In a significant move aimed at improving efficiency and transparency, the Colombo Stock Exchange (CSE) has mandated a standardized format for issuing dividend tax deduction certificates for all listed companies, effective January 1, 2025.
This new directive, announced through Circular No: 09/2024 dated October 18, 2024, addresses the current variations in dividend warrant formats across different entities, which often leads to inconvenience and confusion among shareholders.
Currently, listed companies in Sri Lanka employ diverse methods to calculate and present tax deductions on dividends, creating inconsistencies that complicate the dividend distribution process.
This variability hampers the clarity and consistency of financial reporting and tax deduction documentation needed by shareholders. Recognizing these challenges, the CSE, in consultation with the Department of Inland Revenue (IRD), has established a uniform approach that not only streamlines the process but also facilitates the digitalization of related documentation. The standardized certificate of tax deduction, as prescribed in the IRD’s Circular No. SEC/2018/06, will include a detailed tax calculation table to be adopted by all listed companies.
This uniformity is expected to enhance the shareholder experience by providing clear and consistent documentation, thereby aiding in accurate financial planning and tax compliance.
Further facilitating this initiative, listed companies are required to furnish their tax deduction schedules in electronic form, specifically in Excel CSV format using the templates provided by the IRD. This requirement is part of the broader move towards digitizing investor communications and processes at the CSE, aimed at reducing administrative burdens and costs for both companies and shareholders.
The adoption of a standardized format is anticipated to have several benefits, including improved operational efficiency and transparency in the dividend payment process. It supports the CSE’s goals of leveraging technology to enhance market operations and aligns Sri Lanka’s capital market practices with international standards and best practices.
Over time the Central Depository System will offer services in collating all dividend payment information for the computation of a tax burden. The Central Depository System will also look to more aggressively market and offer it’s registrar services to non-listed entities.
The CDS is also being called on to facilitate digitized voting for proxy holders. People have also advocated for a framework that allows minority shareholders to automatically transfer their voting rights to designated proxy entities when they are unable to participate. This designated proxy will be registered at the point of opening the account. (TP)
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