Income Tax

Inland Revenue Act no. 24 of 2017

Effective from 1st April 2018

Meaning of Income Tax

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

 

Imposition of Income Tax 

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

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

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

 

Taxpayer Registration and Taxpayer Identification Numbers (TIN)

Voluntary Registration

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

 

Compulsory Registration

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

 

Tax Payable by Instalment

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

 

An instalment payer shall pay instalments of income tax

  • Year ended 31st March

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

  • in any other case

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

 

Returns or Statement Furnish by Tax Payers

Statement of Estimated Tax Payable

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

 

Return of income

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

 

Capital Gains Tax Return

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

 

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

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

 

Appointment of Representative

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

 

Non-payment or under payment of Income Tax

  • Liability for an Interest

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

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

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

  • Late filing of Tax Return

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

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

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

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

 (iii) Late payment

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

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

  • Negligent or fraudulent underpayment

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

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

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

(i) higher than ten million rupees; or

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

  • Failure to maintain documents or provide facilities

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

  • Failure to comply with third party notice

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

  • Failure to comply with notice to give information

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

 

Criminal Liabilities

  • Tax evasion

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

  • Impeding tax administration

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

 

Income Tax Rates

Individual

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

First Rs. 600,000 – 4%

Next Rs. 600,000 – 8%

Next Rs. 600,000 – 12%

Next Rs. 600,000 – 16%

Next Rs. 600,000 – 20%

Balance – 24%

 

Company

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

Small and Medium Enterprises – 14%

Export of goods and services – 14%

Agriculture Business – 14%

Education Services  – 14%

Promotion of Tourism – 14%

Information Technology Services – 14%

Betting and Gaming, Liquor and Tobacco – 14%

Others – 28%

 

 

 

Value Added Tax (VAT)

VAT Registration Threshold

w.e.f. 01.04.2016, the registration threshold will be Rs. 3m. for one month or three months and Rs. 12 m. for 12 months, excluding exempt supplies, excluded supplies and isolated transactions.

Wholesale or Retail sale of Goods

 

Under the Amendment Act No. 11 of 2015, the registration threshold has been reduced to Rs. 100m. for any period of 03 months, considering all supplies of goods taxable as well as exempt.

 

For any period commencing from 1st November 2016 the registration threshold is Rs. 12.5 m. for a period of any 03 months.

 

VAT Rate

From 01.01.2016 to 01.05.2016 – 11% (under Act No. 11 of 2015)

From 02.05.2016 to 11.07.2016 – 15%

From 12.07.2016 up to 31.10.2016 – 11%

From 1st November 2016 – 15%

 

VAT Returns

Every registered person shall furnish a return for each taxable period in the specified form –

  • before the end of the following month of the taxable period if it is a taxable period commencing prior to 01.01.2017.
  • within 06 months immediately succeeding the end of the taxable period if it is a taxable period commencing on or after 01.01.2017

 

 

 

Nation Building Tax (NBT)

 

Who should Pay

Importers, Manufacturers, Service Providers, and Whole sale and retail Trade – with effect from 1st January, 2011.

Registration threshold.

For any quarter commencing on or after 01.04.2016 – Rs. 3 m.

Where the liable turnover for the quarter commencing on 01.04.2016 exceeds Rs. 3. m. and does not exceed Rs. 3.75 m., the tax shall be charged only on the liable turnover accrued on or after 02.05.2016 but prior to 11.07.2016 (and on or after the date on which new Act comes in to force)

Special registration threshold given to the following activities w.e.f. 01.01.2011 (Rs. 25 m. or less per quarter) will not be applicable on or after 01.04.2016 –

  • operating a hotel, guest house, restaurant or other similar business.
  • providing educational services by any institution established
  • supply of labour (manpower).

From 01.04.2016 any person carrying on any of the above activities cannot enjoy the increased registration threshold.

Where the liable turnover for the quarter commencing on 01.04.2016 exceeds Rs. 3 m. and  does not exceed Rs. 25 m. the tax shall be charged only on the liable turnover accrued on or after 02.05.2016 but prior to 11.07.2016.(and on or after the date on which new Act comes in to force )

Rs. 25 m registration threshold will be applicable even after 01.04.2016 to any person engaged in the processing of any locally procured agricultural produce in the preparation for sale.

NBT Rate

Rate of NBT is 2%.

 

Credit for NBT 

NBT credit is available only for manufacturers on the purchases made from any other manufacturer who registered for NBT.

Economic Service Charge (ESC)

An Economic Service Charge shall be charged, if aggregate turnover from Trade, Business, Profession or Vocation carried on or exercised in Sri Lanka whether directly or through an agent or more than one agent, exceed Rs. Fifty Million (50M) for that relevant quarter of every year of assessment.

In relation to any relevant quarter commencing on or after April 1, 2012, where such part of taxable income as consists of profits from any trade, business, professional or vocation assessed under Inland Revenue Act for the year of assessment which ended immediately prior to the commencement of the year of assessment to which such quarter belongs, is more than zero, the relevant turnover for such quarter shall be deemed to be zero. This exclusion is removed from the year of assessment 2016/2017.

Liability to ESC in Default
Where the ESC or part thereof has defaulted by a company, every director or other principal officer of such company shall be deemed to be a defaulter and recovery actions will be taken by The Department of Inland Revenue against the defaulter.

Due date for the Payment of E S C & Furnishing of ESC Return
E. S. C. shall be paid on quarterly basis and due date shall be on or before by the 20th of following month ending relevant quarter.
Return of Economic Service Charge shall be furnished annual basis and due date is 20th day of April for any year of assessment ending on March 31st of that year.

Economic Service Charge with effect from 1st April 2016

  • The present exclusion of profit making businesses shall be removed.
  • The present maximum liability of Rs.120 million per year shall be removed.
  • The rate is increased from 0.25% to 0.5%.
  • Petrol, diesel and kerosene retail trade shall be liable for ESC if the aggregate turnover for a Quarter is Rs.50 million. Tax shall be calculated on 1/10th of the liable turnover of such trade.
  • ESC shall be charged in advance by the Commissioner General of Inland Revenue from the importers of items subject to Special Commodity Levy (SCL), on the CIF value of such imports, before clearance of such items from the Sri Lanka Customs, disregarding the threshold for ESC liability. The advance payment of ESC could be set off against the actual liability of ESC for the same year of assessment and not entitle for any refund.

 

 

 

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

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

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

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

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

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

Motor Vehicle Importers License Fee

Motor Vehicle Importers License Fee shall be levied, for every year commencing on or after January 1, 2016, from every importer of motor vehicles, a fee to be called a Motor Vehicle Importers Licence Fee  of rupees one million five hundred thousand per annum:

any person who imports a motor vehicle for personnel use shall not be liable to pay the fee. The ownership of a motor vehicle imported for personal use, in respect of which the fee was not paid, shall not be transferred to a second owner, for a period of four years from the date of the registration of such motor vehicle in the name of the importer, unless such importer proves to the satisfaction of the Commissioner General of Motor Traffic that there is no commercial purpose involved.

Migrating Tax

With effect from November 1, 2015, from any citizen of Sri Lanka who permanently leaves Sri Lanka, Migrating Tax shall be charged at the rate of twenty per centum on the foreign exchange released to be taken out of the country by such citizen. The tax shall be collected by the Commissioner General.

Definition

“Citizen of Sri Lanka” has the same meaning assigned to such expression under the Citizenship Act (Chapter 349 ).

Construction Industry Guarantee Fund Levy

CIGFL is payable by any “Construction Contractor” or “Sub Contractor” on the “value of any construction contract” enforced in Sri Lanka (on or after January 1, 2005) at the specified appropriate rate.

However, no CIGFL shall be charged on any construction contract to be entered into and enforced in Sri Lanka by any construction contractor, on their contract value in respect of contracts for the implementation of specified projects approved by the Minister of Finance, entered into from and after January 1, 2011. (PART IV of the Finance (Amendment) Act No 15 of 2011)

Rates of CIGFL are as follows.

Value of Contract                                                                                  Rate

Less than Rs. 15 m                                                                               Nil

Not less than Rs. 15 m but less than Rs. 50 m                                0.25%

Not less than Rs. 50 m but less than Rs. 150 m                              0.5%

Rs. 150 m or more                                                                                 1%

Share Transaction Levy

With effect from April 1, 2005, a levy on buying or selling of shares through the Stock exchange has been charged at a rate was 0.2% of the price at the time buying and 0.2% at the time of selling.

However, rate of 0.2% has increased to 0.3% with effect from January 1, 2011.

Tourist Board Development Levy – TDL

Every institution licensed under the Tourist Development Act No. 14 of 1968 other than Travel Agents shall

pay Tourist Development Levy (TDL) at a rate of 1% on total turnover after deducting Value Added Tax and

Service Charges.

Definition of Turnover

Tourist Hotel

Turnover is calculated as the sum received or receivable from the total sales, excluding the service charge, up to 10% of such sales and the value added tax charged, on such sales in terms of the Value Added Tax Act, No.14 of 2002.

Travel Agent

Turnover is determined by the total receipts from services provided in relation to the tourist industry, excluding payments made by the Travel Agent, in respect, of services provided to him by other local service providers and the value added tax charged on such sales in terms of the Value Added Tax Act No. 14 of 2002.

Tourist Shop

The turnover would amount to the sums received or receivable from the total sales of products from any such shop, excluding the value added tax charged on such sales in terms of the Value Added Tax Act, No.14 of 2002.

Port and Air Port Development Levy (P.A.L.)

PAL shall be charged on C I F value of imports items other than specifically exempted articles.

With effect from 1st January 2016 rate of PAL increased from 5% to 7.5% . To encourage spending by tourists PAL rate reduced from 5% to 2.5% on certain electronic and electrical items. The rate of 5% on certain machinery removed.

Tax on Prize Competition – Western Province

With effect from 15th April 2008 tax on Prize Competitions, within Western Province, has been amended

and new tax rates are as follows:

Total value of the prizes                 Pro Rate Tax
Less than Rs. 100,000                       Exempt

Rs. 25 M or less                                  3%

More than Rs. 25 M                             5%

 

Business Turnover Tax

Business Turnover Tax abolished in Sri Lanka with effect from 1st January, 2011 and such Trading Businesses are liable for Nation Building Tax (NBT).

Rates Charged are as follows,
All businesses engaged in buying and selling of articles and commodities other than exempt items are liable to turnover tax on or before 31st December 2010.

Rates are as follows

(a) Sale of Gems, sawan timber and precious and semi precious stones, furniture 5%

(b) Sale of Jewellery 5%

(c) Sale of other articles 1%

Tax on Dividend & Remittance

10% tax shall be paid at the time of dividend is distributed by a Resident Company in Sri Lanka or profit is remitted to other Country by a non-resident Company.

Income from dividends on investment made by non- citizens or foreign companies in listed shares through inward remittance will be exempted from income tax with effect from 1st April 2016.