The Press Release dated 31.05.2022 was issued by the Media Division of Prime Minister’s Office setting out several proposals revising the Income Tax regime. A summary of salient features of such proposals is set out below:
• Personal
| Current | Proposed | Effective Date | ||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1. Changes in Tax Rates | ||||||||||||||||||||||||||||
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01.10.2022 | ||||||||||||||||||||||||||
| 2. Changes in Personal Relief | ||||||||||||||||||||||||||||
| LKR 3 Mn | LKR 1.8 Mn | 01.10.2022 | ||||||||||||||||||||||||||
• Corporate
| Current | Proposed | Effective Date |
|---|---|---|
| 1. Changes in Tax Rates | ||
|
Standard rate – 24% Concessionary rate for certain industries – 14% |
Standard rate – 30% Concessionary rate for certain industries – 15% |
01.10.2022 |
| Manufacturing (at 18%), liquor, tobacco, betting and gaming (at 40%) remain unchanged. | ||
| 2. Removal of Exemptions and Concessions | ||
| Dividends paid by a resident company to non-resident persons are exempt. | Dividends paid by a resident company to non-resident persons are proposed to be liable. | 01.04.2023 |
| Holidays Currently in effect |
• Sale of construction material recycled in a selected separate site established in Sri Lanka to recycle the materials which were already used in the construction industry – 10 years; • Business commenced on or after 01.04.2021 by an individual after completion of vocational education under TVET – 5 years; • Manufacturing boats or ships in Sri Lanka by a resident and received or derived any gains and profits from the supply of such boats or ships- 7 years; • Construction and Installation of communication towers and related appliances as specified, or providing technical services for such construction, by a resident -5 year • letting bonded warehouses or warehouses related to the offshore business in Colombo and Hambanthota ports, if invested after 01.04.2021 |
Presumed to be with effect from 01.04.2023 as the removal does not apply to projects commenced prior to 31.03.2023 |
| An additional deduction for a year of assessment (Y/A), equal to 100% of the total amount of marketing and communication expenses deductible during 03 Y/As commencing from 01.04.2021, subject to meeting specified conditions. | Removal of additional deduction on Marketing and Communication expenses. | 01.04.2023 |
| 3. Revision of Definition | ||
| Multi-national company means a company that is part of a group of associated companies, with business establishments in two or more countries. | To be revised, for clarity. | 01.04.2023 |
• Withholding Tax
| Current | Proposed | Effective Date |
|---|---|---|
| On Employment Income | ||
| Deduction is on a consent basis for Sri Lankan Citizen Resident employees and mandatory for all other employees, if the earnings are above LKR 3 Mn per Y/A (i.e., LKR 250,000/= per month), under the Advance Personal Income Tax (APIT) Scheme. | Deduction is to be made compulsory for all employees, whose earnings exceed LKR 1.8 Mn per Y/A. | 01.10.2022 |
| On Investment Returns and Other Payments | ||
| Deduction of income tax from payments made to local residents is on consent basis, except for payment such as; amounts received as winnings from a lottery, reward, betting. | Deduction is to be made compulsory for all taxpayers. Tax deducted from interests to individual tax payers and dividends to be treated as final payments. |
01.10.2022 |
| Changes in Rates • Residents - Based on income tax rate declared in the consent provided. • Non-Residents – Interest or discount paid - 5% All other payments- 14% |
• Interest – 5% • Dividend – 14% • Rent – 10% on rent exceeding LKR 100,000 per month • All other payments – 14% (would be subject to rates provided in the Double Taxation Avoidance Treaties) |
01.10.2022 |
| On Service Fees | ||
| Same as above. | 5% on service payments exceeding LKR 100,000/- per month to individuals | 01.10.2022 |
| Relief – Interest Income | ||
| No such relief | A relief on interest income of LKR 1.5 Mn for senior citizens. | 01.10.2022 |