- Tax Reliefs for new investments in the Eastern Province -
The following tax relief will be available on investments in any undertaking of any nature, where
i. The investment is over Rs.50 MN, and
ii. Provides employment opportunities for not less than 50 persons.
(a) Profits and Income will be exempt for 05 years commencing from (i) The year of assessment in which the relevant new undertaking commences to make profits or (ii) The year of assessment in which the undertaking completing three years from the commencement of the commercial operations of that undertaking whichever occurs earlier
(b) In providing loans/financial facilities for these investments ,any interest paid to any bank or financial institution on these loans granted will be exempt in the hands of the relevant bank or the financial institution.
(c) Identified Plant and Machinery imported for the use of the new undertaking which will be established in the Eastern Province will be entitled for Customs Duty and Value Added Tax concessions.
- Non-resident Homeland Development Bonds
Any Sri Lankan residing abroad, who invests in Non-resident Motherland Development Bonds, will be exempt from-
(a) The Property Transfer Tax on the acquisition of any property, under the Finance Act No 11of 1963 as last amended by the amendment Act No. 08 of 2004.
(b) Income Tax payable on the interest accruing on Non-resident Motherland Development Bonds
- Local Shipping Industry
(a) Registration of a ship under Sri Lanka Flag will not be considered as an import for customs purposes and thereby will be exempt from Customs duties and similarly be exempt from Port and Airport Development Levy.
(b) When a person transports his own goods in a Ship owned by him, a sum not exceeding 15% of the value of such goods will be treated as freight charges for purposes of Customs duty.
- Gem and Jewellery Industry
(1). Income Tax:-
(a) Profits and Income from export after cutting and polishing of gems imported in raw forms will be exempted from income tax
(b) (i) 2.5% income tax will be charged on the value of gems sold at the gem auctions, conducted under the sponsorship of the State Gem Corporation. This will be the final tax for purposes of Income tax.
(ii) The State Gem Corporation will recover such tax and remit to the Commissioner General of Inland Revenue.
(2) . Economic Service Charge -
For the purpose of Economic Service Charge, in the instances where gems are imported on No Foreign Exchange (NFE) basis and then cut, polished and exported, the turnover and the applicable rate will be: i. Either on the total turnover (FOB) at the rate of 0.25%. or ii. The total Export Value (FOB) less the cost of import of the gems(CIF) at the rate of 1%. (without any threshold.)
The taxpayer will be entitled to decide the basis that should be adopted.
- Relocation of existing undertakings in Colombo and Gampaha Districts, in other districts, or commencement of a new undertaking:
(a) Any company which relocates outside Colombo and Gampaha Districts within two years commencing from 01.04.2008, subject to the conditions stipulated under section 21 of the Inland Revenue Act No. 10 of 2006, will have an option to select either to claim investment relief equivalent to the relocation expenditure or a tax exemption for 05 years of the profits of the undertaking relocated.
(b) The time period granted under Section 20 or 21 of the Inland Revenue Act No. 10 of 2006 to complete the investments for commencing new undertakings in an area outside Colombo and Gampaha Districts or to relocate an existing undertaking within the Colombo or Gampaha District in an area outside, will be extended till 31.03.2009 from the present deadline of 31.03.2008.
- Tax Holidays.
(a) Tax holidays that are already granted at present under the Inland Revenue Act No. 10 of 2006 or under Board of Investment Law No. 4 of 1978, will not be extended further after the expiry of each tax holiday granted.
(b) A tax holiday which commences after 1.4.2008, under the Board of Investment Law or under Sections 17, 18,19,22,23,24,24(a) or 24 (b) of the Inland Revenue Act will not be more than three years maximum.
The profits and income derived after the expiry of such tax holiday as per (b)above will be taxed on the succeeding years as follows. i. first Year, at 5% ii. second year, at 10% and, iii. third year, at 15%.
(c) The five year tax holiday under the Board of Investment Law or the Inland Revenue Act for Regional Development, will remain unchanged.
(d) The abovementioned limitations will not apply to tax holidays on special projects (flagship) which had been identified as of national importance.
(e) Before granting a tax holiday available under any of the Acts, approval from the Ministry of Finance has to be obtained.
- Income Tax
(a) Exemption of foreign earnings from Income Tax.
Profits and income earned by any person or partnership in Sri Lanka, being - i. Salaries, allowances or fees paid in respect of services rendered by such person or partnership to any person or partnership outside Sri Lanka; and ii. Dividends or interest on an investment made outside Sri Lanka will be exempt from Income Tax, if such profits and income are remitted to Sri Lanka through a bank.
(b) Deduction will be allowed without any limitation in respect of qualifying payment being investments in housing projects for the development of houses for inmates of shanties in urban areas.
(c) Withholding tax at 10% on the interest from investment in Treasury Bonds or Treasury Bills by Credit Guarantee funds of the Central Bank of Sri Lanka will be made a final Tax.
(d) Issue of company shares to employees as an employment benefit- The condition for exemption of employment benefits from the issue of shares to employees, that such issue should be based on a scheme uniformly applicable to all the employees will be varied, so that such exemption would be available, if the Commissioner General of Inland Revenue is satisfied that such scheme is a reasonable one.
(e) Withholding of Income Tax
Withholding tax provisions of the Inland Revenue Act No. 10 of 2006, under i. Chapter XVII, in respect of specified fees;
ii. Chapter XVIII, in respect of rent, lease rent or such other payments, and Chapter XX, in respect of Royalty, Annuity, and management fees, will not be applicable to any person or partnership paying Economic Services Charge. The issue of directions in relation to such persons will be made compulsory.
(f) Income Tax liability of a non citizen employed in Sri Lanka. Section 79 and 40 of the Inland Revenue Act will be amended to make the income tax calculation of non-citizen individuals employed in Sri Lanka to be same as that of citizen of Sri Lanka.
(g) Payment of tax by the employer on behalf of employees. If an employer has undertaken to pay income tax on the employment income of an employee, the deduction to the employer will be restricted to the amount of income tax actually payable by the employer in respect of such employment income.
(h) Losses from leasing business
Section 32 of the Inland Revenue Act will be amended to provide that any loss from the business of leasing could only be set- off against profits from such business.
(i) Donations to approved charities by Companies. Section 34 (4) of the Inland Revenue Act will be amended to revise the restriction of the deduction of qualifying payment made by a company to an approved charity, to an amount not exceeding 1/5th of assessable income or Rs. 500,000 which ever is low.
(j) Certain provisions in the Inland Revenue Act No. 10 of 2006, which have led to unintended interpretations, will be amended as follows:
i. Section 25 (a) will be amended to restrict the allowability of depreciation allowance in respect of ships, only to the owner of the ship and not in respect of ship chartered.
ii. Section 25 (k) will be amended to make clear the non deductibility of hire or rentals included in the traveling expenses.
iii. The definition of “employee” for the purposes of section 131 will be adopted for the purposes of section 131(s),(t) and (u) as well .
iv. Non inclusion in the assessable income of interest from any Rupee Denominated Treasury Bonds purchased out of funds drawn from any Treasury Bond Investment Eternal Rupee Account will be extended to cover profits and income from such bonds.
v. The last date for the distribution of distributable profits of the preceding year as well as the last date for payment of tax in respect of non-distribution of distributable profits to the required amount, will be made as 30th September of the current year.
vi. Dividend tax rate referred to in Section 53(3) will be revised to 10% .
vii. Conditions applicable to provident funds, pension funds and gratuity funds approved by the Commissioner General of Inland Revenue will be made applicable uniformly to such funds already approved.- Value Added Tax
- Part II of the First Schedule to the Value Added Tax Act will be amended to exempt certain identified Government projects from Value Added Tax. Further, section 22 of the Act will be amended to allow Input Tax to service suppliers of such projects.
- The following exemptions and other amendments, will be made to the Act.
With effect from 01.07.2007
- supply of all health care services by any medical institute which has entered into an agreement with the BOI under section 17 of the BOI Law, on or after April 1. 2001, where the total cost of the project to which such agreement relate to, is not less than 10 m USD.
- Locally manufactured clay roof tiles, locally produced unprocessed vegetables and fruits, unprocessed fishing products, import of rattans and supply of imported rattans.
With effect from 17. 07.2007,
- Locally manufactured chemical naptha.
- Import of aircraft engines or aircraft spare parts.
ii Deferment facility
- The present deferent period of 12 months, applicable on temporary import of plant and equipments used in long term development projects will be extended until the project is completed. Relevant amendments will be incorporate to section 2 and the 1st schedule of the Act.
iii With effect from 05/06/2007
- Third schedule will be amended to reduce the Value Added Tax rate from 15% to 5%, on the import of canned fish, dhal and green peas
- First Schedule to the Value Added Tax Act will be amended to exempt, with effect from 1.1.2008, milk products made out of milk manufactured in Sri Lanka, products made out of rice manufactured in Sri Lanka, locally manufactured sugar, import of yarn for textile industry and with effect from 1.1.2004 supply of locally produced prawns.
ii. Value Added Tax on Petrol will be reduced from 15% to 5% with effect from 01.01.2008
(f) In terms of section 22 ( 6) practical difficulties exist in claiming input tax under the existing 18 months period, to receive the invoice and to claim input credits. Hence amendments will be made enabling to claim input tax within 12 months from the date of the invoice.
(g) The name of the Value Added Tax (WHT) referred to in section 26(A) will be charged to VAT (Advanced Tax)
- Economic Service Charge
The Economic Service Charge Act No. 13 of 2006 will be amended effective from 01. 04. 2008 to provide for the followings:
(a) If the turnover of any business comprises of export or earnings in foreign exchange, the rate of Economic Service Charge should not exceed 2.5%.
(b) The Economic Service Charge rate of 0.5% charged on the turnover on sale of liqueur and motor vehicles will be increased to 01%
(c) The undermentioned amendments will be made to rectify the existing anomalies in the Economic Service Charge Act.
i. The rate of 0.5% applicable to partnerships will be removed and the rate of Economic Service Charge will be levied on the basis depending on the nature of Business of the Partnership.
ii. The concessionary rate of 0.1% applicable for apparel exports at present will be granted to businesses of exporting apparels through buying offices. The relevant amendment to item 11 of the schedule will be made.
iii. The facility available to set off the Economic Service Charge paid under Economic Service Charge Act against the Income Tax payable for 05 years will be extended to Economic Service Charge paid, prior to 01.04.2006, under the Finance Act No.11 of 2004, as well. The relevant provision will be incorporated in the Act.
- Stamp Duty
(a) Stamp Duty (Special Provisions) Act will be amended to provide for payment of Stamp Duty on an instrument executed for the lease or mortgage of any property by affixing stamps on the instrument or by the payment of due stamp duty to a designated bank and affixing the certified receipt of such payment to the instrument.
The Stamp Duty is payable at the time of execution of the instrument or before that. The Act will however, be amended to provide for payment of Stamp duty on such instrument within 7 days from the date of execution of the instrument, if the person liable to pay Stamp Duty is unable to pay such duty on the date of execution of the instrument for reasons beyond such persons control.
(b) The stamp duty payable on a receipt or a discharge at the rate of Rs. 1/- per Rs. 1000/- subject to a maximum of Rs. 50/- , will be amended as
i. for receipts up to Rs. 25,000/- to be exempted from such duty and ii. to charge Rs. 25/- for receipts exceeding Rs. 25,000/-,
(c) The Stamp Duty of Rs. 1000/- charged at present, on licences issued for the sale of liquor, for the period mentioned in the licence, will be increased to Rs. 10,000/-. The relevant amendment will be made to the gazette notification. The restriction to 10% of the licence fee, will not be applicable in the case of licences to sell liquor.
(d) Section 6 of the Stamp Duty (special provisions) Act will be amended to provide for payment of Stamp Duty on the instruments referred to in paragraphs (c) and (d) of Section 4 of such Stamp Duty Act, by the applicant for the warrant or licence.
- Social Responsibility Levy.
(a) Effective from 01.04.2008 the Social Responsibility Levy charged on Company's Income Tax will be remain and the Social Responsibility Levy charged on Personal Income Tax will be removed.
(b) Social Responsibility Levy will be increased from 1% to 1.5%.
(c) Amendments with regard to the Social Responsibility Levy chargeable on Income Tax will be effective from 01.04.2008 and the amendments with regard to Social Responsibility Levy chargeable on other taxes will be effective from 01.01.2008.
- Regional Infrastructure Development Levy
All existing Regional Infrastructure Development Levy rates will be increased by 2.5% and new rate will be effective from 1 January 2008.