Pay As You Earned – P.A.Y.E. Tax on Employment Income

Each Employer shall deduct P.A.Y.E. Tax in Sri Lanka on employment income of following employees at the time of Remuneration is paid including non – Cash benefits.

(i) All Employees who are Resident or Citizen of Sri Lanka
(ii) Company Chairman, Director or an Executive Officer
(iii) An individual who has more than one employment
(iv) Non – Citizen & Non – Resident Employees

Liability on PAYE in default
Where any employer has not deducted PAYE or has deducted but not remitted to The Department of Inland Revenue, every employer shall be personally liable for the entire amount of PAYE employer was required to deduct.

Penalty on Employer for non-compliance of certain requirements
Every employer who fails to comply with the following requirements shall be guilty of an offence and liable on conviction after summary trial before a Magistrate, to a fine not exceeding Rs. 10,000 or to imprisonment of either description for a term not exceeding six months, or to both such fine and imprisonment.
(i) Giving a notice to the Commissioner General about the specified employees employ by him – (Section 115 (1) & 115(2))
(ii) Deduction whole or any part of the income tax required to be deducted from the employees (Section 114 (1) )
(iii) Furnishing of PAYE Return (Section 112(1))
(iv) Deduction of tax as per the direction issued by the Commissioner General (Sec. 118(2))
(v) Employer to maintain records (Section 119)
(vi) Duties of the employer following the deduction of tax (Section 120)
Every employer makes an incorrect statements by omitting or understating the amount of remuneration of any employee or omits or understate the amount of income tax deducted from the remuneration of any employee, shall be guilty of an offence and shall be liable on conviction after summary trial before Magistrate, to a fine not exceeding Rs. 10,000 or to imprisonment of either description for a term not exceeding six months, or to both such fine and imprisonment (Section 202(5))
Penalty on Employee for non-compliance of certain requirements
Every employee fails to inform the Commissioner General when necessary deductions are not made by the employer, shall be guilty of an offence and shall be liable on conviction after summary trial before Magistrate, to a fine not exceeding Rs. 7,500. (Section 202(3))

Further, when he makes an incorrect statements shall be guilty of an offence and shall be liable on conviction after summary trial before Magistrate, to a fine not exceeding Rs. 10,000 or to imprisonment of either description for a term not exceeding six months, or to both such fine and imprisonment (Section 202(6)).

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