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Sunday Dec 15, 2024
Tuesday, 21 February 2023 00:26 - - {{hitsCtrl.values.hits}}
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| President and Finance Minister Ranil Wickremesinghe |
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| State Finance Minister Ranjith Siyambalapitiya |
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| Inland Revenue Chief Ranjith Hapuarachchi
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The recent revised circular of the Inland Revenue Department in relation to employment benefit valuation appears to be an eye wash in a critical sense according to tax experts with no significant benefit to the biggest employee base – the private sector.
“Nothing has been removed except for the changes in methodology. New introductions are only for the betterment of Government officers,” they opined.
In ascertaining the gains and profits from an employment, all cash and non-cash benefits (excluding any deductions) received or derived in the course of employment shall be considered. According to the section 27(1) of the Inland Revenue Act No. 24 of 2017 (as amended), the Commissioner General of Inland Revenue has been vested with the authority to prescribe the values in ascertain income or deduction. Accordingly, certain non-cash benefits have been quantified and provided through a circular. The circular issued under the reference SEC/2022/05 dated 22/12/2022 is annulled and the circular referred under SEC/2022/E/05 dated 07/02/2023 is effective from 01/01/2023.
“The recent circular dated 07/02/2023, is merely containing alternative methodologies in quantification of non-cash benefit to the previous circular dated 22/12/2022. Therefore, no non-cash benefit has been exempted for Income Tax purposes,” according to the Sri Lanka Institute of Taxation analysis.
Under mounting pressure, the Government on 8 February announced revision to the circular on Advance Personal Income Tax (APIT) personal income tax relaxing certain incentives provided for an employee whose monthly income exceeds Rs. 100,000.
The move came following the Treasury’s Financial Policy Department Director General Dr. Kapila Senanayake’s meeting with trade union leaders and representatives of civil organisations amidst countrywide protests against the new tax regime.
State Minister of Finance Ranjith Siyambalapitiya went public saying that the changes will bring significant relief to the concerned parties.
KPMG in its tax alert said public sector employees have been provided significant relief in relation to transport facilities, accommodation and communication facilities and only some revisions benefit both private and Government sector employees.
The non-cash benefit of loans on concessionary rates was earlier fixed at 50% of the difference and under the new circular it has been revised to zero of the cost.
In terms of value of company shares awarded by the employer, there is no change between the two circulars with market value at the allotment of such shares less cost to employee is the benefit
There is also no change in monthly allowances connected to accommodation. However, the value of benefits from any residence provided by the employer has been revised to the effect that there is no requirement to refer to the market value. Instead a fixed percentage has been imposed. For example, rated area, it is 12.5% of the salary, non-rated area 10% of the salary and estate bungalow 7.5% of the salary. Earlier circular stipulated a two tier approach with monthly remuneration of less than Rs. 200,000 or above. Additionally a specific value was assigned ranging from Rs. 20,000 and Rs. 10,000 for less than Rs. 200,000 earners and between Rs. 40,000 and Rs. 20,000 for those earning over Rs. 200,000.
The requirement to adhere to the market value as the first attempt under the previous circular has been removed. Unlike in the previous circular, it has now been confined to one uniform table applicable for all types of employees irrespective of their levels of salaries.
The valuation for a furnished residence has been removed. In addition, the value of any place of residence considered as inclusive of any security, housemaids, servants, laundry etc. has been removed. Therefore, any benefit awarded by the employer shall be quantified according to fair market value as per section 5(2)-(h).
If the value of the benefits are exceeding the market value the difference between the benefit considered for employment tax (APIT) and the fair market value was made to be disallowed for income tax purposes. This has been removed.
However, the expenses exceeding the market value, could be interpreted as domestic expenditure under sec 197(2)-(a) of the Inland Revenue Act No. 24 of 2017 and its subsequent amendments. Domestic Expenditure under section 10(1)-(b)-(i) of the Inland Revenue Act No. 24 of 2017 and its subsequent amendments, are not allowed in calculating a person’s income.
Where the employer reimburses any expense connected with a house or apartment occupied by the employee, the value of benefit shall be actual expense reimbursed by the employer has not been removed. Therefore, when the employer reimburses any expense connected with a house or apartment occupied by the employee such shall be ascertained for tax in the hands of the employee according to the actual expense.
New insertions are if any amount is deducted from the employee’s salary for providing a place of residence or by way of rent, the employment benefit should be the benefit specified under 2(a) or (b) of the referred circular, less the amount deducted from the employee’s salary. 2 (a) and accordingly, the employee’s contribution for the same benefit as an expense shall reduce the benefit value recognised under paragraph 2(a) or (b) of the circular. The other is salary has been defined to capture value considered for Widows and Orphans Pension Scheme/Employee Provident Fund and any other cases the gain and profits received from employment in cash from the relevant employment. Here, it is generally the basic salary and other allowances would be fine in determining salary. Previously it was remuneration where it had a wider scope.
In terms of relief for motor vehicles provided, the requirement to adhere to the market value as the first attempt under the previous circular has been removed.
Therefore, in ascertaining the value of providing transport facilities including a motor vehicle as employment benefits, the table given in the revised circular to be followed. No requirement to refer to the market value.
However, if a vehicle is fully used for private use (not partly used for private use), the actual benefits as per the market value shall be taxable. This benefit is confined to one vehicle from primary employment and/or another vehicle from secondary employment as the case maybe. Therefore, an employee can enjoy the above table application only for a single vehicle either from primary or secondary employment.
New insertions with regard to vehicles include: if any employee receives any sum in lieu of any vehicle provided by the employer for the fully or partly official use, under a circular, directive or regulation issued by the Government, such benefit shall be 25% of the total cost incurred by the employer. The valuation, therefore, shall be strictly on the circular, directive or the regulation issued by a Government institution.
If any employee receives a vehicle partly or fully for the use of official purpose and if he is entitled for a payment of fuel from an employer, under a circular, directive or regulation issued by the Government, such benefit shall be 25% of the total cost incurred by the employer. The valuation, therefore, shall be strictly on the circular, directive or the regulation issued by a Government institution.
A new addition is if any employee receives any communication facilities from an employer under a circular, directive or regulation issued by the Government, such benefit shall be 25% of the total cost incurred by the employer. The valuation, therefore, shall be strictly on the circular, directive or the regulation issued by a Government institution.
The valuation of other non-cash benefits remain unchanged from the previous circular. They are provision of hotel facilities for expatriates; provision of electricity and gas etc.; provision of medical benefits; provision of free meals; a discharge or reimbursement of the person’s dental, medical or health insurance expenses where the benefit is not available to all full-time employees on in the same grade of the service, on equal terms; payment of telephone bills; air tickets (other than official purposes) and payment of tax.
