Tax Notes
Tax Notes
Contrary to popular belief, Lorem Ipsum is not simply random text. It has roots in a piece of classical Latin literature.

Tax Note

 

  • Income tax  rate changes for resident and non-resident individuals:
    • For the first six months of the year beginning 1 April 2022, from 1 April 2022 to 30 September 2022:
      • first LKR 1,500,000 - 6%
      • next LKR 1,500,000 - 12%
      • balance - 18%
    • For the first six months of the year beginning 1 April 2022, from 1 October 2022 to 31 March 2023:
      • first LKR 250,000 - 6%
      • next LKR 250,000 - 12%
      • next LKR 250,000 - 18%
      • next LKR 250,000 - 24%
      • next LKR 250,000 - 30%
      • balance - 36%
    • for the year beginning 1 April 2023:
      • first LKR 500,000 - 6%
      • next LKR 500,000 - 12%
      • next LKR 500,000 - 18%
      • next LKR 500,000 - 24%
      • next LKR 500,000 - 30%
      • balance - 36%
  • The maximum rate of 14% applicable on the following individual income is removed effective 1 October 2022:
    • consideration received in respect of gems and jewelry; and
    • amounts received on the supply of electricity to the national grid generated by using renewable energy resources by any individual;
  • Corporate income tax rate changes effective 1 October 2022:
    • standard tax rate increased from 24% to 30%;
    • concessionary tax rates of 14% and 18% no longer apply; and
    • the 40% tax rate continues for betting and gaming and for the manufacture and sale or import and sale of any liquor or tobacco products;
  • Tax rates for trusts (18%) and unit trusts or mutual funds and non-governmental organizations (24%) are increased to 30% from 1 October 2022;
  • Capital gains tax rate for companies is increased from 10% to 30% on the realization of investment assets from 1 October 2022;
  • Changes in the deductibility of expenses:
    • taxes that are not allowed in calculating assessable income is extended to cover any tax or levy which is not allowed in terms of any other written law effective 1 April 2021;
    • where a depreciable asset is written down in full and an improvement is made to the asset, the improvement value can be claimed over 12 years for class 4 assets (buildings, structures, and similar) and over 3 years for other depreciable assets effective 1 April 2022; and
    • capital allowance claims are limited to the cost of the depreciable asset effective 1 April 2022;
  • Loss claim changes effective from 1 April 2018:
    • business losses incurred under a lower tax rate are not considered as taxable at a lower rate, meaning that companies with unrelieved losses may claim such losses against profits subject to the higher amended rate;
    • the 6-year carry forward limit for claiming unrelieved business losses is extended to investment losses; and
    • capital gains from the realization of an investment asset cannot be reduced by any loss;
  • Advance income tax deductions will apply at the following rates from the date the amendment bill enters into force:
    • rent equal or exceeding LKR 100,000 per month paid to a resident person - 10% on total rent
    • interest or discount - 5%
    • dividends - 15%
    • all other payments - 14%
  • Withholding tax will apply as follows from the date the amendment bill enters into force:
    • service fee or insurance premium payments to a non-resident - 14% (final tax)
    • service fee payments exceeding LKR 100,000 per month to a resident individual (other than an employee) for teaching services, insurance commissions, professional services, etc. - 5%
  • New tax exemptions are provided for:
    • dividend payments attributable to, or derived from, another dividend received by a resident company or another resident company that is subject to advanced income tax effective 1 October 2022; and
    • gains from the realization of capital assets used in business or investment or a liability by an entity fully owned by the government of Sri Lanka, where such gain was made due to any decision by the government effective 1 April 2022;
  • Tax exemptions removed effective 1 October 2022:
    • dividends paid by a resident company to a non-resident person;
    • gains from the realization of land or buildings sold, exchanged, or transferred to a real estate investment trust (REIT); and
    • dividends and gains on the realization of units or amounts derived as gains from the realization of capital assets of a business or investment by a unit holder, from REITs;
  • Tax exemptions (holidays) removed effective 1 April 2023 for the following:
    • the provision of information technology and enabled services;
    • vocational education programs of any vocational education institution;
    • business involving the export of gold, gems, or jewelry or from the business of cutting and polishing of gems that are brought to Sri Lanka and exported after such cutting and polishing; and
    • the following new undertakings (not commenced by 31 March 2023);
      • an undertaking involved in the sale of recycled construction materials;
      • an undertaking commenced by an individual after successful completion of vocational education from any Vocational Education Institution;
      • an undertaking commenced by a resident person for the purpose of manufacturing boats or ships;
      • a renewable energy project established with a capacity to produce not less than 100 Mega Watts of solar or wind power;
      • an undertaking by any resident person that constructs and installs communication towers and related appliances; and
      • an undertaking for letting bonded warehouses or warehouses related to the offshore business in the Colombo and Hambantota ports.