Small companies appeal to President on Rs60,000 levy

tax

Feb 15, 2016 (LBO) – A collective of small and medium scale private companies have appealed to the President to reduce certain levies imposed on them through the 2016 budget.

In a letter to President, the head of this SME grouping, Gunapala Banda Konara has asked to repeal the proposal of charging a voluntary winding up fee of 60,000 rupees from companies.

The grouping says it seems to be unfair considering the main reason of companies being wound up voluntarily is only when they go out of business and have no other option but to close down.

The collective has also requested the President to exempt the annual license fee for companies whose annual profit after tax do not exceed more than 2 million rupees.

They have suggested a new scheme for License Fee to be charged in par with the annual profit as shown below.

Annual profit after tax                                                                 License Fee
Rs. 2 to 3 Million                                                                  Rs. 20,000
Rs. 3 to 4 Million                                                                  Rs. 30,000
Rs. 4 to 5 Million                                                                  Rs. 40,000
Rs, 5 to 7.5 Million                                                                  Rs. 75,000
Rs. 7.5 to 10 Million                                                                 Rs.120,000
Rs. 10 Million and up                                                                 Rs.200,000

The collective further says if these levies are enforced, people will have second thoughts as to forming of companies in the future.

However soon after the budget proposals, Deputy Secretary of Treasury S.R. Attygalle told a forum in Colombo that these new taxes on companies are necessary to meet their revenue targets this year.

The full text of the letter sent to President is reproduced below.

Your Excellency,
REGARDING THE LEVIES ON PRIVATE COMPANIES
 

Being the forefront supporters of the government led by your Excellency with the admirable concepts of “Good Governance”, we are pleased to extend our warm appreciation towards the bold decisions you have taken to uplift the country’s economy, which we are sure to succeed within the period of your tenure. We as the small companies who are engaged in various small sector businesses are with great hope that the country’s economy is to march forward with great strength. With all the amazing decisions taken by your government regarding the 2016 budget, We the undersigned shareholders of small private companies wish to bring to the kind attention of Your Excellency regarding the following few matters of grave concern.

The Government has proposed to impose an annual license fee of Rs.60, 000/- on all private companies. Most of the private companies are small businesses and family owned. Small and Medium Enterprises (SMEs) are the back bone of our economy. Most of the SMEs are private limited companies. Many small private companies are engaged in exports of handicrafts, vegetables spices etc earning valuable foreign currency, yet making a small amount of profit each year.

When it comes to exports in most of the cases, foreign buyers expect the local supplier to be a limited company. Even locally, many of the business activities require the entities to be limited companies. Also, the concept of companies, which safeguards the business from personal liabilities, is accepted to be the best form of business available in the world, which needs sustenance and support.

Private limited companies are not entitled for any statutory tax free allowances as in the case of partnerships and individual businesses (currently proposed as 1.2 Million for individuals}. Already the fees charged by Registrar of Companies are deemed to be high when compared to other south Asian countries. In this country more than 50,000 small companies are there with dependent people of at least 400,000.

The proposed License fee remains constant for the companies which make a loss and which make huge profit. It remains the same for those who make Rs. 50,000 annual profit and Rs. 50 Million annual profits. This, we consider, to be unfair and impractical.

Thus, we would like to propose a better alternative, for your Excellency’s kind consideration.

  1. To give an exemption in annual License fee for companies whose annual profit after tax do not exceed more than Rs. 2 Million.
  2. To have a scheme for License Fee to be charged in par with their annual profit.

For example:

Annual profit after tax                                     License Fee

Rs. 2 to 3 Million                                         Rs. 20,000

Rs. 3 to 4 Million                                        Rs. 30,000

Rs. 4 to 5 Million                                        Rs. 40,000

Rs, 5 to 7.5 Million                                     Rs. 75,000

Rs. 7.5 to 10 Million                                   Rs.120, 000

Rs. 10 Million and up                                  Rs.200, 000

The collecting authority for these levies should be the Department of Inland Revenue instead of Registrar of Companies for it to be practically workable.

The above proposals will ensure that the small and medium scale companies are protected and their grievances redressed.

Further, we also wish to bring to Your Excellency’s kind attention regarding the government’s plan to impose a voluntary winding up fee of Rs.50, 000, which seems to be unfair considering the main reason of companies being wound up voluntarily is only when they go out of business and have no other option but to close down.

In this backdrop, the newly proposed annual levy and the voluntary winding up fee, which is not based on any revenue or profits of such companies, but a burden imposed on the company as a compulsory liability payable to the Government, may highly discourage and even compel them to go out of business. The duty of the Registrar of companies is to provide a service to the public by supporting for the legal requirements of businesses and supporting them to grow, while charging a reasonable fee to recover the costs. If the directors of some companies cannot be traced or if there issues on documentation with the Registrar of Companies, it must be deemed as an administrative issue which should be sorted out separately by the relevant authorities.

If these levies are enforced, people will have second thoughts as to forming of companies in the future and the viability of continuing their businesses, which may end up with severe blows to our Gross Domestic Production (GDP), imports and exports, and the National economy at large.

Considering the above adverse impacts, we humbly beg for your Excellency’s indulgences to:

  1. Amend the 2016 budget proposal to charge an annual license fee from Private Limited Companies as per the suggested plan or replace it with a more viable plan.
  1. Repeal the proposal of charging a voluntary winding up fee;

Thanking Your Excellency.

Signatures of Share holders