• Treasury confirms 25% tax on all funds exceeding Rs. 2 b income 
• Government gazettes Surcharge Tax Bill

  By Shenal Fernando The Employees’ Provident Fund (EPF) and the Employees’ Trust Fund (ETF) would be subjected to the 25% surcharge tax, introduced in Budget 2022, the Treasury confirmed to The Morning Business last evening (8).  The Treasury stated that any fund that exceeds Rs. 2 billion taxable income will be subjected to this surcharge tax. Talks regarding the potential applicability of the Surcharge Tax Bill to the EPF and the ETF started circulating in the aftermath of its publication in the Gazette on Monday (7).  When The Morning Business reached out to Ministry of Finance Department of Fiscal Policy Director General Dr. M.K.C. Senanayake yesterday, he confirmed the veracity of these talks and stated: “We already gazetted the Bill yesterday (Monday) and as per the Gazette, all funds are liable.” The possible application of the surcharge tax on the EPF and the ETF was raised by Samagi Jana Balawegaya (SJB) MP Dr. Harsha de Silva on Monday on his official Twitter handle where he  alleged that the Government of Sri Lanka is seeking to impose the one-off 25% surcharge tax on the profits earned by the EPF and the ETF during FY2020/21 as well. “The Government of Gotabaya Rajapaksa has for the first time in the history of Sri Lanka imposed a 25% tax on EPF and ETF profits. Plan is to extract Rs. 70 billion from private sector workers for the Podujana party local government election campaign to distribute via pradeshiya sabha fellows. Disgusting,” Dr. de Silva claimed on his Twitter account.  Clause 2 (a) of the Surcharge Tax Bill provides that any individual, partnership, or company whose taxable income, as calculated under the Inland Revenue Act, is in excess of Rs. 2 billion during FY2020/21 shall be subjected to 25% tax on their taxable income during the year in question. Furthermore, Clause 2 (7) provides that this surcharge tax levied shall be deemed an expenditure in the financial statement relating to FY2020/21. The controversy in question arises owing to the the interpretation section (Section 195) of the Inland Revenue Act No. 24 of 2017, which interprets a company as a corporation, unincorporated association, or other body of persons; including a friendly society, building society, pension fund, provident fund, retirement fund, superannuation fund, or similar fund or society. Therefore, if the interpretation of the term company in Clause 2 (a) of the Surcharge Tax Bill is expanded as provided under the Inland Revenue Act to include provident funds, it appears then, that the EPF and the ETF would also be subjected to the new surcharge tax. This was the basis of the allegation made by Dr. de Silva. According to the most recent published information, the EPF generated a net income before income tax of around Rs. 257.7 billion in 2019, and the total value of the Fund during 2019 was around Rs. 2.5 trillion. Speaking to The Morning Business yesterday, Dr. de Silva claimed that the 25% tax surcharge will be charged upon the taxable income of the EPF in FY2020/21, which was Rs. 250 billion, and that the value of the Fund was approximately Rs. 3 trillion.