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Social Security Contribution from July 1

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Most prices expected to rise 2.5%
Impacts importers, manufacturers, service providers, wholesale, and retail
Athula Ranaweera

The previously highlighted Social Security Contribution (SSC) is to become effective from July 1. The new tax is expected to have a significant impact on the coming months’ prices as it is expected that the bulk of the tax shall be passed on to the consumer. Ranaweera Associates Managing Partner Athula Ranaweera noted that “for the survival of business entities they should charge the levy to their output (retail) prices.”

Importers and service providers will have SSC liable for 100% of their turnover while manufacturing, distribution, and wholesale/retail will have SSC liable for 85%, 50% and 25% of their turnover respectively. Ranaweera noted this in a recent insight webinar on June 25 on the Tax Talk YouTube Channel. The rate of the levy will be 2.5% of the liable turnover of an entity. Bad debts, VAT paid, and any rebate shall be exempt from the computation of turnover for this purpose.

Other than importers the entities that are liable for taxation shall have to obtain registration before July 15.

The thresholds for liability begin at Rs 120 million annually (for a year beginning July 1, 2021) or for Rs 30 million quarterly (for a quarter after July 1 2022). To prevent the proliferation of many minor entities appearing under the threshold the Commissioner General of Inland Revenue (CGIR) can require an entity to register for SSC.

Cancellation of registration can only be done 12 months after the registration. It can only be done on the cessation of business or if aggregate turnover falls below Rs 120 million. Cancellation shall be valid when communicated by CGIR and the relevant date from which it is effective.

Given the Electronic Transactions Act, the IRD has allowed for the acceptance of digital remittance of data. Notifying relevant institutional or personal details shall be the responsibility of the tax-paying entity. Tax returns will have to be filed quarterly before the 20th of the month-end of each relevant quarter. Failure to comply may result in penalties. The Assistant Commissioner may issue a determination on the ‘Open Market Price’ of an item if there is an attempt to evade the tax.

Tax returns are subject to potential assessment for a period of 3 years from the quarter in which the return is furnished. The accounting basis for the tax shall be on an accrual basis. The default penalty shall be 10% for the 1st month and 2% per month for each subsequent period. For importers, the tax shall be collected by the Director-General of Customs for every article that is imported. In the instance of bankruptcy, the levy in default shall be the first charge on all the assets of the defaulter.

Items exported by the manufacturer shall not be subject to SSC. Items imported for the usage of manufacture shall not be subject to SSC. Articles sold by local businesses to exporters shall not be subject to SSC. Trade show-related items shall not be subject to SSC.

The bill is yet to be finalized and passed in parliament. DP


Monday, June 27, 2022 – 01:00

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