The Certified Management Accountants of Sri Lanka (CMA) noted that recent changes passed to the tax landscape were beneficial to long-term capital expenditure but may be harmful to the working capital of firms. Cash payments had also created further burdens concerning tax liability.
In a recent amendment, the Board of Investment (BOI) introduced enhanced capital allowances, providing higher deductions on asset costs. While previously limited to new projects, the amendment now allows expansions to benefit as well. However, to qualify, companies must secure a BOI agreement for their expansion projects. Critics argue that this discriminates against non-BOI companies.
Partner Tax Ernst and Young Sulaiman Nishtar said, “Enhanced capital allowance is like a tax holiday. If you are going in for a major expansion, then visit the BOI and see if you can get a BOI agreement. You can’t buy an asset that somebody else is already using and it can’t be a replacement of your existing assets.”
Nishtar was speaking on 17 June at a CMA webinar on ‘Recent Developments to the Tax Landscape’.
The Cash Payments Amendment Act Number Four of 2023 restricts cash payments, affecting their deductibility for tax purposes. Payments totaling 500,000 rupees or more per day must now be made using non-cash means to qualify for a tax deduction.
This restriction applies to payments made concerning one invoice or one event, including purchases of goods or services on a single invoice, receipt, or statement. However, payments made by banks are exempt from this rule. The amendment aims to encourage non-cash transactions and enhance tax compliance.
The proposed removal of the Sales Value Added Tax (SVAT) scheme has sparked concerns within the export sector. The SVAT scheme, which provided immediate refunds on input taxes for exporters and certain foreign currency-dependent sectors, played a crucial role in boosting cash flows and working capital. Its potential elimination could have significant implications for businesses operating in these sectors. Exporters, already grappling with increased income tax rates and the appreciation of the local currency, now face the prospect of a double blow to their financial stability.
The removal of the SVAT scheme would require them to pay Value Added Tax (VAT) to suppliers, adding monthly cash outflow. The pressing issue, however, lies in the uncertainty surrounding the timing of VAT refunds from the tax department.
Nishtar voiced concerns over the administrative burden associated with the refund process, recalling past experiences characterized by lengthy audits and ever-changing tax officers. The proposed removal of the SVAT scheme would only exacerbate this burden, potentially straining businesses’ financial capabilities. TP