Primary dealers were lobbying to correct a rushed provision to the Inland Revenue Act last month that could slap a huge tax bill on the industry. Primary dealers were lobbying to correct a rushed provision to the Inland Revenue Act last month that could slap a huge tax bill on the industry. Although the Inland Revenue (Amendment) Bill was passed by parliament last month it has not been gazetted yet making it law.
Primary dealers say sections in the Act dealing with investment income are confusing and can be interpreted in many ways.
They say taxing trading activities will kill the secondary market in government securities and ultimately drive up interest rates, which the government is keen to avoid.
Some primary dealers will have to fork out up to Rs. 200 million in back taxes if the amendment to the Inland Revenue Act is made law.
The Act has been amended with retrospective from April 2000.
Primary dealers say a section of the Act has been dropped, with the net impact being that trading of government securities could end up being taxed under full corporate tax rates.
In addition to the confusion about the interpretation of the amended law there is also confusion as to the intent of the tax administrators in doing the amendment.
Moves to amend the Inland Revenue Act were initiated some time ago to collect some tax on interest income.
Primary dealers say they were already paying these taxes despite the ambiguity in the laws.
But non-primary dealers trading in the government securities market may have been interpreting the ambiguous provision differently.
Primary dealers believe the Treasury was trying to clarify the position when they amended the law.
But the amendments which resulted in Clause 15 of the existing Act being dropped could mean that trading activities of primary dealers can also be taxed.
Dealers say taxing trading activities will kill the secondary market in government securities and ultimately drive up interest rates, which the government is keen to avoid.
Some dealers say the amendment seems to be a mistake on the part of the tax administrators who did not consider the full impact of the move.
The primary dealer association is currently lobbying the Treasury and tax administrators seeking clarifications on the intent of the amendment and to see how it can be changed.
Dealers say their businesses will become unviable if they have to pay huge amounts of tax on their trading activities.
Dealers who did not want to be quoted said, they are worried about the lack of accountability on the part of tax administrators to rectify what they think is a misguided amendment.
Treasury officials who proposed the amendment to the Inland Revenue Act were not available for comment.
Primary dealers in government securities are appointed by the Central Bank as market makers for gilt securities.
They also have exclusive access to Treasury Bill and Bond primary auctions.
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