TAX GUIDE FOR 2023/2024

Overview

• Implementation and changes from 01.01.2024
• Individual Income Tax
• Partnership Income Tax
• Corporate Income Tax
• Capital Gain Tax
• Withholding Tax
• Social Security Contribution Levy
• Value Added Tax (VAT)

Implementation and changes
from 01.01.2024

• TIN Registration
• VAT rate is increased to 15% to 18%
• VAT Exemption removal

Individual Income Tax.

Sources of Income for Income Tax

• Employment
• Business
• Investment
• Other Sources

Other Sources

Income from employment of an individual should be accounted for income tax purpose on cash basis. Deductions are not allowed in ascertaining employment income When a Employee gets more than Rs. 100,000/- per month, then, the Employer should deduct APIT and send it to IRD.

Business Income

Business includes a trade & profession (Doctors, Lawyers etc.).

Main deductions (Business / Investment)

• Expenses relevant with the production of income shall be allowed:
• Purchases Cost
• Interest expense
• Repairs or Maintenance
• Research & Dev. Expenses and agricultural startup expenses.
• Capital expenses / Capital Allowance:
• Building 20 Years (5%)
• Intangible Assets 20 or actual life whichever is lower.
• Other Assets 5 year (20%)

Business or Investment Losses

The Business or Investment Losses are shall be deductible from business and investment income and also can carry forward to 06 years.

General deductions

• No deductions for Employment Income
• The followings shall not be allowed for computing person’s Income.
• Domestic expenses
• Tax payable under the Act
• Payments for breach of any govt law
• Expenditure of exempts income or Expenditure of income for which final WHT is paid.
• Retirement contributions
• Dividend of a Company
• Entertainment expenses
• Provisions (Bad Debts etc..
• Amount incurred for lotteries or gambling taxes or levied of IRD.
• A WHT deducted by a Person, should be paid to IRD, before claiming it.

INVESTMENT INCOME

Investment Income includes the income earned from the Assets or Properties.

• Rental income
• Interest income
• Royalty

Qualifying Payments & reliefs: Qualifying Payments

The qualifying payments referred to in section 52 shall be as follows:

• ∙donation made by an individual or entity in money to an approved charitable institution Subject to a maximum of – In the case of an individual,
  1/3rd of TI or 1/4th of the AI of the individual or Rs.75, 000 whichever is less;
• ∙donation made by an individual or entity in money
  or otherwise to the following:-
• The Government
• a local authority;
• any Higher Education Institution
• Buddhist and Pali University of Sri Lanka or any Higher Educational Institution
• a fund established by the Government;
• a fund established by a local authority and approved by the Minister;
• Sevana Fund
• a fund established by a Provincial Council and approved by the Minister;
• Api Wenuwen Api Fund
• National Kidney Fund
• Profits remitted to the President’s Fund

Reliefs and qualifying payments to Residents:

• A relief up to Rs 1,200,000/- to the resident (except trustee, receiver, executor or liquidator) or Non- resident with Sri Lankan Citizen.
• If individual, 25% of the total Rental Income(Allowance for Repair and maintenanace)

Calculation of Personal income Tax

• Individuals
  Tax Free Allowance – 1,200,000/-
  First Rs.500,000/- @ 6%
  Next Rs.500,000/- @ 12%
  Next Rs.500,000/- @ 18%
  Next Rs.500,000/- @ 24%
  Next Rs.500,000/- @ 30%
  Balance @ 36%
  
• Business income of Betting & Gamling, Manufacture & Sale or Import & sale of Liquor or tobacco – 40%
  
• Partnership
  ∙First Rs.1,000,000/- @ 0%
  ∙Balance @ 6%.
  ∙Partnership Tax can be set-off against to the
  taxable profit of the Partner. No refund is
  claimable, but it can carry forward to next y/a.
• Companies, Tax rates:
  ∙Business income of Betting & Gamling,
  Manufacture & Sale or Import & sale of Liquor or tobacco – 40%
  ∙For others 30%
  

Exemptions (As per Circular No. PN/IT/2020 -3, dated 04/04/2020)

• Interest accruing to or derived by any outside person to the Person in Sri lanka or Government w.e.f 01.04.2018
• Interest accruing to or derived from any foreign currency account in any commercial bank.
• A sum received by a corporation out of Consolidated Fund or any loan from Government.
• With effect from 01.04.2018, any income earned by :
  • Any non-resident person by way of interest, discount or realization of any gain on any sovereign bond issued by the Government.
• Dividend paid out of the Dividend received.
• Dividends from and gains on the realization of shares of a non-resident Company, where the shareholder has substantial participation.
• The gains and profits earned or derived by any person from:
  • Agro Farming (before processing / manufacturing w.e.f 01.04.2019 5Years)
  • Any service rendered in or outside of srilanka and the payment received in foriegn currency througha Bank in sri lanka.
  • Any foreign source (other than item iii), where such gains or profits earned in foreign currency and send to Sri Lanka via a Bank.
• Any amount derived by
  • Any non-resident peson from laboratory services or standards certification services.
  • Any religious institutions, registered with the authority, by way of grants or donations.

Capital gain tax (CGT)

• ∙CGT is charged on the gains arise from realization of investment assets.
• ∙Investment assets means capital asset held as part of an investment.
• ∙It excludes,
  • Principal place of residence (owned continuously for 3 years and lived in for 2 years)
  • Trading stock
  • Depreciable assets
  • Asset utilized was not in any manner connected to the business
  • Gain below Rs. 50,000 is exempt to resident individual
• ∙Calculation
  • Gain/Loss = Consideration received (Sec.38) Less- Cost of an asset/liability (Sec.37)
• ∙If any property has purchased before 2017/09/30, The Market Value on this date will be the cost of the property.
• ∙Tax rate –
  • 10% - Individual, Partnership, Trust, Unit Trusts, Charitable Institution)
  • (30% - Companies)

Withholding Tax (WHT)

• ∙WHT for Resident Person for the 1st period (exept the below) has removed w.e.f 01.01.2020.
• Winning of lottery, reward, betting or gambling – 14%
• Sale of Gem at Auction of National Gem & Jewellery Authority – 2.5%
• Payment with respect to land, sea, air transport or telecommunication service – 2%
• Dividend – 15% (Final WHT)
• Interest or discount – 5%
• Natural resource payment – 14%
• Rent – For Resident Person – 10%
  (For above 100,000/- per month)
  - Non- Resident – 14%
• Royalty, Charge, Premium or Retirement Payment – 14%
• Service Fee for individual – 5% (For the above 100,000/- per month)

Value Added Tax ​(VAT)

Registration Threshold

• Value of taxable supply of goods or services other than financial services by any person including whole sale and retail trade (with effect from 01.01.2024)​
  • exceeds Rs. 15 million per quarter, exceeds Rs. 60 million per annum
• Value of supply of financial services by a specified institution or other person
  • exceeds Rs. 3 million per quarter, exceeds Rs. 12 million per annum
• Voluntary Registration
  • irrespective of the registration threshold any person who carries on or carries out a taxable supply can make an application for voluntary registration

VAT Rates

• Zero Rate (0%)
  • Exports
  • On Exports of goods or services, supply of services by a hotel, guest house, restaurant or other similar businesses providing similar services, registered with the
    Sri Lanka Tourism Development Authority, with 60% of the total value of the inputs are sourced from local supplies/sources (from 01.12.2019 to 31.05.2022)
• Standard Rate
  • Prior to 01.06.2022 - 8%
  • From 01.06.2022 to 31.08.2022 - 12%
  • From 01.09.2022 to 31.12.2023 - 15%
  • From 01.01.2024 - 18%
  • On Supply of Financial Services
  • Prior to 01.01.2022 - 15%
  • From 01.01.2024 - 18%

Social Security Contribution Levy (SSCL)

SSCL is payable by every taxable person (individual or entity includes a body of persons corporate or unincorporated, an executor, non- governmental organization and charitable institution) who:

• Imports any article
  • Carries on the business of manufacture of any article
  • Carries on the business of providing a service of any description
  • 4. Carries on the business of wholesale or retail sale of any article including importation and sale of such article (other than a sale by the manufacturer of that article being a manufacture to whom item no. 2. applies).

Registration Threshold

• Exceeds Rs. 15 million per quarter, exceeds Rs. 60 million per annum commencing on or after 01.01.2024.