Significant discrepancies in tax assessments and compliance practices at the Sri Lanka Ports Authority (SLPA) have been uncovered by the National Audit Office (NAO), sparking a contentious debate over interpretations of key tax laws, as per the latest audit report on the SLPA.
The audit report has scrutinised the SLPA’s handling of taxable income under the Social Security Contribution Levy Act.
It has highlighted that the SLPA had excluded royalty income from taxable calculations for the last quarter of 2022, arguing that it did not qualify as income earned for providing services under the act.
However, auditors contested this approach, emphasising that only goods explicitly exempted under the act should be excluded, calling for more precise calculations to ensure compliance.
In response, the SLPA management defended its interpretation, citing the act’s provisions that apply to taxable income across specified categories.
The management asserted that royalty income, not falling under the act’s defined service income, had rightfully been omitted from Social Security Contribution Levy liabilities.
Further complicating matters, the audit has identified discrepancies related to VAT zero-rated revenues amounting to Rs. 1,072 million.
The SLPA has classified revenues from warehousing charges, equipment rental, and firefighting services as being exempt from the Social Security Contribution Levy, citing exemptions outlined in Part II of Schedule 1.
The auditors, however, argued for stricter guidelines on exempted services, highlighting the necessity for clearer categorisation to prevent potential oversights in tax assessments.
The SLPA countered by affirming its application of Schedule 1 exemptions, particularly items 5 and 8 that pertain to export-related services. It assured ongoing efforts to categorise revenue streams accurately with the support of its Operating Division.
The audit report has also delved into the SLPA’s compliance with the Surcharge Tax Act No.14 of 2022. It has revealed discrepancies in surcharge tax payments, noting an overpayment of Rs. 847 million due to revised income tax return filings.
The SLPA initially paid Rs. 1,952.2 million based on an income assessment of Rs. 7,809 million for the year 2020/’21, only to revise it down to Rs. 4,420.9 million later.
The SLPA management acknowledged the overpayment and outlined steps taken to rectify the error, including the submission of revised surcharge tax returns to the Inland Revenue Department for recovery.
The management clarified that despite initial discrepancies, their actions aligned with the regulatory framework, ensuring adherence to tax obligations.