Registered at the Dept. of Post: QD/83/NEWS/2011

June - 2011June - 2011

Are You Ready for IFRS?

Budget TaxProposals 2011

Stock Market Investing

A way forward in educating Sri Lankan Student Population

Pg 4

Pg 6

Pg 15

Pg 16

2

3

Thivanka Jayasinghe (Chairman)Ganaka Amerasinghe (Alt. Chairman)Prasanna SamarakoonNalin MadurapperumaTG Nuwan KrishanthaThevakunarasa WotsanMs RAG RanasingheMHM HananIW KarunarathnaPSADE Channa KumaraWD Umesh ErangaSSM SooriyarachchiJP Manoj Niroshan (Secretary)

Journal & Newsletter Committee

President - T Dharmarajah B.Sc. Mgt (Sp), Dip.in Accy, FCA, FMAATVice President - Nishan Fernando FCA, MBA (Sri J), ACMA, FMAATSecretary - J M U B Jayasekara FMAAT, B.Sc. Mgt. (Sp), APFA, ACA, FCMAImmediate Past President - H M Hennayake Bandara FMAAT, B.Com (Sp),Dip in Accy., FCMA, FCA

SENIOR MANAGEMENTTishanga Kumarasinghe - CEOFMAAT, B. Com (Sp) Int’l Trade. Pg. Dip., MSLIM

U H D Pathmasiri - Consultant, Examinations, Education and Training - FMAAT, MBA, Dip in Accy, FIBSL, FCMA, FCA Maitri Piyasena - Consultant FMAAT, FPFA, DPFM

Kapila Ranasinghe - Director Finance and Administration FMAAT, FCMA, Dip in Mgmt., ACA

P L Senaka Dimuthu - Director ExaminationsSAT, B. Sc., FCA, MBA (Sri J)

Ms. Shyamalie Gunaratna Director Registration & Membership - B Sc (Peradeniya), MCPM

Ms. Siyamala Sumanthiran - Director ComputerB. Sc. Hons (MIS), Dip NIBM, ACS

Editorial

G G L Aponso FMAAT, AFA(UK) CTM.Dip [E.M] Nihal De Silva FMAAT, FCA, FCMA (UK)Ms. R Dulani Fernando FMAAT, ACA, FCCA Lalith T Fernando FMAAT, FCA, MBA, FCMAM J Magdon Ismail FMAAT, CMA (Aust.), FCA,P Jayasekera SAT, ATII, APFAThivanka U Jayasinghe FMAAT, ACA, ACMA, ACMA (UK)Lal Nanayakkara FMAAT, BA (Cey), FCA, FCMAPrasanna Samarakoon MAATSunil Wanigabadu FMAAT, FFA (UK), MCPMMs. S P M Kamala Siriwardena FMAAT, B.Sc (Bus. Adm.), APFA, DPFMMs. R M Mallika Rathnayaka B.Com (Sri J), Dip.in Public Financial Mgt. (SLIDA)

Members

Dear members, since the last journal significant changes have occurred in the environment we work in. Are you ready for these changes?

The Government approved in Parliament several changes to the existing tax laws. These changes were presented to bring about spiralling growth in the Sri Lankan Economy. It is important for our members to familiarise themselves with these changes to implement the required changes in the businesses they operate.

The 2011 budget also recognized AAT members to represent clients at the Department of Inland Revenue in connection with tax matters. More details of this announcement will be presented in the next journal.

Additionally the Institute of Chartered Accounts of Sri Lanka has announced that financial statements prepared for periods commencing on or after 1 January 2012 are required to comply with Sri Lanka Accounting Standards (SLFRSs). Accordingly Sri Lanka will then converge with International Financial Reporting Standards (IFRS) issued by International Accounting Standards Board (IASB). An article providing an introduction to these changes is in this journal. The journals that will follow this issue will highlight and explain important SLFRSs. I also encourage members to do their own research and attend training programs to be ready for the new Sri Lankan Accounting Standards.

Any suggestions and ideas to improve the journal are welcome and can be addressed to aatslcom@sltnet.lk

Thivanka JayasingheChairman, Journal and Newsletter Committee

THE GOVERNING COUNCIL 2010-2011

"The Governing Council of the Association of Accounting Technicians of Sri Lanka does not guarantee the accuracy of statements made by contributors to this Journal. The Council also does not accept responsibility for any statement / opinion they may express in this Journal."

4

IntroductionAs per the Institute of Chartered Accountants Sri Lanka, financial statements prepared for periods commencing on or after 1 January 2012 are required to comply with Sri Lanka Accounting Standards (SLFRSs), which comprise of Sri Lanka Accounting Standards (SLFRSs and LKASs) and interpretations adopted by the Institute of Chartered Accountants of Sri Lanka (IFRIC and SIC).The intention of this article is to provide AATSL members an introduction to this significant change.

Why is IFRS proposed to be applied in Sri LankaIFRS issued by the International Accounting Standards Board (IASB) is applied as the basis for preparing financial statements in many countries in the world. In line with increased globalization a need has arisen for a globally agreed set of accounting standards. Accordingly many countries including Sri Lanka are in the process of adopting IFRS to improve the degree of uniformity in financial reporting which will also be comparable globally.

Sri Lanka Accounting StandardsCurrently the accounting standards in Sri Lanka issued by the Institute of Chartered Accountants of Sri Lanka are

Are You Ready for

identified by the term Sri Lanka Accounting Standards or SLAS.

Similarly the accounting standards issued by the IASB are identified by the terms IAS and IFRS. Both IAS and IFRS are commonly identified as International Financial Reporting Standards (IFRS).

Upon adopting IFRS, Sri Lanka Accounting Standards will be prefixed by both SLFRS and LKAS. SLFRS will refer to Sri Lanka Accounting Standards corresponding to IFRS and LKAS will refer to Sri Lankan Accounting Standards corresponding to IAS. Both SLFRS and LKAS will commonly be referred to as Sri Lanka Accounting Standards (SLFRS). As per the existing proposals Sri Lanka will adopt the International Financial Reporting Standards adopted as per the 2009 edition of the IFRS bound volume.

The table below indicates the existing Sri Lanka Accounting Standards, corresponding proposed Sri Lanka Accounting Standards (SLFRS) and the corresponding International Financial Reporting Standards.

IFRS?

Serial Existing LKAS/ SLFRS IAS/ IFRS Description of Standard Number SLAS Number Number

1 3 LKAS 1 IAS1 2 5 LKAS 2 IAS2 3 9 LKAS 7 IAS7 4 10 LKAS 8 IAS8 5 12 LKAS 10 IAS10 6 13 LKAS 11 IAS11 7 14 LKAS 12 IAS12 8 18 LKAS 16 IAS16 9 19 LKAS 17 IAS17 10 29 LKAS 18 IAS18 11 16 LKAS 19 IAS19 12 24 LKAS 20 IAS20

Presentation of Financial StatementsInventoriesCash Flow Statements Accounting Policies, Changes in accounting Estimates & ErrorsEvents after the Balance Sheet DateConstruction Contracts Income TaxesProperty, Plant and EquipmentLeasesRevenueEmployee BenefitsGovernment Grants and Disclosure of Government Assistance

5

Serial Existing LKAS/ SLFRS IAS/ IFRS Description of Standard Number SLAS Number Number

13 21 LKAS 21 IAS21 14 20 LKAS 23 IAS23 15 30 LKAS 24 IAS24 16 42 LKAS 26 IAS26 17 26 LKAS 27 IAS27 18 27 LKAS 28 IAS28 19 - LKAS 29 IAS29 20 31 LKAS 31 IAS31 21 44 LKAS 32 IAS32 22 34 LKAS 33 IAS33 23 35 LKAS 34 IAS34 24 41 LKAS 36 IAS36 25 36 LKAS 37 IAS37 26 37 LKAS 38 IAS38 27 45 LKAS 39 IAS39 28 40 LKAS 40 IAS40 29 - LKAS 41 IAS41 30 - SLFRS 1 IFRS1 31 39 SLFRS 2 IFRS2 32 25 SLFRS 3 IFRS3 33 - SLFRS 4 IFRS4 34 38 SLFRS 5 IFRS5 35 - SLFRS 6 IFRS6 36 46 SLFRS 7 IFRS7 37 28 SLFRS 8 IFRS8 38 - SLFRS FOR SME -

The Effects of Changes in Foreign Exchange RatesBorrowing CostsRelated Party DisclosuresAccounting and Reporting by Retirement PlansConsolidated and Separate Financial StatementsInvestments in AssociatesFinancial Reporting in Hyperinflationary EconomiesInterest in Joint Ventures Financial Instruments: PresentationEarnings per ShareInterim Financial StatementsImpairment of AssetsProvisions, Contingent Liabilities and Contingent AssetsIntangible AssetsFinancial Instrument - Recognition and MeasurementInvestment PropertyAgriculture First-time adoption of IFRSShare-based PaymentBusiness CombinationInsurance ContractsNon current Assets held for sale and discontinued operationsExploration for and Evaluation of Mineral Resources. Financial Instruments-DisclosureOperating SegmentsIFRS for SME

All LKAS and SLRFS will be effective for annual periods beginning on or after 1 January 2012. Earlier application is encouraged.

Impact of the change The degree of the impact of the change will vary from industry to industry, however it is generally considered there will be significant impact on the profit for the year, classification and measurement of financial assets and liabilities.

Preparing yourself for IFRSPreparing yourself and the entity you work for is critical to the successful convergence. If not addressed properly, it can be a time consuming and costly to correct. Accordingly you should:•Educate yourself on the proposed changes.•Perform a gap analysis of the proposed requirements

against what is being complied with currently.•Determine the information you require to comply

with the proposed changes and establish processes to collect such information on a sustainable basis.

•Educate stakeholders of the impact and the changes to be implemented within the entity.

•Regularly monitor progress

Educating yourself of the proposed changes must be immediate as convergence with SLAS in 2012 requires

entities to apply such standards as follows:•Prepare financial statements for periods commencing

on or after 1 January 2012 in compliance with the new SLAS

•Prepare comparative financial statements for the preceding financial year according to the new SLAS

•Restate opening balances of the preceding financial year in compliance with the new SLAS.

Example: If X Ltd’s financial period commences on 1 January 2012 then the new SLAS must be applied to the 2012 financial statements, 2011 comparatives and the 2011 opening balances (31 December 2010 closing balances).

What resources are available?The following resources are available:•The proposed SLFRs are available in published form at

ICASL. The soft copy can be accessed from the ICASL website.

•The AAT member’s journal will highlight and explain important accounting standards.

•Public seminars conducted by ICASL and AAT. •2011 AAT Annual Conference.•The Internet including the IASB website.

6

The changes proposed by the 2011 budget werepassed in Parliament in March 2011.This article summarizes the main changes arising from the amendments to the following legislation:

By Hiranthi Ratnayake Director - TAX Services, PWC

Amendments to the Income Tax Act, No10 of 2006.

Year of assessment 2010/2011 Year of assessment 2011/2012

Taxable income Rate Rs %First 400,000 5Next 400,000 10Next 400,000 15Next 500,000 20Next 500,000 25Next 500,000 30Balance 35

Taxable income Rate Rs %First 500,000 4Next 500,000 8Next 500,000 12Next 500,000 16Next 1,000,000 20Balance 24

1.3 Taxation of Employment Income – New Rules•Where the income from employment exceeds

Rs 500,000, then the lower of –

- such part of employment income in excess of Rs 500,000, or- Rs 100,000, is exempt from income tax.•PAYE tax deducted from the employment income of an

employee will be the final tax, if such employee has no other income forming part of his assessable income.

• Issuing of directions to employers to reduce employees’ PAYE tax deductions is withdrawn.

•Tax refunds will not be made in relation to the employment income.

•Where an employee makes an application to the Commissioner General that taxes deducted at source from his other income are treated as final, the Commissioner General may close the file maintained for such employee.

1.4 Individuals employed under several employers

1 Employment income from the main employer:•The rate schedule as given in the PAYE Tax Tables will

apply.

2 Employment income from other employer:

a) Tax to be deducted at•10%, if the aggregate remuneration including the value

of benefits does not exceed Rs 25,000 per month, or•16%, if the aggregate remuneration including the

value of benefits exceeds Rs 25,000 per month.

b) Profits from employment of such employee will be

BUDGET TAX PROPOSALS 2011

• Income Tax Act• Value Added Tax Act • Nation Building Tax Act • Economic Service Charge Act

Inland Revenue (Amendment) Act, No22 of 2011 incorporates the changes, proposed in the Budget 2011, to the Inland Revenue Act. A summary of the main changes is given below:

Personal Income Tax

1.1 Tax Free AllowanceTax free allowance for an individual is increased, effective from 1.4.2011, from Rs300,000p.a. to Rs500,000p.a. This is also extended to non-residents, who are citizens of Sri Lanka.

1.2 New Rate Schedule A new rate schedule will apply from the year of assessment 2011/ 2012 (effective from 1 April 2011).

7

1.6 Taxation of Public Sector Emoluments•The emoluments of public sector employees have

been brought within the charge to tax at the standard rates. Accordingly, the present tax credit with respect to public sector emoluments is withdrawn.

Depreciation rates will be increased on the following assets

Asset New Rate %Any plant or machinery acquired orassembled on or after 1.4.2011 33 1/3Any qualified building constructed on orafter 1.4.2011 10

•PAYE tax scheme will also apply to public sector employees as in item 1.3 above.

•Pensions, retiring benefits such as retiring gratuity, commuted pension, motor vehicle provided or motor vehicle allowance not exceeding Rs 50,000 per month, and rental value of any official bungalow are exempt from income tax payable by public sector employees.

•Any special payment made for emergency or priority services or for any special task is exempt from income tax.

1.7 Tax exemption on Benefits to Employees•Motor vehicle benefit Any motor vehicle benefit provided to an employee is

exempt from liability to income tax. A motor vehicle allowance paid, instead of providing

a motor vehicle, up to a maximum of Rs 50,000 per month is exempt from income tax.

1.8 Terminal Benefits to Retiring Employees Any sum paid, at the time of retirement from a provident

fund approved by the Commissioner General of Inland Revenue or from a regulated provident fund, to an employee is excluded from terminal benefits subject to tax.

1.10.2 Research expenditure 200% deduction will be allowed on the expenditure

including capital expenditure incurred by a person in carrying on any scientific, industrial, agricultural or any other research for the upgrading of any trade or business carried on by such person.

aggregated with other income, if any, and the tax computed under the standard rate schedule.

c) Employee will be entitled to a credit for the tax withheld in respect of the given year of assessment, but no refunds will be made.

1.5 Withholding Tax Deduction from Director’s FeesA new Withholding Tax Rate Schedule will apply to the payments received from an employer, from the year of assessment 2011/2012. RateWhere the aggregate of such fees or benefitsdoes not exceed Rs 25,000 per month - 10%

Where the aggregate of such fees or benefitsexceeds Rs 25,000 per month - 16%

1.9 Exemption of Interest on Deposits held by Senior CitizensInterest income from moneys deposited, by senior citizens, who are more than 59 years old, in state banks is exempt up to a maximum of Rs 500,000 per annum.The exemption limit for the year of assessment 2010/2011 was Rs 200,000.

1.10 Allowable and disallowable expenditure- Corporate and Non-corporate

1.10.1 Capital Allowances

1.10.3 Allowance of listing expenses A deduction for expenses on listing a company in the

Stock Exchange will be allowed, provided that the aggregate of such expenditure incurred in that year of assessment and in a previous year of assessment should not exceed 1% of the value of the initial public offering of such company.

1.10.4 Advertisement expenditure 75% of the advertisement expenses will be allowed.

1.10.5 Foreign travel•Such part of the expenditure incurred in travelling

outside Sri Lanka in connection with any trade or business will be allowed, subject to a maximum limit of 2% of the profits and income of such trade or business in the immediately preceding year of assessment.

•Foreign travel expenditure is fully allowed only in respect of export trade, or provision of any services for payment in foreign currency, or in connection with operating of any hotel for tourists if such travelling is

8

Assessable income RateUp to Rs 500,000 No WHTRs 500,000 - Rs 1,500,000 2.5%Above Rs 1,500,000 8%

b) Charitable Institution giving a declaration Assessable income RateUpto Rs 500,000 NilAbove Rs 500,000 8%

c) Companies 10%

d) Persons other than companies 8%

1.12.2 Withholding tax will not apply on interest payable to persons outside Sri Lanka, if such interest is exempt from income tax under any of the provisions of the Inland Revenue Act.

1.12.3 WHT on corporate debt securities will be treated on par with Government Securities, and the withholding tax should be deducted at the time of the issue of such corporate debt security.

1.13 Withholding Tax (WHT) on specified fees and on rent WHT applicable on specified fees is abolished,

effective from 1 April 2011. WHT applicable on rent, lease rent or other

payment is also abolished with effect from 1.4.2011.

1.14 Tax rates applicable to persons other than individuals

1.14.1 Companies other than those engaged in business which deals in liquor or tobacco (being the manufacturer or the importer)

a) Where the taxable income is less than Rs 5 million, - 12% (which is not a holding company, a subsidiary company or an associate company of a group of companies)b) Where the taxable income is Rs 5 million or more, and a company which is a holding company, a subsidiary company or an associate company of a group of companies - 28%

approved by the Ceylon Tourist Board.

1.10.6 Management fees The present restriction on deduction to Rs 1 million or

1% of the turnover, whichever is less, will be increased to Rs 2 million or 1% of the turnover, whichever is less.

1.10.7 PAYE tax paid by employer If the employees’ PAYE tax (tax on tax) is borne by the

employer, such PAYE tax borne will not be allowed as a deduction to the employer.

1.10.8 Deduction of Nation Building Tax (NBT) Paid Full amount of NBT paid will be allowed as a deductible

expenditure, effective from 1 January 2011.

1.11 Qualifying payments The following qualifying payments only will be allowed,

effective from 1 April 2011.• Donation to the Government or to a Fund established

by institutions referred in Section 34(2)(b) of the Inland Revenue Act, in money or otherwise

•Donation in money to an approved charity, if the charity is established for the provision of institutionalized care for sick or the needy.

• In addition to the above, in the case of an individual

i) a) premia paid for life or medical insurance, and

b) donations to approved charitable institutions (referred to above), subject to 1/3rd of his assessable income or Rs 75,000, whichever is less;

ii) premia paid in full for a special health insurance scheme which covers incurable disease, but not being premia paid outside Sri Lanka in respect of such policy issued outside Sri Lanka

1.12 Withholding Tax (WHT) on interest

1.12.1 WHT rate on interest from deposits in banks or financial institutions payable to -

a) Individual giving a declaration

9

1.14.2 The lower rate applicable to income from off-shore banking activities is abolished.

1.14.3 The rate applicable to any person from the profits derived from the manufacture or import of liquor or tobacco products 40%1.14.4 The maximum rate applicable to any person engaged in an undertaking for the manufacture of any product having domestic value addition in excess of 65% and Sri Lanka brand name with parent right reserved in Sri Lanka or income from the export of, or by supply to an exporter for the export of, such product 10%1.14.5 Clubs and associations 10%1.14.6 Undertakings for operation and maintenance of facilities for storage, development of software or supply of labour 10%1.14.7 Venture capital companies, petroleum exploration, entertainer or artist 12%1.14.8 Partnerships 8%1.14.9 The profits and income of any agricultural undertaking Not exceeding referred to in section 16 of the Act, 10%

1.14.10 Undertakings engaged in agriculture, manufacture of animal feed, promotion of tourism or construction work 12%

1.14.11 Qualified export profits and deemed export profits 12%

1.14.12 Any undertaking with an annual turnover not exceeding Rs 300 million, other than from buying and selling activities 10%

1.14.13 Profits and income from educational services Not exceeding 10%

1.14.14 Deemed Dividend Tax payable by resident companies 15% deemed dividend tax will not be required to be paid by a resident company, if such company has distributed 10% its distributable profits for that year of assessment.

1.15 Charitable Institutions1.15.1 Tax free allowance Tax free allowance is increased from Rs 300,000 to

Rs 500,000.

1.15.2 The tax exemption provided to a charitable institution where the profits of a business carried on by such institution are applied solely to a charitable purpose of that institution is removed, with effect from 1 April 2011.

1.15.3 The definition of charitable purpose is amended by -

a) excluding educational activities carried out by any institution established for

business purposes or by any institution established by the Companies Act, and

b) including activities carried out by institutions engaged in activities for protection of the environment or eco friendly activities.

1.16 Taxation of non governmental organization (NGO) The present taxation of NGOS will remain

unchanged, but the tax rate will be 28%

1.17 Income earned in foreign currency The tax exemption is applicable to the profits

and income earned in foreign currency by any resident company, any resident individual or any partnership in Sri Lanka from any service rendered in or outside Sri Lanka to any person or partnership outside Sri Lanka, other than any commission, discount or similar receipt for any such service rendered in Sri Lanka.

1.18 Time bar Provision for Issue of Assessments No assessment of the income payable could be

made –

- if any person or partnership has made a return of his or its income on or before 30 November of the year of assessment immediately succeeding that year of assessment, after the expiry of 2 years from the 30 November of the immediately succeeding year of assessment; and

if any person or partnership has failed to make such return on or before 30 November of the year of assessment immediately succeeding that year of assessment after the expiry of 4 years from the 30 November of the immediately succeeding year of assessment.

10

Amendments to the Value Added TaxAct No 14 of 2002

Value Added Tax (Amendment) Act, No 9 of 2011 incorporates the changes, proposed in the Budget 2011, to the Value Added Tax (VAT) Act. A summary of the main changes is given below:

1. VAT Rate changesi) Import or supply of luxury goods - 12% (effective from 24.11.2010)

ii) Supply of services provided for the holding of wedding receptions and other receptions (effective from 1.1.2011) - 12%

iii) Financial services (effective from 1.1.2011) - 12%

iv) Optional VAT rates (effective from 1.1.2011) First 3 years from the date of registration - 2% Next 3 years 4% Next 3 years 8% Next 3 years 12%

2. Restriction on the Deduction of Input VAT credits Input VAT could be claimed up to the 100% of the

Output VAT, effective from 1.1.2011. Any unabsorbed Input VAT as at 31.12.2010 could be deducted from Output VAT, in every month of each taxable period, on or after 1.1.2011, subject to –

i) a limit of 10% of the unabsorbed Input VAT as at 31.12.2010, or

ii) a limit of 5% of the net tax payable after deducting allowable input credit from the output tax,

whichever is less.

If there is no Output VAT payable, due to any exemption granted or for any other reason, any unabsorbed Input VAT as at 31.12.2010 may be set off against –• the Telecommunication Levy payable, if the registered

person is an operator of a telecommunication services;• the sum payable by a registered person as income tax

after 1 January 2011, or• the sum payable after 1 January 2011 by a registered

person as tax under any written law administered by the Commissioner General,

subject to a limit of –•10% of the unabsorbed input VAT as at 31.12.2010, or•5% of the net tax payable after deducting allowable

input credit from the output tax, whichever is less.

3. Filing of Returnsi) Zero rated suppliers and others, who are eligible

to claim VAT refunds, can continue to file monthly returns.

ii) Other VAT registered persons should file quarterly returns with monthly payments, from the quarter commencing on 1.1.2011.

iii) Returns with respect to the supply of financial services should be filed biannually, commencing on 1.1.2011, with monthly payments.

4. VAT Suspension Scheme Effective from 1.4.2011, VAT Suspension Scheme will be

monitored by the Department of Inland Revenue. The persons eligible to register under the VAT

Suspension Scheme are –•Exporters,• indirect exporters,• registered persons engaged in any special project

referred to in sub paragraph (f )(ii) of part II of the First Schedule to the VAT Act,

•persons registered under Section 22(7) of the VAT Act,•persons supplying goods or services to any of the

above mentioned persons.

Once a person is registered under VAT Suspension Scheme, such person can issue a suspended tax invoice, where the output VAT component is suspended.

5. Exemptionsi) Supply of following services is exempt, effective from 1.1.2011• Telecommunication services.• Educational services.• Locally developed software.• Leasing facilities for –

- motor coaches with seating capacity not less than 28 passengers seats and used for public transport services,

- lorries, and- tractors.

•Services being the issue of licenses to local telecom operators by Telecommunication Regulatory Commission.

•Services being receipt from re-insurance by any local insurance company by way of commission or compensation in an insurance business.

•Goods or services by an institution set up by the Ministry of Defence for the rehabilitation of disabled soldiers so far as the activities are carried out by the participation of such soldiers.

11

•Goods and services to any infrastructure development project, funded through foreign loans or donations directly to Government Ministries, as approved by the Minister of Finance.

•Locally manufactured briquettes and pallets using bio mass waste.

ii) Import or supply of the following goods•Petrol, coal and bitumen - effective from 26.11.2010• Machinery and equipment for manufacture of grain mixed bakery products - effective from 29.11.2010 •Machinery and equipment for leather

or footwear industry - effective from 1.1.2011•High-tech medical laboratory and educational equipment - effective from 1.1.2011• Taxi meters - effective from 1.1.2011•Light weight electrical and electronic items - effective from 1.6.2010•Fruit seeds - effective from 16.8.2010•Telecommunication equipment - effective from 1.1.2011•Any machinery or high-tech equipment for the telecom industry - effective from 1.1.2011•Agricultural machinery and parts classified under specified H S Codes - effective from 1.1.2011• Electrical equipment classified under specified H S Codes - effective from 1.1.2011•Articles use for fashion jewellery manufacturing classified under

specified H S Codes - effective from 1.1.2011•Spare parts and accessories for exclusive use by Sri Lanka Transport Board and Department of Sri Lanka Railways

including imports made on or after 10.8.2010

• iii) Import of the following goods• Goods for any infrastructure development project funded through foreign loans or

donations directly to Government Ministries, as approved by the Minister of Finance - effective from 1.1.2008•Goods or services to any infrastructure development project funded through

foreign loans or donations directly to the Government Ministries - effective from 1.1.2011•Aircraft stimulators and parts - effective from 1.1.2011• Any goods or services by any society registered under Co-operative

Societies Act - effective from 1.1.2008•Goods or services by an institution set up by the Ministry of Defence for the

rehabilitation of disabled soldiers - effective from 1.1.2011

6. Other Changesi) Assessments could be issued at any time (even after the 5 year time bar period) in case of any fraud or willful evasion.ii) VAT advance payments (withholding) Effective from 1.1.2011, The Government institutions are not required to withhold 1/3rd of VAT payable to any supplier.

iii) Penal Provisions Penal provisions introduced for non-payment of VAT on self assessment basis in installments and for the non

submission of returns for VAT on Financial Services.

iv) 15 day Refunds Provisions for making 15 day refunds is removed effective from 1.4.2011.

12

Amendments to the Nation Building TaxAct, No 9 of 2009

The Nation Building Tax (Amendment) Act, No 10 of 2011 incorporates the changes, proposed in the Budget 2011, to the Nation Building Tax Act. A summary of the main changes is given below:

1 Rate changesEffective from 1.1.2011, the NBT rate is reduced to 2% from the previous rate of 3%.(The 2% rate will also apply to manufacture of rice from locally procured paddy, in respect of which a concessionary rate of 1.5% previously applied.)

Where NBT is recovered from the customers, the effective rate would be as follows:

• For manufacturers and service providers = 2.0408%• For hotel services in respect of Tourism Development Levy (TDL) is also payable - NBT = 2.267% TDL = 1.033%

2 Wholesale and retail trade Wholesale and retail traders are liable to pay NBT, effective from 1.1.2011. (The Turnover Tax which was payable to the Provincial Councils is to be abolished, effective from 1.1.2011.)

Applicable NBT Rates: Ratei) In the case of a Distributor¾ of the liable turnover - Nil¼ of the liable turnover - 2%ii) In the case of other Traders (other than a distributor)½ of the liable turnover - Nil½ of the liable turnover - 2%

Rs Illustration 1Liable turnover of a Distributor = 10,000,000NBT liability(3/4th) 7,500,000 = Nil(1/4th) 2,500,000 at 2% = 50,000NBT payable = 50,000 ======

Illustration 2Liable turnover of a Trader = 1,000,000NBT liability(1/2) 500,000 = Nil(1/2) 500,000 at 2% = 10,000NBT payable = 10,000 =====

With respect to NBT liability on wholesale and retail trade, the liable turnover does not include:

- the sale of any goods, falling under the Special Commodity Act No 48 of 2007, directly by the importer of such goods,

- pharmaceuticals, and - gems or jewellery, if sold on the payment in foreign

currency by any person authorized by the Central Bank.

The sale of other goods in the Schedule of Excepted Articles in the NBT Act will be liable to NBT.

3 Threshold for NBT liabilityNBT is payable only if the liable turnover for a relevant quarter is Rs 500,000 or more, effective from 1 January 2011.

However, with regard to the following categories of businesses, NBT is payable only if the liable turnover for a relevant quarter is Rs 25,000,000 or more:-

•Operating a hotel, guest house, restaurant or other similar business;

•Processing of any locally produced agricultural produce in the preparation for sale;

•Providing educational services by any institution established locally; and

•Supply of labour (manpower).

4 Registrations Every person (including a company, body of persons)

or partnership who or it carries on the business of manufacture of any article or the business of providing a service of any description or the business of wholesale or retail trade is required to register for NBT, if the liable turnover per quarter of such person exceeds the threshold of Rs 500,000 / Rs 25,000,000. Such person/partnership should make a written request to the Deputy Commissioner of the respective branch/regional office, where his/its income tax matters are dealt with, for the registration for NBT.

5 Removal of Exemptions

Effective from 1 January 2011 -• the services of any hotel guest house, restaurant or

other similar business, and

• the persons who are registered for Optional VAT, will be subject to NBT.

13

6 New Exemptions, effective from 1 January 2011

Excepted Articles -i) Any goods imported or supplied to a specified

project carried on, out of foreign funds or donations received by the Government, as approved by the Minister considering the economic benefit to the country;

ii) Bitumen classified under HS Code No. 2714;

iii) Any article imported or sold by any society registered under Co-operative Societies Act No 5 of 1972 or under the respective statutes enacted by the Provincial Councils providing for such registration, or Lak Sathosa Limited registered under the Companies Act No 7 of 2007;

iv) Tractors classified under HS codes 8701.10.10, 8701.10.90, 8701.90.10 and 8701.90.20.

v) Raw materials or packing materials imported for the manufacture of pharmaceuticals, subject to the approval of the relevant authority;

vi) Gold imported (effective from March 1, 2010);

vii)Plant, machinery or equipment imported on temporary basis for the use in large scale infrastructure development projects approved by the Minister in charge of the subject of Finance, as being beneficial for the economic development of Sri Lanka, on condition that goods will be re-exported after the completion of work (effective from July 1, 2010);

viii)Foreign currency notes imported, being notes classified under H S Code 4907.00.90 (effective from June 1, 2010);

ix) Raw materials or packing materials imported for the manufacture of Ayurvedic preparations which belong to the Ayurveda Pharmacopoeia or Ayurveda preparation subject to the approval of the relevant authority;

x) Pure-bred breeding animals under HS 0102.10 or HS 0104.20.10, milking machines under HS 8434.10, dairy machinery under HS 8434.20, and spare parts under HS 8434.90, at the point of importation (effective from 18.01.2011);

xi) Import of samples in relation to business which is worth not more than Rupees twenty five thousand, subject to such terms and conditions as prescribed by the Director General of Customs.

Excepted services –i) Services of a construction contractor or sub contractor

insofar as such services are in respect of constructing any building, road, bridge, water supply, drainage or sewerage system, harbour, airport or any infrastructure project or telecommunication or electricity;

ii) Services provided by foreign consultancies for the large scale infrastructure development projects, being projects which have been approved by the Minister of Finance, as beneficial for the economic development of Sri Lanka (effective from 1.7.2010);

iii) Services provided to any specific project carried on, out of foreign funds or donations received by the Government, as approved by the Minister considering the economic benefit to the country;

iv) Services provided to the port or airline in relation to international transportation;

v) Services provided in relation to ship building for the international market for payment made in foreign currency;

vi) Telecommunication services;

vii) Supply of locally developed software;

viii) Services provided by any Government Department, Ministry or any undertaking fully owned by the Government;

ix) Services provided by Sri Lanka Airlines Ltd.;

x) Services provided by Mihin Air (Pvt) Ltd.;

xi) Services provided by Air Lanka Catering Services Ltd.;

xii) Services provided by any society registered under the Co-operative Societies Law No 5 of 1972 or under any statute enacted by a Provincial Council or Lak Sathosa Limited registered under the Companies Act No 7 of 2007.

14

Amendments to the Economic Service Charge Act No 13 of 2006

Economic Service Charge (Amendment) Act No 11 of 2011 incorporates the change. proposed in the Budget 2011, to the Economic Service Charge Act. A summary of themain changes is given below.

1 ThresholdThe threshold per quarter has been increased from Rs. 7.5 million to Rs 25 million, commencing on or after 1, April 2011.

2 ExemptionsThe persons liable to pay ESC does not include –a) any registered society, within the meaning of the Co-

operative Societies Law, No 5 of 1972 or under the respective Statute enacted by a Provincial Council providing for such registration;

b) any person carrying on business as an owner or charterer of an aircraft or ship;

c) any government institution or local authority as defined in the Inland Revenue Act, No 10 of 2006;

d) any distributor;

e) any dealer in a lottery;

f ) any unit trust or mutual fund.

3 ESC Rates Applicable ESC rates for the period, commencing on or

after 1 April 2011 are as follows:

Part of the liable turnover1 Enterprises to which the Board of Investment of Sri Lanka Law No 4 of 1978 is applicable (liable to pay income tax)- 0.1%

a) Apparel exporters; b) Board of Investment houses; c) Manufacturers of textiles for apparel exporters.

2 Persons granted Exemptions/ Concessionary Rates/Others

a) who are exempt from income tax (including tax holiday companies); b) who during certain periods are incurring losses;

c) who are subject to tax under concessionary rates;

d) who are engaged in wholesale or retail trade, other than products manufactured or produced by 0.25% the seller (except distributors, or dealers in motor vehicles or liquor); e) who carry out primary conversion of any tea, rubber or coconut plantation including desiccated coconut, coconut oil or fibre, copra and sheet rubber, but excluding any conversion which produces any alcoholic beverage.

3 Advertising Agents –a) prior to April 1, 2011 1.0%b) on or after April 1, 2011 0.25%

4 any other businesses of which theturnover is defined by Notice publishedin the Gazette, (including dealers in 1.0%motor vehicles, liquor, tobacco andpetroleum)

4 Submission of returnsCommencing on or after 1 April 2011, every person and partnership chargeable with ESC, should file an annual ESC return on or before the 20 April of each year for the year of assessment ending on 31 March of that year with the quarterly ESC payments.

Economic Service Charge

Please note that this Tax Note is issued by PWC to keep Persons informed of the proposed changes in tax legislation in Sri Lanka, which may be of special interest. The information contained in this Note should not be quoted as authority or treated as a substitute for professional advice on an individual basis.

15

Although I don't say I am a professional stock market investor, I do spend quite a lot of time observing the market and researching the highs and lows of various companies. My line of work gives me a lot of time to satisfy my stock market obsession, so I understand that not everyone can spend the hours of needed research that is required to invest in individual stocks.

My obsession has allowed me to formulate my own set of principles, which are also universal investing tips that can be applied to all styles of investors. Ready? Ok, here we go! : )

There Are No Sure ThingsAs appealing as it may sound, don't risk your hard-earned money on it. Extemporaneous buys are no different to gambling, so if you can afford to lose your money, purchasing just because a close friend says they've made tons of money from a certain company is no reason to run out and grab it. If the sure thing is actually a sure thing, it will continue to be a sure thing after a couple of weeks of extensive research.

Learn Before You EarnThe stock is actually a business, not just a symbol that goes up and down every day. You wouldn't purchase a company without comprehensive research into what they sell, what services they provide, what are their earnings, and many other questions about the business. Warren Buffet, billionaire investor, philanthropist, and businessperson, never bought a company he didn't understand. He made it a habit to avoid technology stocks as he knew nothing about the businesses behind it, which allowed him to miss both the tech bubble boom and bust.

Too Much, Too Little, Too LateIf a stock receives a lot of press attention and everyone from your local book keeper to your office assistant buys into it, there's a pretty good chance that the stock is highly inflated. What you should do instead is compare the

company data to similar stocks in the same industry. If they don't compare, move on with care. There's a good chance the company is a solid stock in a long term, upward trend or it could also mean that a bunch of sheep are reacting to all the hype. The main point is to calculate which stock is the superior that deserves the premium price and which is the inferior that will drop in half.

Learn From Your MistakesNobody wants to admit when they're wrong, but even the best make mistakes. Praying for your stock to grow, while it keeps losing value, quarter after quarter, year after year, is a sad state of affairs. There's always a minority of companies that will always underachieve. Burn those bridges and put your money into something that actually has some hope of making a profit.

Seek Professional AdviceEven if you have a lot of downtime to study the market and investing in stocks, it's much more advisable to seek professional help before any extravagant financial decisions. There are also several liabilities and tax implications of individual investors that make it wiser to invest in other assets or pay off debt. Only if you're absolutely sure that stock market investing is the right thing for you, it's still advisable to seek professional advice.

With the amount of financial data on the Internet right now, and several online brokers being so easy to use, there has been a monumental growth in individual investors entering the market for the very first time. Remember, never feel that you have to buy stock right away. Being impatient will more likely hurt you than reward you. Know the stock, know the business, and know the industry before thinking about logging into your brokerage account.

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." -Warren Buffet

By V.Satkuneswaran Sharma ACMA (UK)ConsultantInvestcopia Capital (Pvt) Ltd

Stock Market Investing

There are no Sure Things

16

The Debater with AAT, a debating competition introduced to promote and develop the communication and leadership skills of students island-wide in a competitive and joyful manner with fun, is ready to heat-up and enter the second round, on a more elaborate scale, announced the Chief Executive Officer of AAT (SL) Tishanga Kumarasinghe at a workshop held on 14th March 2011 at Sirasa TV – Rathmalana premises.

The workshop was organized to educate the winning 32 debating teams of The Debater with AAT program on the rules and regulations of the second round of the series. Minister of Power and Energy, Hon. Patali Champika Ranawaka graced the occasion as Chief Guest. Around 400 debaters from 32 schools participated lively at the workshop.

The Association of Accounting Technicians of Sri Lanka, the largest institution for Accountancy education in Sri Lanka collaborates with Sirasa TV, the country’s innovative television channel to conduct this novel program titled “The Debater with AAT”.

“THE DEBATER WITH AAT” is a new style one hour television debate show, telecast every Saturday from 6.00 to 7.00 p.m. on Sirasa TV, benefitting students, teachers, principals, and the general public. Students from all walks of life, debate face to face, on current issues relating to national identity, the education system, the environment, globalization and many more such topics.

Speaking about the program, Mr. T. Dharmarajah, President of AAT (SL) said that the Association is always concerned with the future of the student population of the country and was pleased to embark on this innovative program to discharge AAT’s Corporate Social Responsibility towards the nation. Year 2011 being declared the year of making Sri Lanka – the wonder of Asia, The Debater with AAT programme aims at helping to fulfil that mission and approach of the government to develop communication and leadership as life skills in all corners of Sri Lanka; the President added.Going with the branding of the popular reality show, the second round of the competition will also be branded as The Debater with AAT. The new concept launched last year witnessed 32 schools from amongst 64 participating schools emerging as the winners of the The Debater with AAT, first round.

A Prefect of a leading school and captain of its debating team comments "By taking part in this competition, we were able to interact with students from many areas of Sri Lanka which was a valuable experience. The thrills, suspense and the tension that surrounded the participants during the final stages of the first round of the competition were found to be profound and these memories, we are sure, will remain and linger with us throughout

our lives. We truly enjoyed taking part in this competition and take this opportunity to thank "AAT Sri Lanka" for the opportunity given to us.

Minister of Power and Energy, Hon. Patali Champika Ranawaka, said "What we value most is the opportunity that was made available to children all over the country, to be self confident and compete on a platform with those from sometimes more developed parts of the country. There is a desire in every child. There is a dream in every parent. There is commitment in every team and school, and we look forward to experiencing the combination of emotions once again, thanks to AAT and Sirasa".

Mr. Susara Dhinal, the Channel Head of Sirasa TV at the workshop of the debating teams said “Following on from the enormous challenges and success of the first round of The Debater with AAT competition; I am delighted to see that AAT Sri Lanka has decided to throw the challenge once again. Competition is an excellent way of promoting communication and leadership skills and I was extremely impressed by the quality of the entrants in the first round's heats”. Mr. Dhinal also thanked the Ministry of Education, and all those who supported this interesting initiative to help the young Sri Lankans to believe in themselves. “Good luck to everyone who takes part in The Debater with AAT second round” he wished.

Mr. Ashoka Dias, Director – Sirasa TV said that the Debater with AAT would certainly inculcate the students’ skills and talents on communication. Collaboration with AAT (SL) would certainly strengthen the future of this program.

Through this kind of program AAT (SL) attempts to build up a platform for school children to train as competent leaders of the country. It believes that this program will contribute in enhancing the communication skills and leadership potential of our children. The Debater with AAT is a right step forward towards developing young leaders. The participants in this all island inter-school debating championship program will explore ways and means to develop their leadership qualities, and also discover their hidden communication skills following the footsteps of world’s popular leaders.

The Association of Accounting Technicians of Sri Lanka is the largest Accountancy body in the country and has produced over 15,000 fully qualified Middle Level Accountants during its 23 years of operation. At present it has more than 36,000 registered students, the largest number for any professional or academic educational institution in the country. AATSL was established in 1987 on the initiative of the Institute of Chartered Accountants of Sri Lanka. It is an Associate Member of the International Federation of Accountants (IFAC) and the Confederation of Asian and Pacific Accountants (CAPA).

Every Saturday 6 to 7 pmon Sirasa TVDon't miss...

A way forward in educating Sri Lankan Student PopulationThe Debater with AAT

AAT is ready for the Second Round of the Competition

By Hassan Mubarak