Notes to the Consolidated Financial Statements - Seylan Bank
Notes to the Consolidated Financial Statements - Seylan Bank
Notes to the Consolidated Financial Statements - Seylan Bank
You also want an ePaper? Increase the reach of your titles
YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.
North Bound > <strong>Seylan</strong> <strong>Bank</strong> Annual Report 2011<br />
285<br />
3.5.5 Income Tax Expense<br />
Income tax expense comprises of current and deferred tax. Income tax expense is recognised in profit or<br />
loss, except <strong>to</strong> <strong>the</strong> extent that it relates <strong>to</strong> items recognised directly in equity, in which case it is recognised<br />
in equity.<br />
3.5.5.1 Current Taxation<br />
Current tax is <strong>the</strong> expected tax payable on <strong>the</strong> taxable income for <strong>the</strong> year, using tax rates enacted or<br />
substantively enacted on <strong>the</strong> Balance Sheet date, and any adjustment <strong>to</strong> tax payable in respect of previous<br />
years.<br />
Provision for taxation is based on <strong>the</strong> profit for <strong>the</strong> year adjusted for taxation purposes in accordance<br />
with <strong>the</strong> provisions of <strong>the</strong> Inland Revenue Act No. 10 of 2006, and <strong>the</strong> amendments <strong>the</strong>re<strong>to</strong> at <strong>the</strong> rates<br />
specified in Note 13.<br />
3.5.5.2 Deferred Taxation<br />
Deferred tax is recognised in respect of temporary differences between <strong>the</strong> carrying amounts of assets and<br />
liabilities for financial reporting purposes and <strong>the</strong> amounts used for taxation purposes. Deferred tax is not<br />
recognised for:<br />
- temporary differences on <strong>the</strong> initial recognition of assets or liabilities in a transaction that is not a<br />
business combination and that affects nei<strong>the</strong>r accounting nor taxable profit or loss;<br />
- temporary differences related <strong>to</strong> investments in subsidiaries <strong>to</strong> <strong>the</strong> extent that it is probable that <strong>the</strong>y will<br />
not reverse in <strong>the</strong> foreseeable future; and<br />
- Temporary differences arising on <strong>the</strong> initial recognition of goodwill.<br />
Deferred tax is measured at <strong>the</strong> tax rates that are expected <strong>to</strong> be applied <strong>to</strong> <strong>the</strong> temporary differences<br />
when <strong>the</strong>y reverse, based on <strong>the</strong> laws that have been enacted or substantively enacted by <strong>the</strong> reporting date.<br />
Additional taxes that arise from <strong>the</strong> distribution of dividends by <strong>the</strong> <strong>Bank</strong> are recognised at <strong>the</strong> same time<br />
as <strong>the</strong> liability <strong>to</strong> pay <strong>the</strong> related dividend is recognised.<br />
A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences<br />
<strong>to</strong> <strong>the</strong> extent that it is probable that future taxable profits will be available against which <strong>the</strong>y can be utilised.<br />
Deferred tax assets are reviewed at each reporting date and are reduced <strong>to</strong> <strong>the</strong> extent that it is no longer<br />
probable that <strong>the</strong> related tax benefit will be realised.<br />
3.5.6 Economic Service Charge (ESC)<br />
ESC is payable on <strong>the</strong> liable turnover at specified rates. As per <strong>the</strong> provision of <strong>the</strong> Economic Service Charge<br />
Act No. 13 of 2006 and subsequent amendments <strong>the</strong>re<strong>to</strong>, ESC is deductible from <strong>the</strong> income tax liability. Any<br />
unclaimed payment can be carried forward and set off against <strong>the</strong> income tax payable as per <strong>the</strong> relevant<br />
provision in <strong>the</strong> Act.<br />
3.5.7 Withholding Tax on Dividends<br />
Dividend distributed out of taxable profit of <strong>the</strong> subsidiaries attracts a 10% deduction at source and is not<br />
available for set off against <strong>the</strong> tax liability of <strong>the</strong> <strong>Bank</strong>. Thus, <strong>the</strong> withholding tax deducted at source is<br />
added <strong>to</strong> <strong>the</strong> tax in <strong>the</strong> <strong>Consolidated</strong> <strong>Financial</strong> <strong>Statements</strong> as a consolidation adjustment. Withholding taxes<br />
that arise from <strong>the</strong> distribution of dividends by <strong>the</strong> <strong>Bank</strong> are recognised at <strong>the</strong> same time as <strong>the</strong> liability <strong>to</strong><br />
pay <strong>the</strong> related dividend is recognised.