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

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.

Other Fees and Levies

Charge for Court Cases/ Case Filing Fee

High volume of cases pending before the Courts is an overriding problem in the entire court system. Excessive caseloads cause delays in processing cases and deny the justice. And it causes a heavy burden to the government.

Charge a filling fee when filling a Court case by any person in any Court.

 

Increasing fines charged on traffic offences

Proposed to increase fines charged on traffic offences and to increase the minimum fine to Rs. 2,500.

To address the overload of cases in the Magistrate Courts, proposed to amend the Motor Traffic Law to impose spot fine on offences which are currently be fined only by Courts. A system will be introduced for the errant motorists to pay their traffic fines through mobile phones.

 

Visa fees will also be revised.

 

Teledrama Levy (TL)

Teledrama Levy applicable on the foreign tele drama dubbed in Sinhala, Tamil or any other language will be increased.

 

Beedi Leaves Import license

Proposed to issue licenses to import beedi leaves by charging an annual license fee of Rs. 5 million.

 

Import License Fees

mport licenses will be issued at a fee to import lubricant, bitumen and gold

 

Annual License Fees on Firearms

Annual License Fee of Rs. 20,000 will be imposed on firearms. Firearms which are used for agricultural purposes are excluded from this fee. Any person who uses firearms without obtaining or renewing such license paying the fee will be liable for Rs. 5 million penalty.

 

Tax on Import of Books

Books, magazines and journals other than exercise books will be exempted on PAL, NBT and VAT.

 

Lubricant Business Registration Fee

Bi-annual registration fee payable on lubricant agreements by the lubricant businesses will be revised to Rs. 2.5 million or 0.75 percent of total invoiced sales whichever is higher with effect from 1st January 2017. Proposed to remove the presently applicable upper ceiling

Tax on Online Transactions

With the development in technology, online transactions have now become very popular. This has become a method to bypass the formal taxes and charges that is otherwise applicable in trade and financial transactions. This results in significant revenue leakages to the government given that taxes are not properly charged at the points of port, airport and the post office and courier services when such goods enter the country. As such, ICTA will create a common platform to facilitate online firms such as amazon, ebay, etc to be able to collect taxes on behalf of the government for transactions carried out within Sri Lanka. This common platform will be monitored by the General Treasury.

Reforms in Tax Administration – IRD & Customs

Inland Revenue Department
• Redrafting of Inland Revenue Act will be completed and policies for higher compliance and broadening the base will be incorporated. Anyone who will avoid or violate will be dealt stringently. Tax Manual also will be published.

• E-commerce presents a major challenge for tax administration, given the multijurisdictional nature of transactions. A mechanism will be developed to tax these transactions.

• IRD Administration will be decentralized to allow the tax authorities to be closer to the tax payer. Collection of taxes, fees and levies will be ensured by the deployment of IRD officers on electoral basis. A revenue monitoring unit will be established in the General Treasury.

• Revenue are collected through the officers already deployed at Divisional Secretariats.

• RAMIS will be fully implemented and a virtual office setup which allows no physical interface between IRD officials will be formed.

• The time frame for assessments, appeals and Court proceedings will be reduced and the Tax Appeals Commission will be strengthened by increasing the membership and filling vacancies.

• VAT Law enacted in 2002 has not been consolidated thereafter leaving the provisions difficult to be understood by users. Therefore steps will be taken to consolidate the VAT Act incorporating amendments up to date.

• Post refund audits upon obtaining bank guarantee, will be implemented in order to minimize delays in the VAT refund process

• Smart e-invoice devices will be introduced to be used at the point of sale by the VAT registered persons. This will make the VAT collection process more simple and efficient. This system will be extended to the Excise Department as well.

• National Tax Council will be established and the Office of Tax Ombudsman will be created by an Act of Parliament to resolve grievances of tax payers with the view to increasing tax payer confidence in the tax system and to avoid litigations.

• Steps will be taken to ensure the benefits and recognition proposed in the previous Budget are given to the privileged tax payers and three types of privilege cards, Platinum, Gold and Silver will be issued for them.

 

Sri Lanka Customs (SLC)

• Registration of all importers with the Customs Department, so as to grant them with appropriate levels of facilitation in the clearance process. This will be effective from 1st January 2017.

• Create risk profiles of importers which will help the low risk importers expeditious clearance.

• Pre arrival processing – submission of import documentation and information, including Manifest for processing before the arrival of the goods will ensure faster clearance and release once the goods reach the port. This will ensure just in time delivery of goods for compliant importers.

• Average time of clearance and release – in order to ensure predictability Customs Department will endeavor to publish average processing time of imports and export documentation and average release time of goods. The Customs Department will ensure that export documents and containers will be processed by the Department of Customs for shipment within 2 hours from the time of submissions at the exports facilitations Centre. Ensure that the documentation pertaining to imports will be processed in 3 hours and the containers released within 24 hours.

• Dry-port clearance – We will also explore the possibility of establishing dry ports on PPP basis.

• Valuation database – Customs value of imported goods for duty purposes are based on the transaction value as per the WTO Valuation Agreement. Thus in order to ensure uniform application ascertaining the actual transaction value of imported goods, Customs Department will establish a valuation data base with effect from 1st January 2017, for about 700 commonly imported goods with corresponding minimum values, which can be used as reference values to process clearance of imported goods.

• Advance Rulings – In order to ensure predictability of taxes payable on importation, Customs issues advance rulings, which will now cover origin of goods as well.

• Compliant Traders to be rewarded- Customs will accord the green channel facilities for documentary checks and documentary and goods examination to compliant traders.

• Publication and availability of information – in order to ensure transparency in Customs practices and procedures, the Customs Department will establish and implement a National Trade Information Portal in Sri Lanka.

• Single Window – Customs has already taken the initial step of enabling traders to submit documentation or data requirements for importation, exportation or transit of goods electronically through a single entry point to the participating authorities or agencies.

• Installing a Container Scanning system at the Ports and the airport to ensure, effectiveness and efficiency of the container and baggage clearing process, which will minimize delays and enhance government revenue collection.

• To curb smuggling activities through sea, the Customs Department will reactivate the Marine division. As such to strengthen Customs allocate Rs.250 million to procure 6 new Sea Patrol crafts.

Income Tax (IT)

1 Income Tax (Amendments to the Inland Revenue Act No.10 of 2006)

1.1 Tax Concessions

1.1.1 Agriculture

1.1.1.1 Development of seeds and planting martials by a company :

A reduction of 50% of the tax payable on the profits from the locally developed seeds and planting materials for a period of 5 years.

[ Section 16B will be amended]

 

1.1.1.2 Drip irrigation, greenhouse technology and high yielding seeds:

A reduction of 50% of the tax payable on the profits from agriculture by a company using drip irrigation method, greenhouse technology and high yielding seeds fora period of 5 years.  For this purpose greenhouse technology, drip irrigation and high yielding seeds will be defined.

[Relevant provisions of the Inland Revenue Act will be amended]

 

1.1.1.3 Fruit and Vegetable Industry :

The cost of acquisition of any machinery used for canning fruits and vegetables will be treated as a qualifying payment in addition to the depreciation allowance claimable on such machinery.

[Sections 25 and 34 will be amended]

 

1.1.2 Development of Micro and SME Sector

 

1.1.2.1 Tax payable by Private Equity Funds or Venture Capital companieson the profits earned by providing funds to upgrade SMEs registered with the SME Board of CSE up to the trading level, will be reduced by 50% for a period of 5 years.

 

1.1.2.2 SMEs, creating incubators for SMEs (not by splitting or reconstruction of an existing SME) by investing in designated areas will be entitled to 50% reduction of the tax payable on profits of such activity for a period of 3 years.  For this purpose ‘SME’ and the ‘identification of activities of Venture capital companies and Equity Funds’ will be specified.

 

1.1.3 Incentive for Thrust Industries: A reduction of 50% of the tax payable on the profits from the locally manufacturing of red clay tiles for a period of 3 years.

 

1.1.4 Concessions to other sectors

1.1.4.1 A reduction of 50% of the tax payable for a period of 5 years on the profit from the following activities carried out by any person:

(i) being an academic entity which offer internationally accredited courses or training programmes aimed at geriatric care or child care;

(ii) engage in building housing facilities for the elderly persons;

(iii) construction and sale of housing units in collaboration with the Government, to officers of the government sector.

 

1.1.4.2 A reduction of 50% of the tax payable for a period of 5 years from the commencement of the commercial operations by any company specifically incorporated for MICE (Meeting, Incentives, Conferences and Exhibitions) on the profits from such activities.

 

1.1.4.3 The profits generated by a company which is attributable to the expansion carried out by modernization of existing factories which is considered based on the employment generation within a period of one year commencing from April 1,2016, will be subject to half tax rate of the applicable rate for 3 years. For this purpose the necessary criteria will be specified.

 

1.1.4.4 To encourage persons to be part of the country’s higher education revolution through endowments given to our National Universities to engage in research, the triple tax deductions available for R&D activities be extended to accommodate endowments given to our National Universities.

 

1.1.4.5 Construction Industry: The cost of acquisition of machinery necessary for purifying sea sand will be treated as a qualifying payment in addition to the depreciation allowance claimable on such machinery.

 

1.2 Investment promotion

1.2.1 New Foreign Exchange Management Act ( FEME) :

A new Act named ‘Foreign Exchange Management Act’ will be introduced to facilitate foreign investments. The Inland Revenue Act will also be amended to accommodate such investments (where necessary) and to exempt income tax on foreign currency inflows.

 

1.2.2 Income from dividends on investment made by non- citizens or foreign companies in listed shares through inward remittance will be exempted from income tax.

 

1.2.3 Concession on investment in lagging region :

In lieu of the present concessions introduced in 2015, the following new concession will be introduced:

50% reduction of the tax payable by a new company (not by splitting or reconstruction of an existing company) set up in any lagging region with a minimum investment of US$ 10 Mn or 500 new employment (with new EPF Nos) for manufacturing (other than liquor or tobacco) or provision of services, for a period of 5 years form the commencement of commercial operation.

The period will be expanded to 8 years, if the new employment exceeds 800 and to 10 years if the investments for theme park.

[The concessions under section 59I, 59J and 59K will be removed which are redundant due to rate revision].

 

1.2.4 The 50% rate reduction available under the IR Act, for listing in CSE will be extended by expanding the present deadline of April 1, 2017 for further :

(i) 2 years for listing in CSE ; or

(ii) 3 years for listing in any foreign Stock Exchanges [Section 59D will be amended]

 

1.2.5 The profits and income from the cultivation of tea or rubber by any plantation company, of which the Government shareholding is in existence, will be exempted for a period of 2 years commencing from April 1, 2016.

 

1.2.6 Tax holidays and exemptions

(i) The Strategic Development Act will continue to be effective for existing companies that have availed the concessions under that Act.

For new investments, instead of Strategic Development Act, the “New investment” Act will be enacted.

 

(ii) The granting of tax concessions for any investment should be strictly under the supervision and monitoring of the Ministry of Finance which would be governed by regulations issued by the Minister. BOI or IRD will not grant any new tax holidays other than facilitation and implementation of the concessions.

1.3 Other Changes / amendments:

1.3.1 Management fee will be defined for insurance industry ;

1.3.2 The triple deduction for Research and Development expenses will be allowed only if a technology advancement and yield development is proved.

[Sections 25 and 92 will be amended]

 

1.3.3 The exemption on the interest income on foreign loans will be restricted on the interest on loans taken from foreign banks or financial institutions.

[ Section 9 will be amended]

 

1.3.4 Certain exemption on dividends after the completion of the tax holiday period will be removed.

[ Section 10 will be amended]

 

1.3.5 The refund claim for any year of assessment commencing on or after April1, 2016, should be finalized within three years from the claim of such refund (with the Return). If not finalized, the refund would be allowed to be set off against future tax liability of the same.

[Relevant provisions of the Act will be amended]

 

1.3.6 The penal provisions will be:

– amended to strengthen the tax collection and compliance by tax payers and tax practitioners; and

– introduced to ensure proper implementation of ‘transfer pricing”.

 

1.3.7 Relevant amendments will be incorporated (where necessary) for the implementation of RAMIS.

 

1.3.8 The expansion of the term “Approved Accountant” for the purposes of section 107 by adding AAT member, will be revisited by restricting the area of audits to the turnover limit not exceeding Rs 100 million and making provision to grant approval by the Commissioner General of Inland Revenue having satisfied that the respective individual has acquired necessary competencies to perform the required work under the Inland Revenue Act, in conformity with an appropriate regulatory mechanism in place.

[ Section 107 will be amended]

 

1.3.9 Administration of the transfer pricing on domestic transactions will be simplified and the areas will be specified limiting the scope considering the associated cost involved.

[ Section 104 and 104A will be amended and relevant Gazette will be published ]

 

1.3.10 Individual Taxpayers who pay Rs 25 million or more will be granted special privileges and such privileges will be regularized through a Gazette Notification by incorporating the relevant provisions to the Act.

 

1.3.11 The qualifying payment relief introduced on the expenditure associated with cost of acquisition or merger of banks or financial companies under the Banking and Financial institutions consolidation process will be removed considering the deduction already available as a cost.

[section 34 will be amended retrospectively]

 

1.4 Simplification of Income Taxation

The following measures will be taken to simplify the Income Tax Structure

(i) Rate structure will be limited only to two tax rates as the standard rate of 15% with the higher rate of 30%.

 

(a) The higher rate (30%) is applicable for the profits and income of :

– Betting &Gaming

– Liquor

– Tobacco

– Banking and Finance including insurance, leasing and related activities etc.

– Trading activities other than manufacturing or providing of services

 

All the other sectors will be liable to the standard rate of 15% ;

 

(b) The progressive tax rates applicable to individuals will be removed by increasing the tax free allowance toRs 2.4 million per year [( Rs 2,00,000/- per month) and any balance will be liable at the standard rate of 15%. (flat rate);

 

(c) The above tax treatment will be applicable to both employees subject to PAYEand self-employees.

 

(d) Deductions from the total statutory income and the assessable income will be removed considering the tax free allowance entitled to be deducted by individuals, charitable institutions etc. except the losses incurred from trade, business, profession or vocation( deductible subject to the limitations);

 

(e) The exemption on profit from employment referred to in section 8 of the Act will be removed other than the following:

– Retiring benefits and pension paid out of the consolidated fund to Government employees ;

– Earnings in foreign currency on employment out of the country , if such earnings are remitted to Sri Lanka;

– Exemptions for diplomatic missions and diplomatic personnel ;

– Release of the provident fund balance at the time of retirement;

– Compensation for loss of office subject to conditions

 

All the other cash and non-cash benefits (treated as benefit from employment) are liable to tax, if exceed the tax free threshold.

(f) The employees who are employed under more than one employer will be liable to tax at the rate of 15%.

 

(g) Tax on partnership will also be adjusted accordingly.

 

(h) The present Withholding Tax deductible by Bank or Financial institutions on interest from deposits at the rate of 2.5% will be removed and such income will be considered as part of the total statutory income.

(i) The exemption of income from interest on money deposited in banks or financial institutions by senior citizens (over 60 years of age) will remain unchanged.

 

(j) Deduction of Withholding tax on interest income arising to individual out of Sri Lanka under section 95 of the Act, will be at 15% subject to the rate specified under any Double Taxation Avoidance agreement entered into with the Government of Sri Lanka.

[ Relevant provisions and the Rate Schedules will be amended]

 

(ii) Tax exemptions granted to certain organizations under section 7 or miscellaneous exemptions under section13 will be removed.

(a) Removal of Institutional exemptions:

– The exemption on the profits and income of the International Institutions will be restricted to any profits and income other than profit and income from sources generated by charging any fee or contribution from the public in any other manner;

– The present exemption applicable to local institutions will be removed other than any Government Department, Foreign Government, University, Co-operative Society, Central Bank including Monetary Board, charitable institution (subject to conditions) or Government assisted school;

[ Section 7 will be amended]

 

(b) Removal of Miscellaneous exemptions:

The following exemptions will be removed:

-the profits and income arising or accruing to any person from any undertaking for the construction of any Port in Sri Lanka.

– the profits and income arising or accruing to any person from the administration of any sports ground, stadium or sports complex.

– the profits and income arising or accruing to any company, partnership or body of persons in a country outside Sri

Lanka, from any payment made for the use of any computer software, by Sri Lankan Air Lines Ltd or Mihin Lanka (Pvt) Ltd, as a special requirement of such Airlines, if a Double Taxation Avoidance Agreement providing relief for double taxation of such profits and income is not in force between Sri Lanka and that country or tax is not payable in such country on such profits and income.

– the profits and income from any service rendered by any person or partnership in any port in Sri Lanka in the course of any business carried on within such port.

– the profits and income arising or accruing to any person from any undertaking for the operation of any port terminal in Sri Lanka;

[ Section 13 will be amended]

Other Proposals

Inland Revenue Department

Given the current status of the tax administration in the country, the tax administration reforms are required in modernization of systems and procedures to simplify the system in line with tax policy reforms. In this context, the first phase of the Revenue Administration Management Information System (RAMIS), to enable the automated services for filing of returns, payment of taxes, etc., will be effective from 1 January 2016.

Mandatory inclusion of the Taxpayer Identification Number (TIN) or the Business Registration Number (BRN) in all transactions in capturing all business transactions, leading to increased tax collection.

The recommendations of the Taxation Commission will be reviewed and simplification of procedures, application of lower tax rates targeting broader tax base will be at utmost importance.

Steps will be initiated to ensure the revenue collection at Divisional Secretariat level.

The income tax return will be simplified into a one-page document, which would be more tax-payer friendly and would lead to higher compliance.

Existing tax laws in the country are cumbersome, complex and based on traditional British concepts. The complexity of the tax laws has been identified as an impediment for the effective implementation of tax policy in Sri Lanka. It has led to various complications thereby hampering the effective implementation of the tax policy. Therefore, we need to redraft the tax laws to bring about necessary improvements to the legal framework to ensure clarity, consistency and simplicity towards reflecting the features of modern tax systems which will help taxpayers to understand the system easily and eliminate loopholes that have been created by the ambiguities in laws while strengthening tax administration

Steps will be taken to ensure the independency of the tax appeals commission and the appellate procedure, adhering to the principles of natural justice.

Value Added Tax (VAT)

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

 

(i)The present single rate will be revised to 3 bands.

0%, standard rate of 8% and higher rate of 12.5%.

– 0% for export of goods and provision of services for payment in foreign currency outside Sri Lanka

– Services sector – 12.5%

– Manufacturing or import of goods – 8% ( with the limitation of input tax )

 

(ii) The present exemptions on the Import or supply of telecom equipment or machinery, high-tech equipment including copper cables for telecom industry will be removed.

 

(iii) The wholesale and retail trade (other than by a manufacturer or importer) will be excluded from VAT

 

(iv) The present threshold will be revised to Rs 3 million per quarter or Rs 12 million per year.

Nation Building Tax

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

 

(i) The present rate of NBT will be revised to 4%.

(ii) The present exemptions on the following articles or services will be removed:

– Telecommunication service

– Supply of electricity

– Lubricants

 

(iii) The present threshold will be revised to Rs 3 million per quarter and the threshold of Rs 25 million per quarter will be removed except for any locally procured agricultural produce in the preparation for sale.

Share Transaction Levy

Share Transaction Levy (STL) [ Amendment to PART II of the Finance Act No 5 of 2005]

 

Share Transaction Levy will be removed with effect from January 1, 2016.

Betting and Gaming Levy

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

 

(i) The present entry fee of US$ 100 per person who enters Casino entertainment will be removed.

 

(ii) The present annual levy of Rs 200 million for carrying on the business of playing rudjino will be reduced to Rs. 5 million per year.

 

(iii) The present annual levy of Rs 200 million for carrying on the business of Casino will be increased to Rs. 400 million per year.

 

(iv) Directors and shareholders will be personally liable for non-payment or any act which is done to avoid payment of Casino Industry Levy (one off levy)

Economic Service Charge ( ESC)

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

 

(i) The present exclusion of profit making businesses will be removed.

 

(ii) The present maximum liability of Rs 120 million per year will be removed.

 

(iii) The rate is increased from 0.25% to 0.5%.

 

(iv) The period for carried forward of ESC to be set off against income tax payable for any period commencing from April 1, 2016, is reduced from 5 years to 3 years.

 

[ Relevant provisions of the ESC Act will amended]

Excise Duty

The liquor manufacturing License fee and duty rates will be revised.

 

Excise (Special Provisions) Duty:

The concessions and rates will be revised.

 

New Excise Duty    – Web Link  – http://www.customs.gov.lk/tariff/bud2016xid.pdf

 

Excise Duty Exemptions

Government Notifications

EXCISE (SPECIAL PROVISIONS) ACT, NO. 13 OF 1989 Order under Section 3C

BY virtue of the powers vested in me by Section 3C of the Excise (Special Provisions) Act, No. 13 of the 1989, as last amended by Act, No. 17 of 2011, I, Ravi Karunanayake, Minister of Finance, do by this Order declare that, the excisable articles specified in the Schedule hereto are exempt from the payment of Excise (Special Provisions) Duty with effect from 21.11.2015. Order made under Section 3C of the said Act and published in the Extraordinary Gazette Notification No. 1885/43 of 24.10.2014 is hereby rescinded. RAVI KARUNANAYAKE, Minister of Finance. Ministry of Finance, Colombo 01. 20th November, 2015. SCHEDULE

(1) A Motor Vehicle/Article imported under various agreements and MOU’s entered into by the Government of Sri Lanka with overseas organizations and foreign governments.

(2) Locally assembled/manufactured articles, classified under the H. S. Code 84 and 85, with not less than 30% domestic value addition recommended by the Minister-in charge of the subject of industries.

(3) Every article entitled to duty free clearance under Passenger Baggage (Exemption) Regulations made under Section 107 of the Customs Ordinance (Chapter 235).

(4) Every article cleared ex-bond for the use as ship stores or for re-export.

(5) Every article manufactured in Sri Lanka and supplied to any exporter in Sri Lanka where sufficient proof is furnished to the satisfaction of the Director General of Excise that such manufactured article was exported.

(6) Every excisable article, other than motor vehicles principally designed for transport of persons, used for any specified project identified by the Minister – in- charge of subject of Finance and where the taxes are born by the Government as mentioned in the Section f(ii) of the part II of the First Schedule of the Value Added Tax Act No. 14 of 2002.

THE EXCISE ORDINANCE

Excise Notification No. 978

EXCISE DUTY ON MOLASSES, PALMYRAH, COCONUT AND PROCESSED ARRACK

BY virtue of the powers vested in me by Sub-section (1) of Section 22 of the Excise Ordinance (Chapter 52), as amended from time to time, I, Ravi Karunanayake, Minister of Finance do by this Order direct that, with effect from 21st November 2015 – (1) There shall be levied on Molasses, Palmyrah, Coconut and Processed Arrack manufactured in and issued from any licensed manufactory established in Sri Lanka, a duty at the rate of Rupees One Thousand and Eight Hundred Fifty (Rs. 1,850.00) per proof litre on Molasses, Palmyrah, Coconut and Processed Arrackprovided that such duty shall not be levied or recovered on any quantity of the aforesaid liquor which is exported out of the Island; and (2) The Excise Notification, No. 975 published in Gazette Extraordinary, No. 1934/41 of 02.10.2015 is hereby rescinded. Ministry of Finance, Colombo 01. 20th November, 2015. RAVI KARUNANAYAKE, Minister of Finance.

 

Customs Duty

(i) The present 4 band tariff structure of exempt, 7.5%, 15% and 25% will be changed

as exempt, 15% and 30%.

 

(ii) Custom Duty will be revised on following items:

– Beedi leaves, Beedi, Garments, Foot-wear, Beer, Wine, Whisky, and Ethanol

– Agriculture machinery and equipment, dairy industry machinery and equipment and fishing nets

– Sports equipment and Musical instruments

– yachts , caravan carriages, surfing equipment and mini cruise boats identified under specified HS Code No

 

(iii) Certain items in the negative list ( tiles, ceramic and sanitary ware) will be removed

 

(iv) Sri Lanka will complete its commitments on Tariff Liberalization (Phase I) of the South Asian Free Trade Area effective from November 21, 2015.

 

(v) Sri Lanka will fulfill its December 2015 target of commitments on the Tariff Liberalization (Phase II) of the South Asian Free Trade Area effective from November 21, 2015.

 

[ Relevant Gazette will be issued specifying the rate change with effect from November 20, 2016]

 

Web Link

http://www.customs.gov.lk/tariff/bud2016cid.pdf

Ports and Airports Development Levy (PAL)

Ports and Airports Development Levy (PAL)  [Amendments to PAL Act No 18 of 2011]

 

PAL will be increased from 5% to 7.5%

 

To encourage spending by tourists rate will be reduced from 5% to 2.5% on certain electronic and electrical items

 

The present rate of 5% on certain machinery will be removed.

 

[ Relevant Gazette will be issued specifying the rate change]

Special Commodity Levy

In order to promote local industry SCL will be increased on import of fish and fish related products.

Rate will be revised on certain commodities

[ Relevant Gazette will be issued specifying the rate changes]

 

Web Link

http://www.customs.gov.lk/tariff/bud2016scl.pdf

Land Tax

Land (Restriction on Alienation) Act

 

Restriction on transfer will be removed for certain identified investments

 

Tax on leasing of lands will be removed

 

[the relevant provisions of the Land (Restriction on Alienation) Act No 38 of 2014 will be amended]

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Cess

Removal of Cess:

To encourage export of value added products ‘export Cess’ will be remove on pepper, cloves and nutmeg.

 

Impose of Cess:

To encourage local industry Cess at the rate of 10% will be imposed on import of jewellary.

 

Stamp Duty

Stamp Duty [Stamp Duty (Special Provisions) Act No 12 of 2007]

Present Stamp Duty of 1.5% (every Rs. 1000 or part thereof Rs 15/-) levied on Credit Card usage will be removed with regards to local usage of credit cards.

 

Usage of credit card for foreign purchases will be increased to 2.5% ( on every Rs 1000 or part thereof Rs25/-)

 

“Share Certificate” will be exempted from with effect from January 1, 2016.

 

[ Relevant rate change will be Gazetted and applicable on transactions entered into on or after January 1, 2016]

 

Mansion Tax

Mansion Tax [ PART VIII of the Finance Act No 10 of 2015]

The mansion tax applicable on condominium units will be removed; and

 

The first installment of the Mansion tax is payable on or before March 31, 2016.

 

[PART VIII of the Finance Act No 10 of 2015 will be amended ]