Rates and Taxes 2016

Assessment Notices would be received by rate payers from the municipal/urban councils in December 2015. When a notice of assessment is received, it has to be checked to see whether there is any increase in taxes payable (rates and taxes are usually revised every five years).

Increase in taxes is due to –

1. Increase in valuation of the property assessed.

2. Increase in rate applied on the valuation (Say 25% to 30%). This cannot be challenged.

If the increase in valuation of the property is unreasonable only, an appeal could be lodged within one month from the statutory date of serving the notice of assessment.

An inquiry would be held and you could meet with the necessary documents either personally or through an attorney. If the appeal is successful a revised notice will be issued.

Municipal Councils and Urban Councils offer discounts on the following basis which should be checked with the relevant authorities. (On the notices issued)

 (a)Full annual payment made on or before 31 January 2016  - 10% discount

 (b)Full quarterly payment made on or before 31 January, 30 April, 31 July & 31 October 2016 -  5% discount

(c)Full quarterly payment made on or before 31 March,30 June, 30 September and 31 December 2016   -  No discount

(Late payments are liable for spot penalty at 10%)

Usually Rate Payers do not analyse these discounts against bank overdraft interest to arrive at the most beneficial method.

Please contact the municipal council early without waiting for the receipt of the notice of assessment. It may be too late for an appeal which may be rejected automatically due to even a day’s delay.

Using mathematical formulae it could be proved that the 10% discount scheme is beneficial if Bank Overdraft interest is less than 16.10%. The 5% discount scheme is beneficial of the Overdraft Interest is between 16.11% and 35.82%.

Taking into consideration of compound interest (Interest on Interest) these limits will reduce to 14.74% and 31.20% respectively.

It is always better to pay revised rates and wait for appeal results to ensure discounts or to avoid penalties.

For Eg. if the rates and taxes have been increased from Rs. 100,000 to Rs. 120,000, please pay Rs.108,000 (10% discount) on or before 31 January 2016.

If the appeal is accepted, Rs. 18,000 could be refunded as a benefit of appeal in addition to a discount of Rs.12,000 making a total of Rs. 30,000 less cost of capital on advanced payment.

If the appeal is rejected no refund is available but Rs. 12,000 (10%) less cost of capital is secured. 

On the same example 5% discount scheme could be adopted. Pay Rs. 28,500 on 31 January 2016 and continue every three months whilst waiting for appeal results. If the appeal is accepted the benefits on appeal is Rs. 19,000 in addition to Rs. 6,000 (5%) totaling Rs. 25,000 less cost of capital.

If the appeal is rejected only Rs. 6,000 (5%) less cost of capital is secured. 

Never allow your tenants to pay rates and taxes in their names as it would mean that you are recognising their right to claim ownership to the property in the future. I hope the readers benefit from this information and will act fast on this matter.

S.R. Balachandran 

BSc, FCA, FCMA (Sri Lanka)