Budget Highlights -2023

President Ranil Wickremesinghe presented 77th Budget of Sri Lanka to the Parliament on 14th November 2022 in his capacity as the Finance Minister.

Key Budget proposals are given below.

Tax Administration 

  • Electronic tax filing system to be introduced for non-corporate taxpayers too, including employees to improve efficiency and to increase compliance level
  • A tax audit and verification programme will be implemented.
  • Steps will be taken to review and address deficiencies in the RAMIS. Further, the IT based platforms of the three key revenue collection agencies will be linked  allowing them to share information to ensure tax compliance across agencies.
  • A mechanism will be developed to collect information from other relevant institutions and manage them in prudent manner.
  • A Tax Ombudsman will be appointed to address the concerns of taxpayers.
  • A charter, covering rights and obligations of taxpayers, will be introduced
  • A list of active VAT registered persons will be published in the Inland Revenue website.
  • A Dedicated Awareness Unit will be established at the IRD to make relevant public and taxpayer awareness with a more focused and consistent approach.
  • The measures will be taken to discourage cash transactions and encourage bank/card transactions, with specific limits to use to evade taxes.
  • The time period for the Commissioner General to notify the decision and the reasons for the decision in respect of a request made on or after April 01, 2023 by a taxpayer for an Administrative Review, will be within two years from the date of receipt of such request.
  • Where the decision of the CGIR is not notified within two years period the request will deem to have been allowed

Income Tax (IT)

  • Income earned by non-resident persons from engaging in Government projects approved by the Minister of Finance where such project is totally funded from foreign grants will be exempt from income tax. 
  • Provisions will be introduced to improve the clarity of income tax liability on dividend during the period from October'1.,2022 to the effective date of the Inland Revenue (Amendment) Act, 2022, as follows
    • exempt dividend received or derived by non-residents during that period
    • apply income tax rate of 15% for dividend received or derived by residents during that period
    • exemption will be applicable on any dividend paid by a resident company to a member to the extent that such dividend payment is attributable to, or derived from another dividend received by that resident company or another resident company.
  • Broadening the Tax Base
    • While encouraging the voluntary compliance, necessary legal provisions will be introduced to strengthen the tax enforcement mechanism, including enhanced audit and verification program, in order to ensure all potential taxpayers are registered within tax system and pay the due tax.

Value Added Tax (VAT)

  • The exemptions given in the First Schedule to the VAT Act will be rationalized with effective from April 2023.
  • A new Value Added Tax Act will be introduced consolidating the amendments introduced from the year 2002 to the year 2022.

Social Security Contribution Levy (SSCL) Exemptions

  • Import of motor vehicles which are liable to Excise Duty (effective from 1st January 2023)
  • Equipment used by differently abled persons and pharmaceutical products (HS code 2844.40)
  • Commercial hub enterprises will be exempted from the Social Security Contribution Levy.

Surcharge Tax

  • A Surcharge tax will be charged at the point of importation, on diesel, petrol and crude oil.

Tax Appeals Commission Act, No.23 of 2011

  • The fee levied to state a case on a question of law for the opinion of the Court of Appeal will be increased to Rs.10,000/-
  • The fee levied to make an appeal to the Commission will be increased to Rs.15,000/- by issuing a Gazette Notification under Section 8 of the TAC Act.
  • Provisions will be incorporated to make the bank guarantee provided by an appellant under Section 7 of the TAC Act, valid until the appeal is determined, irrespective of laps of 270 days provided under Section 10 of TAC Act
  • Provisions will be incorporated to make it mandatory to transfer the bank guarantee to the Commissioner General of Inland Revenue irrespective of the appellant's decision to appeal to the Court of Appeal.

Import Taxes

  • Unit rate (Fixed Rate) of the Customs Import Duty and CESS Levy will be adjusted absorb in line with the Rupee depreciation and for avoidance of under-invoicing and under-valuation at the point of Customs clearance. Accordingly, Customs Import Duty on a total of 378 selected HS Codes will be adjusted effective from November 15,2022.
  • The HS Code 2022 version will be implemented effective from January 1, 2023.
  • The existing three band tariff system of 0%,10% and 15% will be revised as a three-band tariff of 0%,15% and 20%.

Phasing-out of Para Tariffs

  • Cess Levy on manufacturing industry will be eliminated on phased basis in 3 years commencing 01. 01.2023
  • Ports and Airports Development Levy, will be phased out completely in five years

Betting And Gaming Levy Act

  • The definition of "bookmaker" in Betting and Gaming Levy Act will be extended to include a person receives or negotiates bets on all type of sports event, including online betting.
  • A licensing mechanism for the business of bookmaker will be introduced, for a fee. Betting and Gaming Levy Act will be amended to permit the licensed bookmakers to register with Inland Revenue Department.
  • Engaging in the business of bookmaker without been licensed and registered by any person will be prohibited by making it a punishable offence.

Casino Business (Regulation) Act

  • Amendments will be introduced to extend the definition of gaming/ casino to include the online gaming/casino.
  • The regulatory and licensing requirements will be applicable for online casinos operate in Sri Lanka. Any online casino operating without a license will be made illegal.

Finance Act

  • Provisions relating to the commercial hub operations in the Finance Act, No.12 of 2012 and the Finance Act No.12 of 2013 will be consolidated
  • Enterprises that are eligible for the exemptions under the commercial hub activities will be extended to bunkering services
  • Any business or project intends to engage in the commercial hub activities will be eligible for exemptions granted under the Strategic Development project Act, No.14 of 2008, if identified as Strategic Development Project.

Exemption of certain unregistered motor vehicles from the application of certain provisions of the Motor Traffic Act (Chapter 203)

  • Vehicles which were assembled in /imported in to Sri Lanka and remain unregistered as at November 12, 2021, from the application of Section 2,4' (1) (a) of the Motor Traffic Act, (Chapter 203) to allow such vehicles to be registered under the said Act, if such vehicle, in the opinion of the Commissioner General of Motor Traffic is road worthy.

Release of vehicles seized at the Sri Lanka Customs owing to non-Payment of applicable taxes and other reasons

  • Following vehicles seized at the Sri Lanka Customs owing to non-payment of applicable taxes and other reasons, will be released from the Sri Lanka Customs, subject to the payment of applicable taxes and fines.
    • Any vehicle imported in to Sri Lanka on or after May, 22,2020 but prior to November 12, 2021 and not removed from the Sri Lanka Customs due to restrictions and prohibitions set out in the Regulations made under the provisions of the Import and Export (Control) Act, No.1 of 1969, or
    • Any vehicle propelled electrically, imported prior to November 12, 202l and not removed from the Sri Lanka Customs due to non payment of applicable taxes.

Tax on Beedi sticks

  • In order to regularize the Beedi industry and deter people from Beedi consumption, propose to  impose a tax of Rs. 2 Per Beedi stick

Fees and Charges

  • Fees and charges which have not been revised for three years from 2020 to 2022 will be increased by 20%.

Effective date of Amendments
Unless specifically mentioned otherwise, amendments proposed will be effective from April 1, 2023

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