Income Tax

Income Tax (Amendments to the Inland Revenue Act, No.24 of 2017)

1.1 Exemptions

1.1.1 The Earnings by any non-resident person on any sovereign bond denominated in local or foreign currency will be exempted.

1.1.2 Interest income earned by any resident person on sovereign bonds denominated in foreign currency, including Sri Lanka Development Bonds (SLDB) will be exempted.

1.1.3 Interest income earned by any person on NRFC and RFC accounts will be exempted for 5 years

1.1.4 Interest income, up to Rs.5,000/- per month, earned by children of less than 18 years of age, in relation to any deposit account maintained in a financial institution, will be exempted.

1.1.5 Interest paid to any person outside Sri Lanka on loans granted by such person to any person in Sri Lanka will be exempted. This exemption will not be applicable to loans granted by a Non-resident company to its Holding company or a Subsidiary Company in Sri Lanka.

 

1.2 Withholding Tax (WHT)

1.2.1 Royalty payments not exceeding Rs.50,000 per month, subject to Rs.500,000/- for each year of         assessment, made to any resident individual will be exempted from WHT.

1.2.2 Rent payments not exceeding Rs.50,000 per month, subject to Rs.500,000/- for each year of assessment, made to any resident individual will be exempted from WHT.

 

Income Tax Incentive 

1.3 Incentives for Information Technology The requirement of minimum 50 employees in order to qualify for the additional deduction equal to 35% of the salary cost when calculating the income from the business of IT will be removed.

1.4 Investment Incentives for Existing Businesses Tax concessions by way of accelerated depreciation will be granted instead of regular depreciation for the new investments made by existing businesses.

 

Definition 

1.5 Definition of Gross Income The “gross income” referred to in item (iii) of the subparagraph (3) of paragraph 4 of First Schedule will be the total income excluding the investment income. The concessionary tax rate of 14% will be applied only on the income from an activity eligible for the concessionary tax rate. The investment income will be liable for tax at 28%.

 

1.6 High value Investment Incentives

Proposed Incentives to Accelerate High Value Domestic and Foreign Direct Investments

LARGE SCALE PROJECTS (INVESTMENT ABOVE $100 MILLION)

The incentive regime for large scale projects is as follows;

(a) Income tax computation for Investments over $100 mn:

A person that invests a total sum of US$ 100 mn or more in depreciable assets, excluding intangible assets, in a project approved by the Board of Investment of Sri Lanka established under Board of Investment Law No. 4 of 1978 shall be eligible for a deduction of 150% of such actual expenditure incurred in each of such years on such assets for a period of 10 years from commercial operations;

Applicable up-front taxes: Only during project implementation or construction period until commencement of commercial operations, the following exemptions from up-front taxes are proposed for investment projects above $100mn.

NBT: Exempt
PAL: Exempt
Cess: Cess will be exempt on all project related items
Duty and other taxes on negative list items: The negative list shall not apply and $100 mn projects may import project related items or purchase locally at their discretion.

 

Note: The necessary guidelines for claiming exemptions will be published.

Since it is difficult to separate project related items that are intended for use in residential components, in investments made in mixed development projects as long as the investment (depreciable assets excluding intangible assets, land, and residential units for sale) criteria is met, up-front tax exemptions will be applicable
for the residential component as well.

 

(b) Investments over US$ 1 Billion
For investments over US$ 1 billion, in addition to the benefits outlined in above, the period for deduction of unrelieved losses shall be 25 years.

The rate of dividend tax paid by the company to a non-resident shall be zero during the period that such dividends are paid out of profits sheltered by enhanced capital allowances.

Expatriate employees in a company investing more than US$ 1 billion shall be exempt from withholding tax on employment income during the period that profits are sheltered by enhanced capital allowances.

(c) Mid-size Investments over US$ 50 million
For investments over US$ 50 million but less than US$ 100 million, the additional deduction would be 100% on actual expenditure under the same conditions of above (a). The provisions of above (b) will also apply, whereby upfront taxes will be exempt for such investments during the period of construction, prior to commencement of commercial operations.

Value Added Tax (VAT)

Value Added Tax (VAT) [Amendments to the Value Added Tax Act, No.14 of 2002]

(1) The piece based VAT rate applicable on domestic sale of certain garments by the export oriented BOI companies will be revised from Rs.75/- to Rs.100/-

 

(2) The term “locally produced rice products” will be re-defined for the purpose of clarity and certainty.

 

(3) VAT imposed on the supply of condominium housing units will be implemented with effect from April 1, 2019 where deed of agreement relating to such supply is not executed prior to April 1, 2019.

 

(4) Provisions will be incorporated in the VAT Act, enabling the Minister to prescribe the basis for chargeability of VAT on certain goods as may be determined by the Minister, with the view of revenue protection.

 

(5) Pharmaceutical machineries will be re-defined for the purpose of VAT Act.

Nation Building Tax (NBT)

Nation Building Tax (NBT) [Amendments to the Nation Building Tax Act, No.9 of 2009]

(1) The exemption on the importation of rough unprocessed gem stones for reexport after cutting and polishing will be granted for the lapidary service providers registered under the National Gem & Jewellery Authority.

 

(2) Exemption on manufacturing cigarettes will be removed

 

(3) The cost of the infrastructure projects will be reduced by the removal of NBT on main construction contractor.

 

(4) NBT at the rate of 3.5% will be imposed on foreign payments made using Electronic Fund Transfer Cards (both Debit and Credit cards) to purchase goods or services including offshore digital services.

 

(5)  In order to remove the NBT anomaly among Tour Operators, DMC Agencies and hoteliers who are receiving foreign currency will be adjusted.

 

(6) With the view of promoting livestock industry, NBT will be removed on the importation of Lucerne (alfalfa) meal and pellets.

Economic Service Charge (ESC)

Economic Service Charge (ESC) [Amendments to the ESC Act, No.13 of 2006]

(1) Amendment to the definition of the term “distributor” Definition of the term “distributor” will be clarified to include any person or partnership, appointed by an importer of any goods to Sri Lanka, for the sale in the wholesale market, of such goods

 

(2) Revision of rate of ESC applicable on exports

The rate of ESC applicable on the turnover arising from the export of goods or services will be 0.25 per centum.

 

 (3)  Revision of ESC applicable on the importation of certain articles or goods

(3.1) ESC will be charged at the rate of 0.5% on the importation of any article or goods other than any capital      goods as prescribed by the Minister of Finance taking in to consideration the economic benefit to the country

(3.2) ESC base on the importation of any article or good will be the aggregate of the CIF as approved by the Director General of Customs and the amount of any Custom import Duty, CESS PAL and SCL payable in respect of such articles or goods.

 

Ports and Airports Development levy (PAL)

(1) With the view of promoting tourism sector and to reduce the upfront cost of local manufacturing industry, PAL on the items classified under HS Codes 0712.20.00, 0712.90.10 and 7801.10.00 will be reduced to 2.5%.

 

(2) The lapidary sector will be encouraged by the removal of PAL on the items classified under HS Codes 8464.10.00, 8464.20.00 and 8464.90.00.

 

(3) PAL on the high tech machinery and equipment items classified under HS Codes specified will be reduced to 2.5%.

 

(4) In order to remove the disparity between direct imports and purchase from BOI companies, PAL on the sale of pleasure or excursion vessels and yachts manufactured by any BOI company to another BOI company which chartering such vessels and yachts for its business, will be removed.

 

(5)  With the view of promoting livestock industry, PAL will be removed on the importation of Lucerne (alfalfa) meal and pellets.

 

Betting and Gaming Levy

Betting and Gaming Levy (Amendments to the Betting and Gaming Levy Act, No.40 of 1988)

(1)  Revision of Annual Levy

(1.1)   Annual levy for carrying on the business of gaming other than playing rudjino will be revised to Rs. 400 million

(1.2)  Annual levy for carrying on the business of playing rudjino will be revised to Rs.1 million

 

(2) Revision of Casino Entrance Levy  –  Casino entrance levy will be revised to US $ 50 per person

 

(3) Revision of Levy on Gross Collection  –  Rate of the levy on gross collection will be revised to 15%

 

Excise (Special Provisions) Duty

(1) Excise Duty on cigarettes will be increased by 12%

(2) The exempt quantum of sugar contained in beverages will be revised

(3) Excise Duty on palm oil fatty acids will be revised

(4) Excise Duty on refrigerators will be revised to 25%

(5) Excise Duty on vehicles imported as Chassis fitted with engines will be reduced

(6) Motor vehicles

i. Excise Duty on hearses will be revised.

ii. Excise Duty on the hybrid and electric vans will be revised to reflect the energy efficiency benefits.

iii. Excise Duty on the Single cabs will be revised.

iv. Excise Duty on Buddy Trucks with cargo carrying capacity less than 2,000 kg will be reduced.

v. Excise Duty  on passenger vehicles revised

Customs Import Duty

Revision of Customs Import Duty

(1) Rate of the Custom Import Duty on selected goods will be revised

(2)  Unit rate of the Custom Import Duty will be increased by 10% on importation of selected goods

(3) Custom duty applicable on imported fruit drinks will be adjusted with effect from June 1, 2019.

(4) Custom Duty on Undenatured Ethyl Alcohol will be increased by Rs.200 to Rs.1000 per litre

(5) Custom Import Duty will be removed on importation of Go-Kart which is an off road sports vehicle and Go-Kart Tyres to facilitate promotion of international sport tourism.

 

CESS Duty

(1) CESS on Beedi leaves will be increased up to Rs.3,500/- per kg.

 

(2)  CESS on items classified under following HS Codes will be removed. (0408.11.00 0802.32.00 0802.62.00 0810.20.00 0813.10.00 0408.91.00 0802.41.00 0802.70.00 0810.30.00 0813.20.00 0802.21.10 0802.42.00 0802.90.10 0810.40.00 0813.30.00 0802.22.00 0802.51.00 0802.90.90 0810.70.00 8418.21.10 0802.31.10 0802.52.00 0808.40.00 0812.10.00 8418.21.90)

 

(3) CESS on items classified under following HS Codes will be adjusted. (2106.90.50 3401.19.20 3920.63.99 3924.10.90 7217.90.10 2202.99.91 3920.51.91 3920.69.91 4011.10.90 8708.91.20 2202.99.99 3920.51.99 3920.69.99 6505.00.10 8708.91.90 3401.11.20 3920.63.11 3924.10.10 6505.00.90)

 

(4) CESS will be removed on importation of Go-Kart which is an off road sports vehicle and Go-Kart Tyres to facilitate promotion of international sport tourism.

 

Other Fees and Charges

(1) The rates of fees and charges of government agencies which have not been revised in last 03 years will be increased by 15%.

 

(2) Passport fee will be revised as follows; (Alteration Fee – Rs.1,000/- per unit, Processing fee (Urgent basis) – Rs.15,000/- per unit, Processing fee (Normal basis) – Rs.3,500/- per unit)

 

(3) Fee for the reservation of a vehicle registration number in advance from the current registration number will be revised as follows;

Fee (Rs.)                       Available Number Limit

70,000/-                               10,000

90,000/-                                20,000

100,000/-                                30,000

 

(4) A lifetime personal vehicle registration numbers will be issued on a fee of Rs. 1 million

 

Stamp Duty

(1) Stamp Duty on the usage of credit cards for foreign purchases will be removed in line with the imposition of NBT on the foreign payments.

 

Tax Administration

(1) Minimum employment requirement imposed on the companies predominantly engaged in the Information Technology Services will be removed, to be eligible for the special additional deduction of 35% on the salary expenses incurred.

 

(2) A Revenue Intelligence Unit will be established at Ministry of Finance, to take steps to assist our main Revenue Collection Departments, such as, Customs, Inland Revenue and Excise, to broaden their revenue collection bases, increase total revenue collected and minimize leakages & evasion.

 

 

 

Interest Subsidy on Loan Schemes

Ran Aswenna

Category 01

Beneficiaries – Small scale farmers and farmers’ organizations, Floriculture farmers, Entrepreneurs in ornamental fish related businesses.
Maximum Loan Amount (Rs.)- 5,000,000.
Annual Effective Interest Rate – 13.86%
% of the Interest Subsidy – 50%
On lending Rate – 6.93%
Repayment Period – 7 years (including 1 year grace period)

Category 02

Beneficiaries – Agro & fish processing and multiday boats with modern facilities
Maximum Loan Amount (Rs.)- 300,000,000
Annual Effective Interest Rate – 13.86%
% of the Interest Subsidy – 50%
Onlending Rate – 6.93%
Repayment Period – 7 years (including 1 year grace period)

Category 03

Beneficiaries – Companies engaged in commercial scale farming
Maximum Loan Amount (Rs.)- 750,000,000
Annual Effective Interest Rate – 13.86%
% of the Interest Subsidy – 50%
Onlending Rate – 6.93%
Repayment Period – 7 years (including 1 year grace period)

Govi Navoda

Beneficiaries – Small scale farmers and farmers’ organizations (for mechanizing the cultivation activities)
Maximum Loan Amount (Rs.)- 500,000
Annual Effective Interest Rate – 13.86%
% of the Interest Subsidy – 75%
Onlending Rate – 3.46%
Repayment Period – 7 years (including 1 year grace period)

Riya Shakthi

Beneficiaries – Owners of the school service vans
Maximum Loan Amount (Rs.)- 4,000,000
Annual Effective Interest Rate – 13.86%
% of the Interest Subsidy – 75%
Onlending Rate – 3.46%
Repayment Period – 5 years

‘City Ride’ Loan Scheme

Beneficiaries – Private bus owners who are willing to purchase a luxury bus/low flow board instead of the existing old bus and the reputed companies who are willing to provide comfortable transport service for their employees.
Maximum Loan Amount (Rs.)- 10,000,000
Annual Effective Interest Rate – 13.86%
% of the Interest Subsidy – 75%
Onlending Rate – 3.46%
Repayment Period – 5 years(including 1 year grace period)

‘Mini Taxi’ / electric threewheel Loan Scheme

Beneficiaries – Persons who are 35 years of age or above, who owns a three-wheel and it is used in hiring purpose are eligible for this loan to purchase a small motor vehicle / electric three-wheel to use as a taxi. The existing three-wheels should disposed.
Maximum Loan Amount (Rs.)- 2,000,000
Annual Effective Interest Rate – 13.86%
% of the Interest Subsidy – 75%
Onlending Rate – 3.46%
Repayment Period – 5 years

Rivi Bala Savi

Beneficiaries – Household who are expected to fixed Solar power panels
Maximum Loan Amount (Rs.)- 350,000
Annual Effective Interest Rate – 13.86%
% of the Interest Subsidy – 50%
Onlending Rate – 6.93%
Repayment Period – 5 years

Diri Saviya

Category 01

Beneficiaries – Poultry producers
Maximum Loan Amount (Rs.) – 50,000
Annual Effective Interest Rate – 13.86%
% of the Interest Subsidy – 100%
Onlending Rate – 0%
Repayment Period – 4 years (including 3 months grace period)

Category 02

Beneficiaries – Self-employees
Maximum Loan Amount (Rs.)- 1,000,000
Annual Effective Interest Rate – 13.86%
% of the Interest Subsidy – 50%
Onlending Rate – 6.93%
Repayment Period – 7 years (including 1 year grace period)

Category 03

Beneficiaries – Entrepreneurs engaged in animal
husbandry
Maximum Loan Amount (Rs.)- 5,000,000
Annual Effective Interest Rate – 13.86%
% of the Interest Subsidy – 50%
Onlending Rate – 6.93%
Repayment Period – 7 years (including 1 year grace period)

Jaya Isura

Category 01

Beneficiaries – Small enterprises with an annual turnover between Rs. 10 million to Rs. 250 million and with an employment cadre of 5 to 50 who are engaged in agriculture, fisheries, ornamental fisheries, livestock, floriculture, horticulture, light engineering, printing, tourism, handicrafts, wood based products, apparel, information technology, manufacturing industry and renewable energy sectors.
Maximum Loan Amount (Rs.)- 100,000,000 (Export). 50,000,000 (Non-Export)
Annual Effective Interest Rate – 13.86%
% of the Interest Subsidy – 50%
Onlending Rate – 6.93%
Repayment Period – 7 years (including 1 year grace period)

Category 02

Beneficiaries – Medium entrepreneurs with an annual turnover between Rs. 250 million to Rs. 750 million and with an employment cadre of 51 to 300 who are engaged in agriculture, fisheries, ornamental fisheries, livestock, floriculture, horticulture, light engineering, printing, tourism, handicrafts, wood based products,apparel, information technology, manufacturing industry and renewable energy sectors.
Maximum Loan Amount (Rs.)- 400,000,000 (Export) 200,000,000 (Non-Export)
Annual Effective Interest Rate – 13.86%
% of the Interest Subsidy – 25%
On lending Rate – 10.40%
Repayment Period – 7 years (including 1 year grace period)

Soduru Piyasa

Beneficiaries – Owners of the houses with the less than 1,500 sq.ft. who expect to expand or complete the house
Maximum Loan Amount (Rs.)- 200,000
Annual Effective Interest Rate – 13.86%
% of the Interest Subsidy – 50%
Onlending Rate – 6.93%
Maximum Repayment Period – 7 years

Madya Aruna

Category 01 (To purchase media equipment)

Beneficiaries – Registered journalists
Maximum Loan Amount (Rs.)- 300,000
Annual Effective Interest Rate – 13.86%
% of the Interest Subsidy – 100%
Onlending Rate – 0%
Repayment Period – 5 years (including 1 year grace period)

Category 02 (To upgrade media equipment)

Beneficiaries – Registered journalists
Maximum Loan Amount (Rs.)- 150,000
Annual Effective Interest Rate – 13.86%
% of the Interest Subsidy – 50%
Onlending Rate – 6.93%
Repayment Period – 5 years (including 1 year grace period)

‘My Future’ Loan Scheme

Beneficiaries – Student who passed Advance Level
Maximum Loan Amount (Rs.)- 1,100,000
Annual Effective Interest Rate – 13%
% of the Interest Subsidy – 100%
Onlending Rate – 0%
Repayment Period – 12 years

Erambuma’ Credit Scheme

Beneficiaries – Young Graduates and National Vocational Qualifications 5, 6 and 7 Level certificate holders
Maximum Loan Amount (Rs.)- 1,500,000
Annual Effective Interest Rate – 12%
% of the Interest Subsidy – 100%
Onlending Rate – 0%
Other facility – Fully Government guarantee
Repayment Period – 7 years (including 2 years grace period)

Green Loan

Category 01

Beneficiaries – Bio degradable bags and packing material producers, small scale hoteliers, and organic fertilizer producers.
* Three wheeler owners (only for fixing meter and maximum amount is Rs. 20,000)
Maximum Loan Amount (Rs.)- 1,000,000
Annual Effective Interest Rate – 13.86%
% of the Interest Subsidy – 50%
Onlending Rate – 6.93%
Repayment Period – 10 years (including 1 year grace period)

Category 02 (Homestay Programme)

Beneficiaries – Persons who are run or willing to run Homestays for tourists
Maximum Loan Amount (Rs.)- 5,000,000
Annual Effective Interest Rate – 13.86%
% of the Interest Subsidy – more than 50%
Onlending Rate – 6%
Repayment Period – 10 years (including 1 year grace period)

‘Home Sweet Home’ Loan Scheme

Beneficiaries – Private and public sector waged employees to purchase/construct the first house through following activities; * To purchase a house from housing development projects implemented by the National Housing Development Authority (NHDA), the Urban Development Authority (UDA), or the private sector
* To purchase a house from housing projects constructed by the private sector
* To purchase a single house
* To build a first house for their own use
Maximum Loan Amount (Rs.)- 10,000,000
Annual Effective Interest Rate – 12% (for the first 5 years)
% of the Interest Subsidy – 40% (for the first 5 years)
Onlending Rate – 7% (Subsidy paid for first 5 years only)
Maximum Repayment Period – 25 years

‘Rakawarana’ Loan Scheme

Category 01

Beneficiaries – Individuals and the institutions who have the capacity to maintain a child day care centers. A staff with NVQ certificate holders should be employed and those centers should be operated in accordance with the national guidelines for child day care centers used by the Ministry of Women and Child Affairs and Dry Zone Development
Maximum Loan Amount (Rs.)- 3,500,000 for each center
Annual Effective Interest Rate – 13.86%
% of the Interest Subsidy – 75%
Onlending Rate – 3.46%
Repayment Period – 7 years (including 2 years grace period)

Category 02

Beneficiaries – Private sector investors who are willing to construct and improve Elderly care centers. A staff with NVQ certificate holders should employed and these centers should be operated in accordance with the SLS1506: 2015 standards.
Maximum Loan Amount (Rs.)- 10,000,000
Annual Effective Interest Rate – 13.86%
% of the Interest Subsidy – 75%
On lending Rate – 3.46%
Repayment Period – 7 years (including 2 years grace period)

‘Sigithi Pasala Loan Scheme

Beneficiaries – Investors who are willing to establish new preschools or to refurbish existing preschools. A qualified staff should be employed.
Maximum Loan Amount (Rs.)- 2,000,000
Annual Effective Interest Rate – 13.86%
% of the Interest Subsidy – 50%
Onlending Rate – 6.93%
Maximum Repayment Period – 7 years(including 1 year grace period)

‘Sihina Maliga’ Loan Scheme

Beneficiaries – Sri Lankan migrant workers registered under the Foreign Employment Bureau and currently working abroad. The applicants should have remitted a considerable amount of money earned in any foreign currency to any bank operating in Sri Lanka. Loan should be for following purposes:
* Build a new house
* Renovate the existing House
* Demolish the existing house and put up a new house
* Purchase a new house
* Purchase a land and put up a house or
* Purchase a house and renovate it
Maximum Loan Amount (Rs.)- 10,000,000
Annual Effective Interest Rate – 13.86%
% of the Interest Subsidy – 75%
Onlending Rate – 3.46%
Maximum Repayment Period – 15 years (including 2 years grace period)

Rooftop Solar Power Generation Line of Credit – RSPGLoC

Category 01

Beneficiaries – Households
Onlending Rate – 8%
Maximum Capacity – 50 Kilo watts
Repayment Period – 10 years

Category 02

Beneficiaries – Entrepreneurs
Onlending Rate – 8%
Maximum Capacity – 50 Kilo watts
Donor Agency – ADB (USD 50 million for 1st tranche and top-up to USD 200 million based on progress)
Repayment Period – 10 years (including 6 months grace period)

Small and Medium-sized Enterprises Line of Credit Project – SMELoC

Beneficiaries – SME Entrepreneurs
Maximum Loan Amount (Rs.)- 50,000,000
Onlending Rate – 11 – 14 %
Donor Agency – ADB (USD 175 million)
Repayment Period – 10 years (including 2 years grace period)

‘Pavithra Ganga’ Initiative

Beneficiaries – The companies that already discharge their waste into the Kelani River, lagoons
Maximum Loan Amount (Rs.)- 30,000,000
Onlending Rate – 6.5%
Donor Agency – JICA
Repayment Period – 10 years (including 2 years grace period)



Debt Repayment Levy

Debt Repayment Levy

Debt Repayment Levy (DRL) will be introduced on cash transactions by financial institutions

Rate is Rs.2/- per Rs.10,000/- cash transaction (i.e. 0.02%)

Levy will be charged on total cash transactions and should be paid by the financial institutions.

Luxury Tax on Motor Vehicles

Luxury Tax on Motor Vehicles

1) One-time payment luxury tax will be introduced in lieu of the present system of payment over 7 years

2) The present system will be continued for the vehicles already registered

3) Tax depends on the band of engine capacity or motor power of the vehicle as follows:

Super Luxury (Rs.) Luxury (Rs.) SemiLuxury (Rs.)

Dual purpose (Petrol/diesel) 2200cm3 250,000/-

Motor Car
Petrol 1800cm3 < x ≤ 2500 cm3 Diesel 2200cm3 < x ≤ 3000 cm3 Electric 200 kW < x ≤ 300 kw 500,000/- Petrol 2500cm3 < x ≤ 3500 cm3 Diesel 3000cm3 < x ≤ 4000 cm3 Electric 300 kW < x ≤ 400 kw 1,000, 00/- Petrol 3500cm3 < Diesel 4000cm3 < Electric 500 kW < 2,000,000/-

Applicability for Different Sectors

1) Supporting the use of Solar Power:

Tax benefits
The NBT and PAL will be exempted on machines and equipment including solar panels and, storage batteries which will be imported for the establishment of solar charging stations.

2) Credit schemes
Individuals, companies incorporated under the Companies Act, No. 7 of 2007, co-operative societies, farmers/fisheries societies engaged in agriculture, agro processing including drip irrigation, poultry,
canning, plantation and tourism industry, that will invest in technology for the generation of solar power to be used for their own operations, will be supported through the introduction of a loan scheme at a subsidized interest rate of 8%.

Supporting the conversion from Non-Bio Degradable Polythene to environmentally friendly alternatives: ( Budget Proposal Nos. 23 and 24)

The Government will bear 50% of the investment cost incurred on equipment and machinery by SME polythene producers when converting from polythene to environment friendly alternatives.

A concessionary Green Loan Scheme will be introduced by the Pradeshiya Sanwardena Bank (also known as the Regional Development Bank) to encourage local entrepreneurs to engage in manufacturing bags, packing materials etc. out of bio degradable materials such as banana fiber, palm leaves, coir, and bamboo.

3) The “Pavithra Ganga” initiative:

The companies that already discharge their waste into the Kelani River, lagoons and estuaries will be:
 supported in the next 5 years to invest in technology to ensure zero discharge of waste into these water bodies .
 eligible to utilize the “E- Friends” credit facility at a concessionary interest rate of 6-8%.

The CEA will issue relevant regulations and will strictly monitor this process.

4) Supporting the SME companies:
The SME companies will be companies incorporated under the Companies Act, No. 7 of 2007 and will have at least 10 shareholders each contributing at least Rs.10,000 in equity. These companies could engage in any business from agriculture to apparels to IT.

The support provided by the Government will include:
 provision of equipment and facilities such as storage facilities, planting and seeding equipment, weed removers,
boats, fishing nets etc.

 extension of leasing facilities from the State banks to these companies to purchase such machinery.
 provision of a letter of undertaking or a guarantee to the respective State bank for the equipment, and other facilities purchased and, to bear at least 75% of the lease cost on behalf of the company during the lifetime of the lease.

 make available the “Enterprise Sri Lanka Credit Schemes” to these companies.

 provision of technical support to incorporate companies, maintain books and records, negotiations with financial
institutions will be provided by the private sector consultants. Each company incorporated under this mechanism will have a consultant company to support and the cost of the company for consultations for a period of 36
months will be borne by the Government in full, while for a period of another 24 months the Government will bear 50% of such cost. An incentive package based on the performance of these companies will be made available to these
consultants.

 bear the hire purchase lease rental and the interest subsidies by the Government.

These facilities by the Government will be 10% above the norm for companies headed by women.

The above facilities for companies headed by differently abled will be 15% above the norm.

Financial and non-financial support such as transfer of technical knowhow, packaging and marketing of products or services etc. will be coordinated and provided by the Department of Development Finance at the Ministry of Finance and Mass Media.

5) Supporting the startups and the innovation culture:

The “Erambuma” Credit Scheme

 University graduates with viable business ideas are eligible to utilize the “Erambuma” credit facility.
 The maximum loan size is Rs. 1.5 million per idea per person.
 The interest is 100% subsidized by the Government and the repayment is fully guaranteed through a Government
guarantee.

6) The “IT Initiative”
 The Government will finance the “IT Initiative” by providing Rs. 3 billion over a period of 3 years.
 This initiative will provide both financial and non-financial support by way of grants, equity investments, credit facilities, mentoring, technical support etc. to:

 local startups

 attract foreign startups

 Small and medium IT companies with a turnover around USD 2-3 million per annum to at least double
their revenue in 3 years.

 create the enabling environment by supporting establishment of Incubators, the acquisition and
augmentation of skills and know-how in collaboration with the local universities etc.

 The Government will facilitate effective collaboration between the Universities and the Industry in the following
manner.
 The IT industry to be able to acquire and augment the skills set in line with the demand in collaboration with
the University of Colombo (UoC) and Moratuwa (UoM) and, the SLIIT. For example, if an IT company requires training of its employees, non-employees including undergraduates of Universities or Technical Colleges, the company
could collaborate with UoC, UoM or the SLIIT to design the required courses. The “IT Initiative” will bear a portion of the cost while the company will bear the balance. Those who successfully complete such courses will be employed by the companies.
 This will be operated through the EDB and be managed by a Board comprising mainly of experienced private sector professionals, investors and entrepreneurs.

7) The “I2I Initiative”
 The “I2I” aims to connect university graduates and NVQ 4 certified graduates for a registered patent or a viable business idea with the industry. (Industry will adopt the Innovator).
 The Government will bear:
 the monthly salary, i.e., 50% up to a maximum of Rs.50,000 per month for a period of 24 months, and
 the cost of patenting in Sri Lanka and counsel on patenting

8) Export Access Programme:
We will introduce an “Export Market Access Support Programme” targeting the extension of support to:
 local companies that already have exports of less than USD 10 million per annum.
 potential new entrants to the export market to better access the global value chains.

This programme will facilitate:
 meeting of the cost of compliance which includes the cost of provision of free samples, intellectual property registration,insurance and promotional costs undertaken overseas.

 meeting of the full or partial cost of rent of retail shop space or shelf space occupied by domestic brands that reach overseas markets for a maximum period of 36 months.

Product development assistance to exporters to develop new products or improve existing products to meet the export market standards and financial support will be provided through the “Enterprise Sri Lanka” Credit schemes.

This programme will be implemented through the EDB.

9) Supporting Tourism:
Homestay Programme:
 A credit scheme will be introduced to support home owners registered with the SLTDA to upgrade their houses to meet the standards required to be in the Homestay programme.

 The facility under the scheme up to a maximum of Rs. 5 million per person at an interest rate of 6%, with a maturity period of 10 years will be introduced.

10) Employment Preparation Fund:
An “Employment Preparatory Fund” will be established under the Ministry of National Policies and Economic Development and will be operated through the National Youth Corps.

This fund will finance vocational training courses that are required by the private sector. The courses will be designed in collaboration with the private sector and such courses may be conducted at institutions such as Hotel Schools, Nursing Schools etc.

Most of these courses will be short termed with duration of 3-6 months and at the successful completion, employment will be guaranteed by the private sector.

This fund will be further utilized to:
 pay a stipend of Rs. 3,500 per month for those following training courses up to a maximum duration of 6 months, and
 finance the cost of the training course, in full or partly.

The Government will further incentivize the private sector to employ these youth who successfully follow these training programme(s) by bearing the cost of the salary of an employee up to Rs. 6,000 per month for a period of 6 months and the partner employer will pay a further allowance of Rs. 10,000 per month.

11) Supporting the middle income earner to be a home buyer:

A concessionary loan scheme will be introduced by the National Savings Bank to facilitate first time middle income home buyers.

The following terms and conditions will be applicable in this regard.

 Maximum loan size Rs. 5 million

 Interest rate 7% per annum

 Tenure 7 years

SVAT System to Continue

Department of Inland Revenue announces that the Ministry of Finance has decided to continue the    SVAT system until such time the necessary legislation is in place. Therefore current SVAT system will continue to be in force as usual until further notice. However, Department of Inland Revenue has informed to the tax payers on 10th March 2017 that SVAT will be terminated with effect from 1st April, 2017.

Upper limit for 15% special interest to senior citizens’ deposits increased to Rs 1.5M

The upper limit to pay 15% special interest on fixed deposits maintained by senior citizens in the licensed commercial banks and the licensed Specialized Banks has been increased up to Rs.1.5 million from the current limit of Rs.1 million with effect from March 01, the Finance Ministry said. On the instruction of the Minister of Finance Ravi Karunanayake, Treasury Secretary Dr. R.H.S. Samaratunga has informed the Central Bank of Sri Lanka to notify all banks amending the previous circular in this regard. The present Government, under its 100- day programme, in the Budget – 2015 for the first time introduced a 15% special interest scheme for senior citizens’ fixed deposits up to one million rupees maintained by senior citizens over the age of 60 years.  Accordingly, the Government pays the difference between the 15% and the market standard interest rate offered by commercial banks. Treasury has incurred Rs 13,000 million for this purpose in 2016. As a result of this offer to senior citizens, the number of fixed deposits by senior citizens rose to 450,000 in 2016 from 91,000 in 2015, a statement said. The number of fixed deposits maintained by senior citizens is reported to have risen today to 500,000 since the Minister Ravi Karunanayake announced the continuation of the senior citizens deposits scheme which guarantees an interest of 15 percent for deposits with the increase of the upper limit up to Rs 1.5 million. Director General of Department of Development Finance said that with the increase of the upper limit, Treasury has to spend Rs.18,000 million to pay the 15% interest during this year Meanwhile, Finance Minister Ravi Karunanayake said that this Government introduced various facilities to assist senior citizens after 2015 as the ageing population is on the increase in the island. In addition to the 15% interest, which was introduced in the country for the first time in 2015, the benefit of Agrahara Insurance Scheme available for the public servants was extended up to 70 years for the benefit of those who are retiring from the public sector.  In the Budget 2017 the Minister Ravi Karunanayake announced the extension of the insurance cover for the full life time of the retiring public servants from this January.

Government decides to further reduce import duty on rice with immediate effect.

Government decides to further reduce import duty on rice with immediate effect.

The government has decided to further reduce the existing tax on imported rice with immediate effect. Accordingly, Special Commodity Levy on imported rice will be reduced to Rs.5 from Rs.15 with effect from midnight of January 27.

On the advice of His Excellency President Maithripala Sirisena and Honorable Prime Minister Ranil Wickremesinghe, Finance Minister Ravi Karunanayake has taken this decision in order to provide urgent relief to the people.

Special Commodity Levy has been reduced for imported varieties of brown raw rice, Nadu and Samba. However, the tax relief is not applied to Basmati varieties.

The government took this decision in response to the exploitation of consumers by certain unscrupulous traders who hoarded stocks and made fast money in the recent past.

Government decides to further reduce import duty on rice with immediate effect.

Government decides to further reduce import duty on rice with immediate effect.

The government has decided to further reduce the existing tax on imported rice with immediate effect. Accordingly, Special Commodity Levy on imported rice will be reduced to Rs.5 from Rs.15 with effect from midnight of January 27
.
On the advice of His Excellency President Maithripala Sirisena and Honorable Prime Minister Ranil Wickremesinghe, Finance Minister Ravi Karunanayake has taken this decision in order to provide urgent relief to the people.

Special Commodity Levy has been reduced for imported varieties of brown raw rice, Nadu and Samba. However, the tax relief is not applied to Basmati varieties.

The government took this decision in response to the exploitation of consumers by certain unscrupulous traders who hoarded stocks and made fast money in the recent past.

Capital Gain Tax

Capital Gain Tax (CGT) will be introduced with effect from 1st April 2017 at a rate of 10 percent.

Government consider Capital Gain Tax to be equitable as it bridges the income gap and assists the government initiatives in poverty alleviation

Corporate Income Tax

The corporate income tax rate is proposed to be revised to create a three tier structure of 14 percent, 28 percent and 40 percent. 

Income tax rate applicable on liquor, tobacco, betting and gaming, etc. will be continued at the rate of 40 percent.(it is uncertain whether the profits from lottery which was liable at the highest rate of 40% during the previous years of assessment will be continuously liable at the highest rate of income)

 

SMEs, Exporters of goods and services, Agricultural sector and Education sector will be subjected to the lower rate of 14 percent.

The SME category will be redefined in a rationalized manner. (The maximum turnover criteria of 750 mn which was used to determine the SMEs in the year of assessment 2015/2016 has been reduced to 500Mn.)

 

All others including banking, finance, manufacturing and trading will be subjected to income tax at 28 percent. (the reduced income tax rate which was applicable to various undertaking such as development of software, supply of labour, etc will be increased to 28%)

 

Income tax rate of 10 percent currently applicable on funds, dividends, treasury bills and bonds will be increased to 14 percent.

 

 

Remove the exemptions applicable on the income from the investment on listed securities, Dividends, Unit Trusts and other instruments.

 

Notional Tax Credit applicable on the secondary market transaction of securities also will be removed.

 

The period of depreciation of capital assets will be revised for Plant, and Machinery and buildings.

The rate of capital allowances will be revised as follows:

  • Plant, machinery or equipment – the present rates of 331/3 %, 50% and 100% will be revised as 20% (5 equal installments).
  • Buildings – the present rate of 10% will be reduced to 5% (20 equal installments).

 

 

Investment Incentives

  • 100% capital allowances will be granted on investment in fixed assets not less than USD 03 mn with not less than 250 employment.
  • 200% capital allowances will be granted if the investment with the same conditions referred to above is made in Northern Province.
  • 100% capital allowances and for the second year of commercial operation
  • 5% of the investment as a tax credit up to a maximum of tax payable , if such investment is not less than USD 05 mn with minimum 300 employment in any trade or business.

Specific concessions

Specific concessions will be announced for:

  • any investment not less than USD 100 mn with minimum employment of 500; or
  • any investment not less than USD 500mn . in any trade or business.

Concessions to exporters

  • A rebate will be given equal to 75% of the income tax attributable to
  • excess profit of 2016/17, where profits from exports in foreign currency increased over 15% or more in 2016/17 compared to 2015/16.

 

Incentive for Listing 

Tax incentives which are already given to encourage listings will be continued. The new firms that will list on the stock exchange in the year 2017/18 will be entitled to a grant of an amount equal to 25 percent of the total income tax paid by that firm for the last year prior to listing.

 

Revision of time bar provisions

Assessments

The present period to issue assessments of 18 months will be reduced to 09 months.

 

Appeals

  • The present period of 24 months to hear an appeal by the Commissioner General will be reduced to 06 months.
  • The present period of 24 months to hear an appeal at the Tax Appeal Commission will be reduced to 06 months.

 

 

 

 

Personal Income Tax

Individual income tax rate structure will be revised as follows:

(a) Profits and income from employment :

– Tax free threshold on employment will be increased from Rs. 750,000 to Rs. 1.2 mn per annum. The deduction for qualifying payments will be adjusted accordingly.

– Rates applicable on the second employment will be revised as follows:

If the payment does not exceed Rs 50,000/- per month at 10%;

If the payment exceeds Rs. 50,000/- per month at 20%.

 

(b) The progressive rate structure will be from 4% to 24% having the equal tax slabs of Rs 600,000/- each.

 

Removal of exemptions on profits and income from employment

The following exemptions on profits and income from employment will be removed:

– The present exemption on providing transport.

– Certain special allowances provided for special categories of public services.

 

Removal of other exemptions

(i) The present exemption on certain dividends and interest or profits from investment on listed securities (corporate debt securities etc.) and other instruments will be removed.

(iii) The present exemption on interest on savings accounts up to Rs.5000/-per month will be removed.

(iv)The present exemption on interest on deposits applicable to senior citizens will be  restricted to Rs. 1.5 mn per annum

Withholding Tax (WHT)

Interest Income

With Holding Tax (WHT) on interest income will be increased to 5 percent from the present level and the exemption applicable on savings account with less than Rs. 60,000 per annum will be removed.

 

Specified Fee

WHT will be re-introduced on specified fees where the payment exceeds Rs. 50,000 per month.

P.A.Y.E. (Tax on Employment Income)

  • PAYE rate schedule will be revised in line with the personal income tax rates
  • All the exemptions applicable on various categories will be removed.
  • The tax free threshold of 100,000 per month will be available for every employee on their employment income.
  • The income from the secondary employment up to Rs. 50,000 per month will be liable for PAYE at 10 percent and if it is more than Rs. 50,000, the tax will be at the rate of 20 percent.
  • The PAYE of the employees of state owned enterprises and other government institutions should be deducted from the employees‟ emoluments and should not be paid by the institution.

Economic Service Charge (ESC)

Economic Service Charge ( ESC) [Amendments to ESC Act No 13 of 2006]

 

The present threshold will be reduced from Rs 50mn per quarter to Rs 12.5 mn per quarter.

 

Advance WHT of ESC will be introduced on import of vehicles.

 

The proposed changes in Budget 2016 (subject to subsequent modifications) will be implemented together with the proposals listed above.

Value Added Tax (VAT)

SVAT

Proposed to remove the SVAT scheme as it could hardly be called simple. It has become redundant with an efficient and smoothly operational technology driven VAT administration process brought about by the IRD automation system.

 

VAT Exemptions

Plants, machinery and accessories for renewable energy generation identified under the following H.S Code Nos.

8454.10, 8501.31.10, 8503.00.10, 8503.00.20, 8503.00.90, 8504.10.10, 8504.10.90, 8504.21.10, 8504.21.90, 8504.22.10, 8504.22.20, 8504.22.30, 8504.22.90, 8504.23.90, 8504.31.10, 8504.31.90, 8504.32.10, 8504.32.90, 8504.33.10, 8504.33.90, 8504.34.90, 8504.40.10, 8504.40.20, 8504.40.30, 8504.40.90, 8504.50.10 , 8504.50.90, 8504.90.10, 8504.90.90, 8513.10.10, 8539.31.20, 8541.40, 9032.89.10, 9405.10.10, 9405.10.20, 9405.20.10, 9405.20.20, 9405.40.30, 9405.40.40

 

Plant and Machineries imported by CEB for generation, transmission and distribution will be exempted from VAT.

 

Exempt the provision of geriatric care and child care services

 

Certain electrical goods identified under HS Code Nos

8516.40 8516.72 8527.21 8527.29 8527.91 8527.92, 8528.72.41 8528.72.9,9101.11 9101.19 9101.19.10 9101.19.90, 9101.21 9101.29 9101.91 9101.99 9102.11 9102.12, 9102.19 9102.21 9102.29 9102.91 9102.99 9105.11, 9105.19 9105.21 9105.29 9105.91 9105.99

Magazines, journals or periodicals other than newspapers, identified under HS Code Nos 4901.10, 4901.91, 4901.99, 4901.99.10, 4902.10.10, 4902.90.10.

Medical Machinery and medical equipment identified under the HS Code No.8421.29.10 136

 

The following exemptions will be removed :

– Gold coins, precious metals and precious stones identified under following HS Codes Nos.

7101, 7102, 7103, 7104, 7105, 7106, 7107, 7108, 7109, 7110, 7111, 7113, 7114, 7116, 7118.90.10 .

– Import or supply of jewellery.

– Locally manufactured milk powder.

 

VAT Refunds at Ports & Airport

  • A refund mechanism at ports and airports will be introduced for foreigners who stay not more than 30 days in Sri Lanka on the VAT paid by them in purchasing goods in Sri Lanka.

 

  2017 Budget Proposals – VAT, PAL, NBT Liables and Exemptions

 

 

 

Nation Building Tax (NBT)

Nation Building Tax (NBT) [Amendments to NBT Act No.9 of 2009]

 The following exemptions will be removed:

– any goods required for the purpose of providing of services of international transportation, being goods consigned to Sri Lankan Air Lines Ltd, Mihin Lanka (Pvt) Ltd or Air Lanka Catering Services Ltd.

– any article imported or sold by any society registered under Co- operative Societies Act, No. 5 of 1972 or under the respective statutes enacted by the Provincial Councils providing for such registration or Lak Sathosa Limited registered under the Companies Act, No. 7 of 2007.

– the services of a travel agent in respect of inbound tours, if such person is registered with the Ceylon Tourist Board.

– services being construction services including the services of sub-contractors.

– sale of residential apartments.

– services provided by any society registered under the Co-operative Societies Law No. 5 of 1972 or under any Statute enacted by a Provincial Council, or Lak Sathosa Limited, registered under the Companies Act, No. 7 of 2007.

 

The following will be exempted:

– International telecommunication services provided to local operators by External Gateway Operators.

– printed books, magazines, journals or periodicals other than newspapers, identified under HS Code Nos 4901.10, 4901.91, 4901.99, 4901.99.10, 4902.10.10, 4902.90.10.

– Solar panel modules and accessories under the following HS Code Nos. 8454.10, 8501.31.10, 8513.10.10, 8539.31.20, 8541.40, 9032.89.10, 9405.10.10, 9405.10.20, 9405.20.10, 9405.20.20, 9405.40.30, 9405.40.40

 

  2017 Budget Proposals – VAT, PAL, NBT Liables and Exemptions

 

 

 

Financial Transactions Levy (FTL)

Proposed to introduce a new levy called FTL as a contribution for social development at the rate of Rs. 5 per Rs.10,000 on the total 86 cash transactions including easy cash by banks and other financial institutions. FTL will be treated as expenditure for income tax purpose.

Telecommunication Levy

  • Telecommunication Levy on internet services will be increased to 25 percent par with the other Telecommunication services.

 

  • In support of the country‟s digitalization process, all mobile telephone operators will be given a 6 months period to convert their infrastructure to provide at least 3G coverage. Any operator who failed to implement within this period will be liable for a surcharge of Rs.100 million per District. All metro areas are required to be converted to 4G by 30th June 2018.

 

  • SIM Card Activation Levy (SCAL) of Rs. 200 per SIM to be charged to discourage the use of mobile connections temporary for fraudulent and criminal activities.

 

  • Increase the Annual Spectrum Licensee Fee by 25 percent, with effect from January 1, 2017.

 

  • The services provided by the external gateway operators to local operators will be exempted from VAT and NBT.

Taxes on Liquor

  • The fool proof sticker system announced in the last Budget will be introduced soon with the view of controlling the illicit liquor circulation in the country and to control the leakages. The bidding process is completed and sticker system will be implemented in 2017.

 

  • Proposed to reduce the evaporation allowance of ethanol for the production of liquor from 1.5 percent to 0.15 percent. The evaporation in storage and transport is reduced due to technological enhancement and this percentage has not been revised for nearly ten years.

 

  • Proposed to introduce Excise Duty on the quantum of raw materials used for producing ethanol. This would help reconciling the actual amount of production of ethanol.

 

  • To provide a better price for locally manufactured spirits, Duty on imported ethanol will be upwardly revised and proposed to introduce Excise Duty of Rs. 25 per liter for imported non-potable liquor for giving further assistance to local manufacturers.

 

  • Excise (Special Provisions) Duty will be introduced on the importation of beer can at the rate of Rs.10 per can of not more than 325 millilitre and Rs. 15 per can of more than 325 millilitre.

Carbon Tax

Carbon Tax will introduce for all carbon fuel run motor vehicles. The emission test fee also will be included in the Carbon Tax. The Department of Motor Traffic will be the collecting authority of the Carbon Tax. The cost of emission test of a vehicle will be reimbursed to service provider by the Department. The vehicle owners need not to pay an additional fee for the emission test.

Taxes on Motor Vehicles

  • Budget 2016 introduced the engine capacity based unit rate method for Excise Duty calculation for motor cars. Therefore, proposed to extend the engine capacity based Excise Duty to Motor Cycles as well.
  • Government is committed to encourage green energy consumption and proposed to reduce Excise Duty on electric cars with motor power less than 100 KW.
  • To support local industries the age limit for importing lorries and refrigerated trucks of capacity over 5 Metric Tonne to be extended to 10 years.
  • Several duty revisions to correct anomalies in the duty structure will also be made. These changes will be implemented with effect from 11th November 2016.
  • With regard to motor vehicles, passenger safety is of paramount importance. As an initial step to encourage safety, I propose to set 88 motor vehicle standards of SRS, air bags, ABS and three point seat belts will be made compulsory for motor cars to ensure the road safety.
  • Vehicle Entitlement Fee (VEF) is paid at the time of opening of LCs, to the banks and proposed to change this procedure. This Fee will be paid at the Sri Lanka Customs at the time of clearance of the vehicle. Upon payment a certificate with details of the imported vehicle will be issued.
  • Proposed tax incentive on exporting vehicles which are more than 5 years old. Any export of not less than USD 200,000 that constitute minimum of 20 vehicles will be granted an Excise Duty waiver of 50 percent from the payable duty for importing a motor car with CIF value not exceeding USD 50,000.