Re-imposition of stamp duty - the correct facts

THERE is a misunderstanding among the pubic that the issue, transfer or assignment of shares in public quoted companies is exempt from Stamp Duty.

This is because of the press notification dated 3.4.2006 in the Daily News wherein the information given under Point No. 6 is misleading. The information should have been correctly categorised as:

(1) In the case of shares in unquoted companies the market value of such shares would be as determined by the Commissioner General of Inland Revenue;

(2) In the case of shares in quoted companies the market value of such shares would be as determined by the Colombo Stock Exchange.

It could be also noted that:

Share transfers effected through the Central Depository Systems would be liable for Stamp Duty @ 0.4% of the market value of such shares, instead of the usual 0.5%

The following share transactions would be liable for Stamp Duty @ 0.5%:

i. Transfer from Estate to beneficiary (outside the trade floor)

ii. Gift (outside the trade floor)

iii. Bonus and Rights issue

In the case of (i) and (ii) the Stamp Duty would be paid by the beneficiary with relevant endorsements made by the Department of Inland Revenue on the Share Transfer Forms submitted in duplicate.

However, in the case of Bonus and Rights issues, only a letter of Allotment comprising a Letter of Acceptance and Registration and a Letter of Renunciation is issued.

In this instance it would be better for the Company to pay the Stamp Duty computed on the entire share allocation, to the Dept. of Inland Revenue and request the individual shareholders to reimburse the amount relevant to their allocation.

The Company could issue the respective Share Certificate to the shareholder only on receiving the said Stamp Duty payment. (if payment is made by cheque, then the Share Certificate could be issued only on realisation of the said cheque)

In the case of joint shareholding, if one shareholder expires, the other/others automatically become the beneficiaries to the said shares.

This transaction is considered as a transmission and not transfer of shares and therefore, is not liable for Stamp Duty.

However, if another person is made as a joint shareholder with the approval of the Colombo Stock Exchange, this transaction is considered as a transfer and becomes liable for Stamp Duty @ 0.5% of the market value of the total shareholding.

It would be appreciated if the Department of Inland Revenue could elucidate these matters to the public either through a press notification or through the Trade Chambers.

S. R. Balachandran, Council Member, The National Chamber of Commerce of Sri Lanka.