Sri Lanka makes it difficult to do business

30 November 2015 02:31 am - 0     - {{hitsCtrl.values.hits}}

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Tax expert says govt. trying to make money over procedural lapses

Sri Lanka has made it difficult to incorporate and carry out a business by slapping annual fees on company registrations, as against to the new government’s quest to improve its Doing Business Index ranking and promote entrepreneurship.

 The Budget 2016 presented recently to Parliament proposed to slap fees of Rs.60, 000 on private companies, Rs.500, 000 on publicly quoted companies and Rs.150, 000 on other companies annually, for just being in the Company Register.

 Leaving aside the quoted and other companies, according to KPMG Tax Attorney Suresh Perea, Rs.60, 000 is a high fee for a small company.
 “You have to remember that these companies have to pay auditors also. So they will roughly incur an annual cost of around Rs.100, 000 for running their company,” Perera stressed.

 “This won’t be encouraging for a person to incorporate a company and get into a business,” he added.

 “At the same time we have to keep in mind that in the Inland Revenue Act there is an incentive for small companies to go for listings. But the moment you go for a listing what happens? You have to pay Rs.500, 000. So I believe these provisions are at cross roads,” Perera pointed out.

 Making matters worse, the fees are even payable even if a company is dormant. It is believed that there are about 25, 000 dormant companies in the country’s Company Register.

 Thus, this Budget 2016 proposal could rake in at least Rs.1.5 billion easy money to the government coffers.

 To discourage the companies from moving out from the Company Register through voluntary liquidation, a penalty of Rs.250, 000 was also proposed in the budget.

 But, Perera thinks that this proposal as a revenue generator for the government is impractical.

 “If a company is defunct, I don’t think you will find money in its bank account. So how are you going to collect this Rs.60, 000? 
I don’t think it’s practical.”

As Perera further pointed out, the other aspect of this Budget proposal was if a company is defunct, who is responsible for taking it out from the Company Register.

 “The companies normally don’t go for voluntary liquidation. You go for what is called ‘strike-off procedure’. The Section 394 of the Companies Act has given the procedure.”  According to the said Section, there is an obligation on the side of the Registrar of Companies to send a letter to a defunct company and wait for one month and if there is no reply then publish the name in the government gazette and within a 3-month period take the company out of the register.  “So these 25, 000 companies are there in the register because the procedure has not been followed.

 Now if you are trying to make revenue by using these companies; number one I don’t think its practical and secondly I don’t think its the correct thing to do, because there is a procedure given in the Companies Act,“  Perera averred.

 
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