Profits & Income.
The name given to transaction does not necessarily decide the nature of the transaction. The question always what is the real character of the payment and not what the parties call it.
I.R Vs. Wesleyan General Assurance Society (30 TC 11)
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Define the Profits & Income.
The words Profit and Income are clearly not synonymous. They are not to be used inter-changeably or indiscriminately.
Soertuz J, Ceylon Financial Investments Ltd Vs. CIT (1 CTC 206, pg 252)
Anything in the nature of capital accretion in excluded as being outside the scope and meaning of the act .
Rowlatt J, Ryall Vs. Hoare (8 TC 521)
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Define the Profits & Income.
IRD Act does not defined what is profit and income. It is merely described the sources of profits and income and prescribed methods of computing income.
Income and capital is not necessarily conclusive. What is paid out of the profits may not always be income. One has to look at all the relevant circumstances and reach a conclusion according to the general tenor and combined effect.
Lord Mac Dermot, Harry Ferguson Motors Ltd Vs. CIR (33 TC 15)
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Test of Income & Capital Receipt.
Source
Derive
Received Loss/sterilize
Income
Capital Receipt
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Profits & Income or Profits or Income mean:- Profits from Trade, Business, Profession or vocation. Profits from employment. Net Annual Value (NAV). Occupier’s Income. Dividends, Interest or discounts. Charges or Annuity. Rents, Royalties or Premium. Winning from a Lottery, Betting or Gambling. Money received by a NGO. Profits from any other sources
Component of Profits & Income:
S3/2006-10
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Basis of recognition of Profits and Income.
Person includes a Company or body of persons or any government.
S217/2006-10
Person
- An Individual- A Company- A Trust- An Executor or Administrator- A Co-0pearative Society- An Association, Club or Society of Persons whether
corporate or unincorporated- A Charitable Institution- A Hindu undivided family- Any Local or public Authority- A Government
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Basis of recognition of Profits and Income.
S2(1)/2006-10
Resident Person
Non-Resident Person
Profits and Income
chargeable with tax
Wherever arising
Arising in or derived from Sri Lanka
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Residential Status of Individual.
S79(2)-(6)/2006-10
Individual
183 Days Rule
Physical presence
365 Days Rule
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Residential Status of a Company or Body of Persons.
S217/2006-10
Company means, any Company incorporated or registered under any law in force in Sri Lanka or elsewhere and includes public corporation.
Body of Persons, includes any local or public authority, anybody corporate or collegiate, any fraternity, fellowship, association or society of persons, whether corporate or unincorporated, and any Hindu undivided family, but not include a company or a partnership.
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Residential Status of a Company or Body of Persons.
S79(1)/2006-10
CompanyRegistered Office/Principle office.
Control and management are exercised.
Sri Lanka
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Year of Assessment (YA).
Income tax is charged on a current year basis.
YA is the 12 months period -1st April to 31st March in the following year.
All accounts of trade, business, profession or vocation are to be made up for the period specified above.
CGIR may allow taxpayer to deviate from the general rule but not legally empowered to revoke such decision.
S28(2)/2006-10
S28(3)/2006-10
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Direct Tax & Indirect Tax:
Direct Tax- Paid directly by an individual or organization on whom it is
imposed. - Cannot be shifted to another individual or entity.
Indirect Tax - Indirect tax is most often not born by the person on whom is
levied. - It is shifted from one taxpayer to another, by way of an increase
in the price.
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Residential status of individual:
1.1
Mr. Sridharan’s movements during the YA 2013/14 & 2014/15 are as follows,
Arrival Departure Period of stay in SL01.05.2013 25.06.2013 56 days18.08.2013 20.11.2013 95 days22.12.2013 13.01.2014 23 days24.03.2014 05.05.2014 43 days31.07.2014 28.12.2014 151 days15.10.20145 -
You are required to assess the residence status of Mr. Sridharan for the YA 2013/2014
& 2014/2015.
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Answer 1.1 A
Mr. SridharanAssessment of Resident Status
Year of Assessment Present Absent2013/2014 01.04.13 30.04.13 30
01.05.13 25.06.13 (31+25) 5626.06.13 17.08.13 (5+31+17) 5318.08.13 20.11.13 (14+30+31+20) 9521.11.13 21.12.13 (10+21) 3122.12.13 13.01.14 (10+13) 2314.01.14 23.03.14 (18+28+23) 6924.03.14 31.03.14 8
182 183
Residential status of individual:-
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Answer 1.1 B
Mr. Sridharan
Assessment of Resident Status
Year of Assessment Present Absent
2014/2015 01.04.14 05.05.14 (30+5) 35
06.05.14 30.07.14 (26+30+30) 86
31.07.14 28.12.14 (1+31+30+31+30+28) 151
29.12.14 31.03.15 (3+31+28+31) 93
186 179
Residential status of individual:
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1.2
Date of arrivals and departure of Ramalin are as follows.
Arrival Departure10.06.2013 10.08.201315.09.2013 15.12.201325.01.2014 10.03.201405.04.2014 30.09.201525.01.2015 05.02.201610.02.2016 25.02.201602.11.2016 -
You are required to assess the residence status of Ramalin.
Residential status of individual:
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Answer 1.2
Ms. RamalinAssessment of Resident Status
Year of Assessment Prsent Absent2013/2014 01.04.13 09.06.13 (30+31+9) 70
10.06.13 10.08.13 (21+31+10) 6211.08.13 14.09.13 (21+14) 3515.09.13 15.12.13 (16+31+30+15) 9216.12.13 24.01.14 (16+24) 4025.01.14 10.03.14 (7+28+10) 4511.03.14 31.03.14 21
199 166
Residential status of individual:
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Answer 1.2
Ms. RamalinAssessment of Resident Status
Year of Assessment Prsent Absent2014/2015 01.04.14 04.04.14 4
05.04.14 31.03.15(26+31+30+31+31+30+31+30+31+31+28+31) 361
361 4
Residential status of individual:
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Answer 1.2
Ms. RamalinAssessment of Resident Status
Year of Assessment Present Absent
2015/2016 01.04.145 30.09.15 (30+31+30+31+31+30) 18301.10.15 24.01.16 (31+30+31+24) 11625.01.16 05.02.16 (7+5) 1206.02.16 09.02.16 410.02.16 25.02.16 1626.02.16 31.03.16 (3+31) 34
211 154
Residential status of individual:
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Thank You !
