Notes to the Consolidated Financial Statements - Seylan Bank

North Bound > Seylan Bank Annual Report 2011
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3.5.5 Income Tax Expense
Income tax expense comprises of current and deferred tax. Income tax expense is recognised in profit or
loss, except to the extent that it relates to items recognised directly in equity, in which case it is recognised
in equity.
3.5.5.1 Current Taxation
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or
substantively enacted on the Balance Sheet date, and any adjustment to tax payable in respect of previous
years.
Provision for taxation is based on the profit for the year adjusted for taxation purposes in accordance
with the provisions of the Inland Revenue Act No. 10 of 2006, and the amendments thereto at the rates
specified in Note 13.
3.5.5.2 Deferred Taxation
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not
recognised for:
- temporary differences on the initial recognition of assets or liabilities in a transaction that is not a
business combination and that affects neither accounting nor taxable profit or loss;
- temporary differences related to investments in subsidiaries to the extent that it is probable that they will
not reverse in the foreseeable future; and
- Temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences
when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
Additional taxes that arise from the distribution of dividends by the Bank are recognised at the same time
as the liability to pay the related dividend is recognised.
A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences
to the extent that it is probable that future taxable profits will be available against which they can be utilised.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.
3.5.6 Economic Service Charge (ESC)
ESC is payable on the liable turnover at specified rates. As per the provision of the Economic Service Charge
Act No. 13 of 2006 and subsequent amendments thereto, ESC is deductible from the income tax liability. Any
unclaimed payment can be carried forward and set off against the income tax payable as per the relevant
provision in the Act.
3.5.7 Withholding Tax on Dividends
Dividend distributed out of taxable profit of the subsidiaries attracts a 10% deduction at source and is not
available for set off against the tax liability of the Bank. Thus, the withholding tax deducted at source is
added to the tax in the Consolidated Financial Statements as a consolidation adjustment. Withholding taxes
that arise from the distribution of dividends by the Bank are recognised at the same time as the liability to
pay the related dividend is recognised.