Does the SEC grant licenses for the wealthy to avoid paying taxes?
As you and I are aware, the SEC or the Securities and Exchange Commission of Sri Lanka is charged with the task of regulating the capital markets of the country. You may then wonder how the SEC is caught up in facilitating any tax avoidance.
As the regulator of capital markets, the SEC licences and regulates unit trusts. A unit trust is a pool of funds that is managed by a professional fund manager and the investors in this unit trust or the unit holders contribute each to a small portion of the fund. These investors stand to benefit from the expertise of a professional fund manager, who invests the pool of funds in various capital market instruments such as shares, corporate and treasury bonds. Thus, unit trusts help unsophisticated investors to enter and benefit from the capital markets and in a country like Sri Lanka, unit trusts play a vital role to increase the liquidity in capital markets. For this reason the Government incentivised unit trusts and their investor by making the income of unit trusts tax free.
However, taking undue advantage of this tax concession ‘a certain company’ has set up unit trusts for the sole purpose of earning a tax free income. This company owns 99% or more of the units of these unit trusts and the other investors account only for less than 1%. Thus, clearly these unit trusts have been established as a scheme for this one company to avoid paying taxes and nothing to do with above mentioned purpose as a collective investment scheme to promote capital markets!
However, with the change in government policy over the taxation of unit trusts; specifically the taxation of unit trust income in the hands of corporate investors, the above company has redeemed all of its units. This, according to the audited financial reports of the unit trusts for the year 2017/18, has resulted in the unit trusts facing serious going concern issues.
This situation begs answers to two pertinent questions; the first being, what would be the plight of the remaining unit holders (who, although, representing 1% of the unit trust are many in numbers and have invested keeping faith in the system of unit trusts)?
The second, how did this company obtain a licence from the SEC and misuse unit trusts in the above manner as a tax avoidance scheme? Can you or I obtain a unit trust licence and perpetrate such a scheme!
This company is none other than the company that is responsible for the importation of the three-wheeled road menace. It has ventured into the financial services industry in a different name, including unit trusts. However, by the looks of things there seems to be little or no difference between the management style of the three-wheeler company and the financial services arm!
It is quite unfortunate that when the poorest sections of the community pay far more than their fair share of taxes (to the extent of paying withholding tax on the interest income on minor’s savings accounts), the wealthiest are able to avoid paying any taxes in such elaborate schemes! I sincerely hope that this attracts the attention of the relevant authorities and that these elaborate schemers are brought to task by recovering whatever dues to the government coffers.
Those who don’t understand economics must not speak
It seems to me sad that people who seek to be opinion makers in the Sinhala press do not understand the fundamentals of economics and their comments are beside the point and irrelevant. The so-called bond scam is one such example.
Why don’t the critics point out what is it that constitutes the fraud and what is the value of such fraud, showing how it was calculated? If they cannot do so they must not speak
What has Tax Department done about Swiss accounts?
More than two years have now gone since our major newspapers exposed Sri Lankans secretly having Swiss and Cayman Island bank accounts. Some of them had both husband and wife as separate account holders to pay less taxes even in those countries.
Most of these Sri Lankans have lived in Sri Lanka all their lives and do business only here. But how did they end up having such large accounts overseas? Are these monies proceeds of crime, illegal commissions or money smuggled out against our exchange control regulations?
Now in most countries, wherever you earn money you must declare that in your tax returns at home.
Our Inland Revenue Department is either sleeping or are not capable of investigating complex across border crimes like this.
In either case, the Tax Department is letting down the country and the law-abiding taxpayers.