Summary Of Income Tax Proposals Announced In The National Budget 2021

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”)

• Profit and income earned on or after 01st April 2021; and
• retained the same in Sri Lanka, for a minimum period of 03 years, by investing it in Sri Lanka to;
  – Expand its business;
  – Acquire shares or any securities from Colombo Stock Exchange (“CSE”); or
  – Acquire treasury bills, treasury bonds or Sri Lanka International sovereign bonds issued on behalf of the Government of Sri Lanka (“GoSL”).
• 
  

Effective from 01st April 2021

Remittance of such profits after 03 years from 01st April 2021

• • Gains and profits derived from the sale of produce of an undertaking for Agro Farming; and
  • Produce should not be subject to any process of production or manufacture.

• 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.

Income Tax on

• dividends or gains on the realization of units; or
• amounts derived as gains from the realizations of capital asset of a business or investment).

Not specified.

• Interest accruing from a deposit opened by utilizing foreign sources;
• Maintained the same in foreign currency in any domestic bank; and
• Maintained it to cover its import expenditure for that Y/A.

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

• Sri Lanka International Sovereign Bonds issued by or on behalf of the GoSL; and
• Such gain is received/ derived by a commercial bank or authorized dealer who has made an aggregate investment of not less than USD 100 Mn. in such bonds on or after 01st April 2021.

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
Excludes;

• any gains from the realization of capital assets and liabilities of the business as calculated under Chapter IV of the IRA)
• any undertaking formed by splitting up or re-construction of an existing undertaking.

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.

10 years*

Any business;

• by an individual;
• after he successfully completes vocational education from any institution which is standardized under the Technical and Vocational Education and Training (TVET) concept and regulated by the Tertiary and Vocational Education Commission.

05 years*

An undertaking;

• by a resident person;
• in manufacturing of boats or ships in Sri Lanka; and
• Gains/ profits derived from supplying such boats or ships.

07 years*

Any “renewable energy project”;

• established with a capacity to generate not less than 100 Mega Watts solar or wind power; and
• supplies such power to national grid.

07 years*

05 years*

Any undertaking;

• for letting bonded warehouses or warehouses related to the offshore business in Colombo or Hambanthota ports; and
• Investment on such warehouse has been made on or after 01st April 2021

Not specified

Such multinational companies achieve increase in exports, excluding Specified Undertaking (defined in the IRA) by;

• 30% in the Y/A 2021/2022 compared to the previous Y/A; or
• 50% in the Y/A 2022/2023 and maintains such status in the subsequent Y/A, compared to the Y/As 2020/2021.

For 02 Y/As immediately succeeding Y/A 2021/2022

(i.e., from Y/A 2022/2023 to Y/A 2023/2024)

Expenditure incurred by a financial institution by way of cost of acquisition/ merger of any other financial institution

w.e.f. 01st April 2021

• Cost is ascertained by considering all the facts on a case-by-case basis and as confirmed by the Central Bank of Sri Lanka.
• Claim is permitted over a period of 3 Y/As, commencing from the Y/A in which expense is incurred, in equal instalments (i.e., 1/3 of the cost per Y/A).
• Any unclaimed amount during said 03 years (due to total assessable income not exceeding the deduction) can be deducted during any Y/A immediately succeeding the said 03-year period.

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.

• A single return to be submitted for all capital gain transactions within a calendar month and payments due to be paid within 30 days, after the relevant calendar month.
• Presently, submission of CGT return and payment of CGT are due within 01 month after the date of realization.

• All companies to submit tax returns only by electronic means, w.e.f. 01st April 2021.
• At present, returns can be filed in writing or electronic means.

• Decision of the Commissioner General of Inland Revenue (“CGIR”) of the review on assessment or other decisions and the reasons for the decision to be served on the taxpayer within a period of 06 months, from the date of acknowledgement of the request for review.
• At present, there is no timeline.

An appeal to the Tax Appeals Commission by a taxpayer aggrieved by a decision on administrative review to be made, within;

• 30 days from the date of receipt of the decision of the CGIR; or Presently, no timeline.
• within next 30 days from the date after lapse of 07 months from the request for administrative review was made.
  The timeline at present is 90 days.

Punitive provisions will be introduced, against auditors, tax practitioners, tax advisors or approved accountants, other than full time employees of the tax payers, who;

• intentionally disregard or fail to take reasonable care in discharging the professional duty; or
• fraudulently prepare and certify those documents and information; or
• deliberately misinterpret any provisions of any Act administered by the CGIR, regulation, rule or order made thereunder.

• No assessment to be made;
• No penalty to be imposed; or
• No action to be initiated,

under the penal provisions of any Act administered by the CGIR, on or after 01st January 2021,

Eligible Persons
A person who;

• earned money from any source and has not declared or not paid the due taxes to the CGIR as per the relevant enactments; and
• utilizes such money hidden in Sri Lanka or outside Sri Lanka as investments on any undertaking in Sri Lanka during the year 2021; but
• subject to the payment of 1% of final tax to the CGIR on the gross investment amount.

Requirements

• Such persons are required to make a declaration to the CGIR in a prescribed form with their investment plan.
• 1% of tax to be paid immediately, as instructed by the CGIR.
• A Separate guideline is proposed to be issued.

If the arrears;

• • has arisen due to any assessment made up to the Y/A 2018/2019; and
  • is outstanding as at 24th June 2020, in the records of the CGIR.

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.