Employment Income Business Taxation - EDBA...management are exercised. Sri Lanka 3/22/2015...

Principles of TaxationBusiness Taxation - EDBA

Business School

CA Sri Lanka

Damith GangodawilageMBA, PGD (BFA), EDBA, ATII, HNDA, SMAT, ACPM, AIPFM(UK)

Principles of Taxation_Business Taxation3/22/2015 1

- Economic and Social Functions of Taxation.

- Difference between Accounting Profit and Taxable Profit.

- Principles of Taxation.

- Difference between direct and indirect tax.

Chapter Outline

Principles of Taxation_Business Taxation3/22/2015 2

What is Tax

3/22/2015 Principles of Taxation_Business Taxation 3

Chp.1 - Principles of Taxation

Tax is a Price Paid by the Citizen



for his well being and Civilization.

21st Century Government

pressure


Chp.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.

http://www.geographypods.com/high--low-fertility-4hrs.html

http://www.geographypods.com/high--low-fertility-4hrs.html

http://www.iiews.com/whoweare.html

http://www.iiews.com/whoweare.html

http://www.thehindubusinessline.com/industry-and-economy/banking/new-norms-will-ease-funding-of-infrastructure-projects/article6217967.ece

http://www.thehindubusinessline.com/industry-and-economy/banking/new-norms-will-ease-funding-of-infrastructure-projects/article6217967.ece

http://yourfinancebook.com/forms-and-due-dates-for-filling-service-tax-return/

http://yourfinancebook.com/forms-and-due-dates-for-filling-service-tax-return/



Economic and Social Functions of Taxation.

Principles based on

tax polices

Equity

Progressivity Simplicity

Convenience

Neutrality

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 designed with care and long term objective

Tax should be charged according to the income distribution

Tax system should not have any adverse effect



Difference between Accounting Profit and Taxable Profit.

Accounting Profit is the amount reported in accordance

with accounting standards.




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.




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



Principles of Taxation.

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



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)





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)





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)

Any thing 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)



Test of Income & Capital Receipt.


Source

Derive

Received Loss/sterilize

Income

Capital Receipt



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



Residential Status of Individual.


S79(2)-(6)/2006-10

Individual183 Days Rule

365 Days Rule



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.



Residential Status of a Company or Body

of Persons.


S79(1)/2006-10

CompanyRegistered Office/Principle office.

Control and management are exercised.

Sri Lanka



Year of Assessment (YA).


Income tax is charged on a current year basis. A Year of Assessment is the 12 months period commencing from Residential 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



Resident:-


1.1

Mr. Sridharan’s movements during the YA 2011/12 & 2012/13 are as follows,

Arrival Departure Period of stay in SL01.05.2011 25.06.2011 56 days18.08.2011 20.11.2011 95 days22.12.2011 13.01.2012 23 days24.03.2012 05.05.2012 43 days31.07.2012 28.12.2012 151 days15.10.2013 -

You are required to assess the residence status of Mr. Sridharan for the YA 2011/2012

& 2012/2013 .



Resident:-


1.2

Date of arrivals and departure of Ramalin are as follows.

Arrival Departure10.06.2012 10.08.201215.09.2012 15.12.201225.01.2013 10.03.201305.04.2013 30.09.201425.01.2015 05.02.201510.02.2015 25.02.201502.11.2015 -You are required to assess the residence status of Ramalin.



Direct Tax & Indirect Tax:-


Direct Tax is a tax that is paid directly by an individual or organization on whom it is imposed. Direct tax cannot be shifted to another individual or entity. The individual or organization upon which the tax is levied is responsible for the fulfillment of the tax payment. Indirect taxes, on the other hand, can be shifted from one taxpayer to another but direct tax cannot be passed on to others. In Sri Lanka Income Tax is the main Direct Tax.

Indirect Tax is the tax that increases the price of a good so that consumers are actually paying the tax along with the price of the goods. 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 of the good. VAT, NBT are the indirect tax in Sri Lanka.

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