SL3 – CORPORATE TAXATION

STATUTORY PROVISIONS UNDER INLAND REVENUE ACT NO.24

OF 2017.

STATUTORY PROVISIONS – PART 05

DISCUSSION CONTENT
1. LIABILITY FOR AND PAYMENT OF TAX
2. REPRESENTATIVES
3. LIABILITY FOR TAX FOLLOWING WINDING – UP
4. REFUNDABLE AMOUNTS
5. INTEREST
6. PENALTIES

1. LIABILITY FOR AND PAYMENT OF TAX

1.1 Liability of Taxpayer and Due Dates – (Section 145)

Tax shall be due and payable at the time stipulated under this Act.

Subject to above, the amount of tax,

(a) stated in a notice of assessment to be due; or

(b) deemed to be assessed under assessments,

shall be due and payable on the date stated in the notice or, in the case described in
paragraph (b) “Tax Payable Under Assessments”, on the due date for the return in
question.

Tax shall be paid in the manner and place specified by the Commissioner-General.

Where the Commissioner-General has reasonable grounds to believe that a taxpayer may
leave Sri Lanka before the due date for payment of an amount that would be due under
this Act, inform the person by notice in writing that tax is due on the date specified by
the Commissioner-General.

Where a taxpayer fails to pay tax on the due date, the taxpayer shall be liable for any costs
incurred by the Commissioner-General in taking action to recover the unpaid tax.

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2. LIABILITY AND OBLIGATIONS OF REPRESENTATIVES – ( SECTION 146)

For the purposes of this Act, “Representative,” in respect of a person,
Means
(a) where the person is an individual under a legal disability, the guardian or manager
who receives or is entitled to receive income on behalf of, or for the benefit of, the
individual;

(b) where the person is a company, a director or principal officer of the company or an
agent referred to in subsection

(c) where the person is a partnership, a partner;

(d) where the person is a trust, a trustee;

(e) where the person is a body of persons other than a partnership or company, an
individual responsible for accounting for the receipt and payment of moneys or funds on
behalf of the body;

(f) where the person is the Government of Sri Lanka, an individual responsible for
accounting for the receipt and payment of moneys or funds on behalf of the Government;

(g) where the person is a public corporation or local authority in Sri Lanka, an individual
responsible for accounting for the receipt and payment of moneys or funds on behalf of
such public corporation or local authority;

(h) where the person is a foreign government or political subdivision of a foreign

government, an individual responsible for accounting for the receipt and payment of
moneys or funds in Sri Lanka on behalf of the government or political subdivision of the
government; or

(i) where the person is a non-resident, a person controlling the person’s affairs in Sri
Lanka, including a manager of a business of that person in Sri Lanka.

Discussion of two gazette notifications 2064/58 and 2064/63

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2.1 Situations where there are more than one Representatives

Where, in relation to a person, there is more than one representative as mentioned in
above then that person shall nominate which of them shall serve as the representative,
but in the absence of a designation all shall serve as representatives pending the
designation. Such nominees shall be a person residing in Sri Lanka. ( Sec 146 (2) & (3))
Where there are two or more representatives of a person, the duties or obligations
referred to in this section shall apply jointly and severally to the representatives but
may be discharged by any of them. ( Section 146 (12))

2.2 Representatives Relating to Companies

Every company carrying on business in Sri Lanka shall be represented for the purposes
of this Act by a principal officer residing in Sri Lanka and where there is none, by an
authorized agent residing in Sri Lanka, and shall notify the Commissioner-General of
its appointed representative within one month after it commences carrying on
business in Sri Lanka, or one month after the representative ceases to qualify as such.
( Section 146 (4))

2.3 Changing of Representatives

Where a representative of a person nominated under one above is unable to perform
duties, the Commissioner- General may, by notice in writing, declare another individual
to be a representative of the person for the purposes of this Act. ( Section 146 (5))

2.4 Responsibilities of Representatives

• Every representative of a person shall be responsible for performing duties or

obligations imposed by this Act on the person, including maintaining records,
filing returns and other documents, and the payment of tax. ( Section 146 (6))
• A representative of a tax payer shall be personally liable for the payment of tax
due by the tax payer if, while the amount remains unpaid, the representative,
(a) alienates, charges, or disposes of moneys received or accrued in respect of
which the tax is payable; or

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(b) disposes of or parts with moneys or funds belonging to the taxpayer that
are in the possession of the representative or which come to the representative
after the tax is payable, if the tax could legally have been paid from or out of
the moneys or funds. ( Section 146 (9))

• Tax payable by a representative of a person shall be recoverable from the

representative only to the extent of any assets of the person that are in the
possession or under the control of the representative. ( Section 146 (8)

2.5 Recovery of Tax Paid by Representative

A representative of a person who pays tax owed by the person shall be entitled to recover
the amount so paid from the person or to retain the amount so paid out of any moneys
of the person that are in the representative’s possession or under the representative’s
control. ( Section 146 (8))

2.6 Situations Where Representative is not Personally Liable for Tax Payable by Tax
Payer
A representative of a tax payer shall not be personally liable for tax if,

(a) the monies were paid by the representative on behalf of a taxpayer and the amount
paid has priority, in law or equity, over the tax payable by the taxpayer; or

(b) at the time the monies were paid, the representative had no knowledge, and could
not reasonably be expected to know, of the taxpayer’s tax liability. ( Section 146 (10))

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3. LIABILITY FOR TAX FOLLOWING WINDING – UP – ( SECTION 148)

This section shall apply to a company which is wound up without having satisfied its
tax liabilities, including any liability to withhold and remit tax.

A person who was a shareholder of the company at the time of the winding-up or during
the preceding year shall be jointly and severally liable to pay the unpaid tax to the extent
of a distribution of cash or property from the company received as a shareholder
within one year prior to its winding up.
A person liable for tax of a company under this section may invoke ( appeal) any rights
as against the Department that would have been available to the company.

4. REFUNDABLE AMOUNTS (SECTION 150)

Where the amount of tax which has been paid by a taxpayer exceeds the amount of
tax assessed or found to be payable, the Commissioner-General shall,

(a) refund the amount against the taxpayer’s assessed liability to pay tax, interest, late
fees, or penalties under this Act; and

(b) unless the taxpayer objects, apply an amount remaining against the taxpayer’s
liability to make advance payments of tax that shall become due within the
succeeding six months.
Subject to the above, refundable amounts shall be paid to the taxpayer.
A refund or credit may be made under this section, only if the taxpayer applies for
it within four years of the date of payment or, if made on the Commissioner-
General’s initiative, within the specified time period.

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5. INTEREST
5.1 General Introduction – (Section 156)
Procedures for the payment, collection and dispute of a tax shall apply equally to
interest relating to a tax. Taxpayer is liable to pay interest in addition to the penalties
and it shall be calculated separately.

If a person has paid interest and an amount to which the interest relates is found not to
have been payable, the interest paid on that amount shall be refunded to the person.
5.2 Interest on Under Payments – (Section 157)
Interest on delayed tax payments shall be computed from the original due date of the
tax disregarding any extension obtained from the CGIR.

In the case of tax due under a revised assessment, interest should be calculated from the
original due date.
5.3 Interest on Refundable Amounts – (Section 158)
Interest payable by CG on refundable amounts shall be paid to the taxpayer from the
later of the due date or the date the tax was paid until the date on which the refundable
amount paid.
No interest is payable if the refund is paid to the taxpayer based on the claim within 60
days of filing the refund claim.

A refundable amount that is applied against another tax liability shall be considered to
have been paid to the taxpayer on the due date of the liability against which the
refundable amount was applied.
5.4 Interest Rate – (Section 159)
The interest rate for payments shall be one and one-half per cent per month or part month,
compounded monthly. (1.5%)

The interest on refundable amounts shall be one – half percent per month or part month,
compounded monthly. (0.5%)

Minister may vary the interest rate by order published in the Gazette

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6. PENALTIES
6.1 General Provisions Under Penalties – (Section 176)

• The procedure for the assessment, payment, collection and dispute of a tax
applies equally to penalties relating to a tax

• These penalties are separate and distinct from any penalty imposed under any
other section of IR Act (or any other Act) and in addition to interest levied and
to criminal proceeding (under IR Act)

• The burden of proof shall be on the CG to show non-compliance with the

provisions of IR Act with respect to the imposition of a penalty.

• The liability to a penalty arises on assessing of penalty by the CG. The period
of limitation for assessing a penalty is 5 years after the violation (except for
penalty under sec 180 ( intentional conduct or negligence) – in which case the
period is same as that of an assessment of tax)

• A notice of an assessment of a penalty shall be served on the person who is

liable to the penalty and shall state the amount of the penalty payable, the
provision under which it is payable, and the due date for payment, and on
service of the notice,

(a) the notice and the assessment shall be treated as if they were a notice
and assessment of tax payable under this Act;
(b) the amount of the penalty specified in the notice shall be treated as tax
payable under this Act; and

(c) the due date for payment is the date specified in the notice.

• A person’s liability to pay a penalty shall arise on the making of an assessment

by the Commissioner-General under subsection (6) of section 176 (that’s mean
under above mentioned provision)

• The period of limitations for assessing a penalty shall be five years after the
violation which causes the penalty, except for a violation under section 180,
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in which case the limitation for assessing a penalty shall be the same as the
limitation for assessing the tax to which the penalty relates.

• If the person shows reasonable course, the CG may refrain (wholly or partly)
from the imposition, or waive (wholly or partly) a penalty assessed.

• A penalty payable for each day, month or other period during which a
particular state of affairs exists or continues, shall be payable in full for part of
that day, month or other period in which the state of affairs commences,
continues or ends.

6.2 Types of Penalties Impose Under The Act

Section Description Penalty

Section 177 – “Failure to

register or notify of changes
in taxpayer information”

Under That there are three

main provisions.

1. 102 & 177 failure to Register for Income penalty not exceeding Rs
Tax ( obtaining TIN) 50,000/-
2. 103 (5) & 177 failure to inform CG, of any penalty not exceeding Rs
change of in name (including 50,000/-
business name or other
trading name) address , place
of business, or nature of the
taxable activity carried on not
later than 30 days following
the date of the change
3. 146 (4) & 177 Failure to notify CG by any penalty not exceeding Rs.
company , the appointed 50,000/-
representative residing in Sri
Lanka or authorized agent ,
who would be the principal
officer and/or cease of such
status , within one month
from the commencement of
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business or ceases to qualify

as such person.

Section – 178 – “Late Filing The penalty on failure to file a the higher of the;
of Tax return”. tax return on time (i) 5% of the amount of the
tax owing and further 1% of
the amount of tax owing for
each month (or part thereof)

ii) Rs50,000/- and further

Rs10,000/- for each month (or
part thereof)] However, the
maximum penalty chargeable
is Rs. 400,000/- (which
should be imposed through
assessment by CG).

This penalty is in addition to

the tax liability , and may be
assessed and collected in the
same manner as the tax due
for the period but not paid.
Section – 179 - Late Payment A penalty at 20% of the
The failure to pay all or part unpaid amount of tax due
179 (1) of a tax due (for a tax period) However, if CG has granted
within 14 days of the due date an extension under Sec. 151,
or by the due date specified in and paid the tax accordingly,
the notice of assessment. a person shall not be liable to
such a penalty , but interest is
payable on the tax .
Section – 179 – Late Payment The failure to pay all or part A penalty equal to 10% of the
of an installment within 14 amount of tax due but not
179 (2) days of the due date paid. However, if CG has
granted an extension under
Sec. 151, “ Extention of Time
of Payment”, and paid the
tax accordingly, a person
shall not be liable to such a
penalty ,but interest is
payable on the tax .

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Section – 180 - Negligent of If the tax is underpaid, due to (i) 25% of the underpayment
Fraudulent Underpayment an incorrect statement or (if the para (ii) does not
material omission in the tax apply),
return which is a result of
intentional conduct or
(ii)75% of the
negligence on the part of the
underpayment, if the
taxpayer, underpayment is higher than
Rs. 10M or 25% of the
person’s tax liability for the
period
Section – 181 – False or Making a materially false or not less than Rs. 50,000/
Misleading Statements misleading statement to a tax
official.

Section – 182 – Failure to A person who fails to for each month or part thereof
Maintain documents or maintain proper documents computed at Rs. 1,000/= (per
provide facilities required by the IR Act and day) for each day of failure
not complies with the CG’s
warning notice within the
time specified,
Section 182(4) Further, a person who fails to a penalty not exceeding
render reasonable facilities Rs10,000/-
and assistance to a tax official
as required by or under the IR
Act

Section 184 – Transfer Any person who fails to Sum not exceeding 1% of the
Pricing Penalties comply with the aggregate value of transactions
requirements of Sec. 76 or 77 with enterprises, where
required documents have not
Section – 76 “Profits and been maintained,
Income or Loss From
Sum not exceeding Rs250,000/-,
International Transactions
where required documents
between Associates” have not been submitted,

Section – 77 “ Profits and Sum not exceeding 2% of

Income or Loss from aggregate value of transactions
Transactions between with associated enterprises,
Associates”. where required information has
not been disclosed,

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Sum not exceeding Rs100,000/-

where required documents
have not been submitted by the
specified date, or

A penalty of 200% of the value of

additional tax where such
person has concealed the
particulars of his income or
furnished incorrect particulars
of such income, and sought to
evade concealing particulars of
income or furnishing inaccurate
particulars of income;

6.3 Failure to Comply with Third Party Notice – (Section 183)

A person who fails to comply with a notice issued under section 170 “Third Party
Debtors”, shall be liable for a penalty of twenty-five per cent of the difference between
the amount payable by the third party and the amount paid to the Commissioner General
by the due date specified in the section 170 notice.

A Third Party Notice – ( Section 170)

If a taxpayer is in default, the CGIR may serve a notice in writing on a third party debtor.
In that case , recipient of this notice (third party debtor) should pay the least of the
following:

- Tax in default amount

- the money owed by the third-party debtor

- The amount specified in the notice.

3.4 Failure to Comply with Notice to Give Information – (Section 185)

A person who fails to comply with a request for information properly made under this
Act, within the specified time, shall be liable for a penalty of an amount not exceeding
Rs1,000,000.
However, if the taxpayer complies, with the prior warning notice of the CG, within 30
days, no penalties shall be charged.
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3.5 Impending Tax Administration – Section 190

A person who willfully impedes or attempts to impede the Department of Inland
Revenue, in the administration of the Act shall be guilty an offence and shall be liable on
conviction to a fine not exceeding Rs. 1 million or imprisonment for term not exceeding
one year or both fine and imprisonment.
Impeding administration means,
(a) Fails to comply with lawful request by the official to examine documents, records
or data within the control of the person

(b) Fail to comply with lawful request by the official to appear before tax official when
requested to do so

(c) Interfere with the lawful right of a tax official to enter into premises.

(d) Fail to file a return

(e) Use false tax payer identification number or tax payer identification number which
does not apply to that person.

(f) Refuse to allow the CGIR or authorized person to enter a premises for inspections.

(g) Making a statement to a tax official that is false or misleading in a material

particular

(h) Fail to comply with section 170

(i) Fails to maintain required records, or

(j) otherwise Impedes a determination, assessment or collection of tax

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