The web notice dated 13th January 2021 was issued by the Department of Inland Revenue (“DIR”). A summary of income tax proposals made in the National Budget – 2021 as mentioned in the said notice is set out below:
Such proposals will be implemented after formal amendment to the Inland Revenue Act No.24 of 2017 (“IRA”).
|No.||Exemptions||Eligibility Criteria||Effective Date and/ or Exemption Period|
|1.|| Remittance Tax of 14% payable on remittance of retained and invested profit
by non - resident companies carrying on businesses in Sri Lanka through Permanent Establishments (“PE”)
Effective from 01st April 2021
Remittance of such profits after 03 years from 01st April 2021
|2.||Income Tax on gains and profits by a person from Agro Farming||
The term “Agro farming” is defined to mean the tillage of the soil and cultivation of land with plants of any description, rearing of fish or animal husbandry, including poultry farms, veterinary and artificial insemination services.
This exemption has already been administrated as informed by the Notice dated 08th April 2020 (PN/IT/2020-03(Revised), issued by DIR. But, the proposal provides for definition of the term, Agro Farming and time limit for exemption.
|05 Years of Assessment (Y/A) commencing on 01st April 2019|
|3.||Income Tax on gains by a person from the realization of land||Lands sold, exchanged or transferred to a Sri Lanka Real Estate Investment Trust (“SLREIT”) listed in CSE and licensed by the Security Exchange Commission.||w.e.f. 01st April 2021|
Income Tax on
||Any SLREIT unit holder||
|5.||Income Tax on interest income from deposits of multinational companies||
w.e.f. 01st April 2021
Income Tax on gains from the realization of Sri Lanka International Sovereign Bonds
by a commercial bank or authorized dealer
w.e.f.01st April 2021
Income Tax on gains and profits by a person from a new undertaking, commenced on or after 01st April 2021
An undertaking which sells construction materials recycled in a selected separate site established in Sri Lanka to recycle the materials, which were already used in the construction industry.
If recycled materials are used by the same person for construction services, this exemption can be claimed by deeming such materials as have been sold to the construction service business at market price.
|8.||Same as Item No. 7||
|9.||Same as Item No. 7||
|10.||Same as Item No. 7||
Any “renewable energy project”;
|11.||Same as Item No. 7||Any undertaking by any resident person who constructs and installs communication towers and related appliances using local labour and local raw materials in Sri Lanka or provides required technical services for such construction or installation.||
|12.||Same as Item No. 7||
* Tax exemption period is proposed to commence from;
- the Y/A in which the undertaking commences to make profits from transactions entered into in that Y/A; or
- from the commencement of the Y/A immediately succeeding the Y/A in which the undertaking completes a period of 02 years from the date on which the undertaking commences to carry on commercial operations,
whichever occurs earlier.
2. Changes in Tax Rates in Sri Lanka
|No.||Type of Income||Eligibility Criteria||Tax Rate||Applicable Period|
|1.||Income of a listed company, excluding gains from the realization of investment assets||Any company which lists its shares in the CSE, prior to 31st December 2021||Reduced by 50%||For the Y/A 2021/2022 (i.e., Y/A commencing on 01st April 2021)|
For 03 Y/As commencing on 01st April 2022
(i.e., from Y/A 2022/2023 to Y/A 2024/2025)
|2.||Gains and profits from dividend by multinational companies||
Such multinational companies achieve increase in exports, excluding Specified Undertaking (defined in the IRA) by;
||Reduced by 25%||For the Y/A 2021/2022|
|Reduced by 50%||
For 02 Y/As immediately succeeding Y/A 2021/2022
(i.e., from Y/A 2022/2023 to Y/A 2023/2024)
3. Other Changes
|1.||Capital Allowance for the Local liquid milk industry||To be granted within 02 years, for milking machines with latest technology used to manufacture local milk related products.|
|2.||Debt claims by banks and financial institutions||Instructions on specific provisions on debt claims by such institutions to be issued, in order to ensure better and transparent management.|
|3.||Research and Development expenses||Temporary concession on such expenses, which is 100% additional deduction for actual expenses incurrent in a relevant year, to be extended for another 02 years (i.e., Y/A 2021/2022 and Y/A 2022/2023).|
|4.||Expenditure incurred by a financial institution by way of cost of acquisition/ merger of any other financial institution
w.e.f. 01st April 2021
|5.||Capital Gains Tax (“CGT”) – IInvestment Assets||
Consideration received in relation to computation of CGT will be calculated on the amount received, receivable or the assessed value at the time of realization, whichever is higher.
“Assessed Value” - the value at the time of realization, certified by a professionally qualified valuer in a valuation report.
4. Tax Administrative Measures
|2.||Submission of Tax returns||
|3.||Tax Identification Number (“TIN”)||Mandatory use of TIN in all tax related documents.|
An appeal to the Tax Appeals Commission by a taxpayer aggrieved by a decision on administrative review to be made, within;
Punitive provisions will be introduced, against auditors, tax practitioners, tax advisors or approved accountants, other than full time employees of the tax payers, who;
A person who;
5. Tax Relief Measures for Post COVID - 19 Economic Recovery
Following relief measures are proposed in relation to Small and Medium Enterprises (“SME”)*;
|No.||Type of Relief||Eligibility Criteria|
|1.||Writing off of income tax arrears payable||
If the arrears;
Provided that the CGIR is satisfied that there is no fraud or willful neglect involved in the disclosure of income or any deduction or relief by such person in return of income submitted for the relevant Y/A.
|2.||Non issuance of amended/ additional income tax in Sri Lanka assessment for Y/A 2019/2020||
CGIR to be satisfied that there is no fraud or willful neglect involved in disclosure of income, any deduction or relief; and
SME has paid the tax declared in the return.
|3.||Grant of a grace period to settle taxes||Any tax in default/ arrears which is outstanding and payable as at 24th June 2020.|
*As per the IRA, “Small and Medium Enterprise” means a person who satisfies the following conditions:-
- The person who conducts business solely in Sri Lanka other than an individual who is engaged in providing professional services individually or in partnership being an individual who is professionally qualified;
- The person does not have an associate that is an entity; and
- The person’s annual gross turnover is less than LKR 500 Mn.