Principles of Taxation Business Taxation - EDBA Business School CA Sri Lanka Damith Gangodawilage MBA, PGD (BFA), EDBA, ATII, HNDA, SMAT, ACPM, AIPFM(UK) Principles of Taxation_Business Taxation 3/22/2015 1
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
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What is Tax
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Chp.1 - Principles of Taxation
Tax is a Price Paid by the Citizen
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Chp.1 - Principles of Taxation
for his well being and Civilization.
21st Century Government
pressure
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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.
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Chp.1 - Principles of Taxation
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
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Chp.1 - Principles of Taxation
Difference between Accounting Profit and Taxable Profit.
Accounting Profit is the amount reported in accordance
with accounting standards.
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Chp.1 - Principles of Taxation
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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Chp.1 - Principles of Taxation
Difference between Accounting Profit and Taxable Profit.
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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Chp.1 - Principles of Taxation
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
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Chp.1 - Principles of Taxation
Define the Profits & Income.
Principles of Taxation.
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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Chp.1 - Principles of Taxation
Define the Profits & Income.
Principles of Taxation.
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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Chp.1 - Principles of Taxation
Define the Profits & Income.
Principles of Taxation.
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)
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Chp.1 - Principles of Taxation
Test of Income & Capital Receipt.
Principles of Taxation.
Source
Derive
Received Loss/sterilize
Income
Capital Receipt
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Chp.1 - Principles of Taxation
Basis of recognition of Profits and
Income.
Principles of Taxation.
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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Chp.1 - Principles of Taxation
Residential Status of Individual.
Principles of Taxation.
S79(2)-(6)/2006-10
Individual183 Days Rule
365 Days Rule
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Chp.1 - Principles of Taxation
Residential Status of a Company or Body
of Persons.
Principles of Taxation.
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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Chp.1 - Principles of Taxation
Residential Status of a Company or Body
of Persons.
Principles of Taxation.
S79(1)/2006-10
CompanyRegistered Office/Principle office.
Control and management are exercised.
Sri Lanka
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Chp.1 - Principles of Taxation
Year of Assessment (YA).
Principles of Taxation.
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
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Chp.1 - Principles of Taxation
Resident:-
Principles of Taxation.
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 .
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Chp.1 - Principles of Taxation
Resident:-
Principles of Taxation.
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.
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Chp.1 - Principles of Taxation
Direct Tax & Indirect Tax:-
Principles of Taxation.
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.