Summary of recent tax changes w.e.f 01.12.2019

Nation Building Tax (NBT)

NBT has been abolished with effect from December 01, 2019. Reference 

 

Value Added Tax (VAT) 

  • VAT rate has been reduced to 8% with effect from December 01, 2019 other than in respect of the following.
    • Supply of Financial Services continues at 15%.
    • VAT rate on supply of services by a hotel, guest house, restaurant or other similar business providing similar services, registered with Sri Lanka Tourism Development Authority, has been revised to Zero per centum (0%) with effect from December 01, 2019, if not less than 60% of the total value of the inputs are sourced from local supplies/ sources.
      [Inputs from local supplies/ sources means the total expenditure incurred for the purchase of locally produced agricultural, horticultural, fishing, animal husbandry or dairy products and any goods manufactured locally with minimum 10% local value addition, for the taxable period which ended prior to the commencement of the taxable period immediately preceding the taxable period for which the zero per centum (0%) VAT rate applies] Notice to Hotel, Guest House, Restaurant Business or Other Similar Businesses Registered with Sri Lanka Tourism Development Authority
    • Import of goods for specified H.S. Codes (Fabric) is Zero per centum (0%). [HS Codes are specified in the Extraordinary Gazette Notification 2095/20 dated November 1, 2018] Reference 
  • VAT registration threshold has been increased with effect from January 01, 2020, up to LKR 75 million per quarter or LKR 300 million per annum subject to formal amendments to the Value added Tax Act, No. 14 of 2002, to be passed in Parliament.
  • Accordingly, VAT Registration of persons of whose taxable supplies have never exceeded LKR 75 million for any taxable period ended prior to December 31, 2019, has been inactivated with effect from January 01, 2020 and a list of such inactivated VAT registered persons with the details of name of the person and VAT registration No. also has been  published. List of VAT Registration Deactivated Persons (w.e.f. 01.01.2020) 
  • Such inactivated persons are not permitted to collect VAT on the supplies made on or after January 01, 2020. Further, such persons are required to surrender their VAT Registration Certificate to the Commissioner, Customer Information Update Unit of the Inland Revenue head office or nearest regional office.
  • In line with inactivating VAT registration, SVAT registration of such persons will also be inactivated with effect from January 01, 2020.Notice to Registered Identified Purchasers (RIPs)-01.01.2020
  • As instructed by the Ministry of Finance on December 20, 2019, and approved by the Cabinet of Ministers, supply of residential accommodation by way of sale of Condominium housing unit by any person is exempt from VAT with effect from December 01, 2019.Exemption of Value Added Tax (VAT) on supply of Residential Accommodation

 

Economic Service Charge (ESC)

ESC has been abolished with effect from January 01, 2020.Removal of Economic Service Charge (ESC)-31.12.2019

 

Debt Repayment Levy (DRL)

DRL has been abolished with effect from January 01, 2020  Removal of Debt Repayment Levy (DRL)

 

Withholding Tax (WHT)

  • Aggregate of interest income from all deposits of a senior citizen (resident in Sri Lanka who is sixty years or above at any time during the year of assessment) up to the tax relief available under paragraph 2(d) of the FIFTH SCHEDULE to the Inland Revenue Act,until March 31,2020 (subject to the declaration made under 2018 Circular by such senior citizen whose aggregate interest income is not more than Rs.1,500,000 per annum) 
  • In the case of a senior citizen,tax relief available under Paragraph 2 (d) of the FIRST SCHEDULE to the Inland Revenue Act will be continued until March 31,2020.If the interest income exceeds such relief ,on the excess over the relief amount ,be withheld at the rate of five per centum (5%)
  • Aggregate Interest income or discount from all the accounts including Islamic financial transaction in a bank or a financial institution ,to an account holder  (Other than a senior citizen) up to Rs.250,000 in a month for the period from January 01,2020 to March 31,2020  is exempt from WHT. WHT will apply at 5% on the amount in excess of LKR 250,000.
  • If any Bank or Financial Institution has deducted withholding tax (WHT) from the account of any senior citizen in the case where the aggregated interest payment has not exceeded Rs.1,500,000 for the whole year of assessment (from 01.04.2019 -31.03.2020) ,such deducted amount should be refunded to senior citizens.
  • If Bank or Financial Institution has not deducted withholding tax (WHT) or deducted WHT partly from the account of any senior citizen, in the case where the aggregated interest payment exceeded Rs.1, 500,000 for the whole year of assessment (from 01.04.2019 -31.03.2020) ,following details of such senior citizens should be submitted to the Commissioner (Information and Forced registration ) of this Department.
  • WHT on service fees payable to any resident Individuals which was levied at 5% on amounts exceeding LKR 50,000 has been removed with effect from January 01, 2020. Notice to the Withholding Tax (WHT) Agents-01.01.2020
  • WHT on dividend, charge, natural resource payment, rent, royalty, premium or retirement payment made to residents will be removed and such income will form a part of assessable income,w.e.f April 1,2020 .
  • WHT on partner’s share will be removed and the taxable income of the partnership excluding Rs.1 million per annum will be subjected to Partnership tax at the rate of 6% ,w.e.f April 1,2020 Approval for Income tax amendments -English version - (Ministry of Finance - Sri Lanka)

 

Income Tax and Withholding Tax (WHT)

Income Tax (IT) 

Exemptions

  • Profits/Income earned by ant person from farming including  Agriculture, Fisheries and Livestock is exempt from income tax w.e.f April 1,2019
  • Profits and income earned from providing Information Technology and enabling services is exempt from income tax,w.e.f January 1,2020.The enabling services will be prescribed by regulations by the Minister in charge of Finance.
  • Profits and income earned from services rendered to persons outside Sri Lanka, if the payments for such services are received in foreign currency, through a bank is exempt from income tax, w.e.f January 1, 2020.
  • Interest income earned on NRFC and RFC accounts will be exempted from income tax w.e.f April 1 ,2020.
  • Interest paid on loans obtained from any person outside Sri Lanka is exempt from income tax, w.e.f April 1,2018
  • Any income earned by any non-resident person on any Sovereign Bond denominated in foreign or local currency, is exempt from income tax, w.e.f April 1, 2018.
  • Interest or discount paid or allowed to any person on Sovereign Bonds denominated in foreign currency, is exempt from income tax, w.e.f April 1,2018.
  • Funds received by any Public Corporation out of the funds voted by Parliament from the Consolidated Fund or out of any loan arranged through the Government, w.e.f April 1,2018.
  • Dividend paid by a resident company to any non-resident person will be exempted from income tax w.e.f April 1,2020.
  • Amounts derived by any non- resident person from laboratory services or standards certification services will be exempted from income tax, w.e.f April 1 ,2020.

Income tax qualifying payments

  • Payments made to Consolidated Fund by any Public Corporation is deductible in calculating income tax on such Corporation, w.e.f April 1,2019.
  • Following payments subject to maximum Rs.100,000/- per month or Rs.1.2 Million per month will be deductible ,w.e.f April 1 ,2020 in calculating the Personal Income Tax
    • Health expenditure including contributions to Medical Insurance
    • Educational expenditure incurred locally
    • Payment of interest on housing loans
    • Contribution to an approved pension scheme.
    • Expenditure incurred for the purchase of equity or security.

Income Tax Rate Changes

  • The 40% income tax rate is limited to the manufacture and sale or import and sale of any liquor or tobacco product, w,e,f April 1,2019.
  • The progressive rate applicable on Personal Income is revised to 6%,12% and 18% and the tax free limit and the tax slab is revised to Rs.3 Million per annum w.e.f January 1,2020.
  • Corporate Income Tax Rate will be revised w.e.f January 1,2020 as follows
    • Exports,Tourism,Education,Medicare ,Construction and Agro processing -14%
    • Manufacturing -18%
    • Liquor, Tobacco ,Betting and Gambling – 28%
    • Trading, Banking ,Finance ,Insurance ,etc -24%

Refer full details here

PAYE on Employment Income 

Relief on Employment Income

  • In arriving at taxable income from employment income for the period from January 01, 2020 to March 31, 2020 (hereinafter referred to as “the period”), personal relief of LKR 750,000 is available for a resident individual and a non-resident individual who is a citizen in Sri Lanka.
  • Accordingly, any resident individual and non – resident individual who is a citizen in Sri Lanka, who receives in excess of LKR 750,000 or likely to receive in excess of LKR 750,000 for the period is liable to pay PAYE on the employment income.
  • PAYE tax will be removed and the employment income will form part of the assessable income .w.e.f April 1,2020
  • Income tax rate applicable on the terminal benefits is revised w.e.f January 1,2020 as follows
    • First Rs.10 Million-Exempt
    • Next Rs.10 Million – 6%
    • Balance -12%

Refer full details here

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