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.