Retrospective tax law is bad, says professional

‘Section 38 on Deemed Assessed Value could infringe on tax payers’ rights’

by Sanath Nanayakkare

Speaking at a Webinar held on the 2nd June 2021.on “Recent Amendments to the Inland Revenue Act” Shamila Jayasekara Partner – Head of Tax & Regulatory said that in principle, retrospective tax law was bad as it could have negative consequences on the concluded transactions of businesses.

Sharing her concerns and views on the topic she said,” A lot of changes made to the tax code are incentives provided through the form of tax exemptions, the concessionary rate being applied to a large number of sectors, the qualifying payments allowed and expanded, the withdrawal of withholding taxes, the expansion of deductible tax expense”.

“Those were the plus factors of the tax proposals to give relief to businesses. Now, they are retrospective. Some of the agriculture tax excemptions come in from April 2019 and the others from January 2020. so we need certain clarifications and guidelines to be issued by The Inland Revenue Department fast, so we can implement them during this month. Then as practitioners, we can amend returns that have already been submitted and filed.”

“Another area I want to bring is another area is; there were certain changes that were done which were not budget proposals and which were not announcements in press statements either with retrospective effect going back to April 2018. Now in principle, I think retrospective tax law is bad, but in circumstances when certain incentives were given and published, then of course you become aware of these changes though the law may not be there. But it should not hit you as a surprise when you read the tax amendments because these have consequences to concluded transactions of businesses. I don’t think it is positive from the tax side where you suddenly find you have concluded a transaction and then you find the tax law has changed with retrospective effect. What has happened has happened but it should not happen. I understand that even in the current amendments there are gaps. If you take concessions given to SMEs, I think there is a bit of doubt as to what an SME is. I understand these changes and I know that the policymaker can change those, but those should be done prospectively. It should not be a retrospective change because tax law is a fiscal law and no one would know the thinking behind policies ,so you go on the wording of the law, therefore, any change should be prospective’

“Further, the introduction to section 38 of a deemed assessed value on the realization of investment assets; you are to consider it on the market or an assessed value or the value given by a valuer.. But if the commissioner is of the view that is not reflective of market value then he can determine an alternate value. I think that gives a lot of room for arbitary valuations and a lot of disputes. With regard to this section, there is no penal code either because the law empowers the determined value to be accepted as the assessed value. That will of course infringe on the tax payers rights,” she said.