Income Tax

Inland Revenue Act no. 24 of 2017

Effective from 1st April 2018

Meaning of Income Tax

“Tax” means a compulsory payment to the government imposed under Inland Revenue Act no. 24 of 2017 regardless of whether that payment is designated as a tax, fee, duty, levy or otherwise, and, unless the context otherwise requires, includes withholding tax, installments, interest, late fee, or penalty in relation to a tax;

 

Imposition of Income Tax 

Income tax shall be payable for each year of assessment by –

(a) a person who has taxable income for that year; or

(b) a person who receives a final withholding payment during that year.

 

Taxpayer Registration and Taxpayer Identification Numbers (TIN)

Voluntary Registration

Every person liable to furnish a return of income for a year of assessment, and who has not already registered, shall register with the Commissioner-General not later than thirty days after the end of the basis period for that year.

 

Compulsory Registration

The Commissioner-General shall register any person whom the Commissioner-General considers to have fulfilled the requirements for registration and assign the person a Taxpayer Identification Number. (TIN).

 

Tax Payable by Instalment

A person who is an “instalment payer” shall pay income tax by quarterly instalments if he derives or expects to derive assessable income during a year of assessment from a business or investment; or from an employment where the employer is not required to withhold tax.

 

An instalment payer shall pay instalments of income tax

  • Year ended 31st March

on or before the fifteenth day respectively of August, November and February in that year of assessment and the fifteenth day of May of the next succeeding year of assessment.

  • in any other case

on or before the fifteenth day after each three-month period commencing at the beginning of each year of assessment and a final instalment on or before the fifteenth day after the end of each year of assessment, unless it coincides with the end of one of the three-month periods.

 

Returns or Statement Furnish by Tax Payers

Statement of Estimated Tax Payable

Every person who is an instalment payer for a year of assessment under shall file with the Commissioner-General by the date for payment of the first tax instalment an estimate of tax payable for the year.

 

Return of income

Every person shall file with the Commissioner-General not later than eight months after the end of each year of assessment (on or before 30th November) a return of income for the year.

 

Capital Gains Tax Return

Every person with taxable income consisting of a gain from the realisation of an investment asset shall file with the Commissioner-General a capital gains tax return not later than one month after that realisation.

 

W.H.T. Annual Statement (Annual Return)

Every withholding agent shall file with the Commissioner General within thirty days after the end of each year ending on the thirty first day of March an Annual Statement.

 

Appointment of Representative

Every company carrying on business in Sri Lanka shall be represented by a principal officer residing in Sri Lanka and where there is none, by an authorised agent residing in Sri Lanka, and shall notify the Commissioner-General of its appointed representative within one month after it commences carrying on business in Sri Lanka, or one month after the representative ceases to qualify as such.

 

Non-payment or under payment of Income Tax

  • Liability for an Interest

If an amount of tax is not paid by the due date, the taxpayer shall be liable for interest on the amount for the period from the due date to the date the tax is paid. The interest rate for payments shall be one and one-half per cent per month or part month, compounded monthly.

  • Penalty 
  • Failure to register or notify of changes in taxpayer information

A person who fails to register as required or notify the Commissioner-General as required shall be liable for a penalty not exceeding fifty thousand rupees (Rs. 50,000).

  • Late filing of Tax Return

A person who fails to file a tax return on or before the date by which filing is required shall be liable to pay a penalty equal to the greater of—

(a) five per cent of the amount of the tax owing, plus a further one per cent of the amount of tax owing for each month or part of a month during which the failure to file continues; and

(b) fifty thousand rupees plus a further ten thousand rupees for each month or part of a month during which the failure to file continues.

The amount of the penalty shall be limited to four hundred thousand rupees (Rs. 400,000).

 (iii) Late payment

(1) A person who fails to pay all or part of a tax due for a tax period within fourteen days of the due date, or by the due date specified in the notice of assessment, if later, shall be liable to a penalty equal to twenty per cent of the amount of tax due but not paid.

(2) A person who fails to pay all or part of an instalment within fourteen days of the due date for the instalment shall be liable to a penalty equal to ten per cent of the amount of tax due but not paid.

  • Negligent or fraudulent underpayment

Where tax is underpaid, as a result of an incorrect statement or a material omission in a taxpayer’s tax return, and that statement or omission is a result of intentional conduct or negligence on the part of the taxpayer, the taxpayer shall be liable to a penalty in the amount of—

(a) twenty five per cent of the underpayment if paragraph (b) does not apply; or

(b) seventy five per cent of the underpayment if the amount of the underpayment is —

(i) higher than ten million rupees; or

(ii) higher than twenty five per cent of the person’s tax liability for the period.

  • Failure to maintain documents or provide facilities

A person who fails to maintain proper documents shall be liable for a penalty for each month or part of a month during which the failure continues. The penalty shall be one thousand rupees per day for each day the failure continues.

  • Failure to comply with third party notice

A person who fails to comply with a notice shall be liable for a penalty of twenty five per cent of the difference between the amount payable by the third party and the amount paid to the Commissioner General by the due date specified notice.

  • Failure to comply with notice to give information

A person who fails to comply with a request for information properly made, within the specified time, shall be liable for a penalty of an amount not exceeding one million rupees. (Rs. 1 Million)

 

Criminal Liabilities

  • Tax evasion

A person who wilfully evades or attempts to evade the assessment, payment or collection of tax or who wilfully and fraudulently claims a refund of tax to which the person is not entitled, shall be guilty of an offence and shall be liable on conviction to a fine not exceeding ten million rupees (Rs. 10 Million) or to imprisonment for a term not exceeding two years or to both such fine and imprisonment.

  • Impeding tax administration

A person who wilfully impedes or attempts to impede the Department in the administration shall be guilty of an offence and shall be liable on conviction to a fine not exceeding one million rupees (Rs. 1 Million) or to imprisonment for a term not exceeding one year or to both such fine and imprisonment.

 

Income Tax Rates

Individual

Taxable income of Resident or non-resident individual for a year of assessment commencing form 1st April 2018 shall be taxed as follows,

First Rs. 600,000 – 4%

Next Rs. 600,000 – 8%

Next Rs. 600,000 – 12%

Next Rs. 600,000 – 16%

Next Rs. 600,000 – 20%

Balance – 24%

 

Company

Taxable income of a Company for a year of assessment commencing form 1st April 2018 shall be taxed as follows subject to conditions specified,

Small and Medium Enterprises – 14%

Export of goods and services – 14%

Agriculture Business – 14%

Education Services  – 14%

Promotion of Tourism – 14%

Information Technology Services – 14%

Betting and Gaming, Liquor and Tobacco – 14%

Others – 28%

 

 

 

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