The Companies are divided into two categories for taxation. Taxable income of less than Rs. 5 Million taxed at 20%. Taxable in come Rs. 5 million or above to be taxed at 30%. Existing Venture Capital Companies will be liable to income tax of 20%.
With effect from 1 st April 2002 the new enterprises engaged in the following areas will receive tax incentives.
Export, tourism, constructions and agriculture - 15%
However non-resident companies have to pay an additional tax of 1 /3rd of remittances abroad or 1 1 1/9 of taxable profits whichever is less. Dividends are not treated as remittances for this purpose.
Non citizens employed in BOI enterprises are eligible for a flat concessionary tax at 15% of Sri Lanka source income. That concession is restricted to his first five years of employment in Sri Lanka unless such enterprise is a flagship company.
The government of Sri Lanka has also entered into a number of agreements to avoid double taxation and the countries with which Sri Lanka has signed Double Tax Relief Agreements are Australia, Bangladesh, Belgium, Canada, Denmark, Finland, France, Germany, India, Italy, Japan, Korea, Malaysia, Netherlands Norway, Oman, Pakistan, Poland, Romania, Singapore, Sweden Switzerland, Thailand, the United Kingdom Mauritius and the United Arab Emirates. These Agreements provide for reduced tax rates on dividends, interest and royalties. In order to ensure that the benefits of Sri Lanka tax incentives do in fact accrue to the foreign investor, special tax sparing arrangements have been included in most of the recently concluded Agreements. Under these Agreements, credit will be given in the home country for the tax that is deemed to have been paid in Sri Lanka even though under the tax holiday provisions, the foreign investor is exempt from Sri Lankan tax.
7.1 PERSONAL INCOME TAX (2002/2003)
* Maximum Rate of Tax : 30%
Tax Free Allowance . - Rs.240,000.00 p.a.
| *Table of Income |
Tax Rate |
| 1 -240,000 |
0% |
| 240,001 - 420,000 |
10% |
| 420,001 -600,000 |
20% |
| on the balance |
30% |
The status of qualifying payments of tax year 2003/2004 will be as follows :
* Standard - Lower of 1/3 of Assessable Income (AI) or Rs.25,000
- An additional sum not exceeding Rs.25,000 for insurance premia paid (health and life)
- New construction or purchase of first house - lower of 1/3 of Al or Rs. 100,000.
- Investment per individual per annum not less than Rs.500,000 in new Venture Capital Companies upto 50%
of investment, limited to 1.3 of AI.
7.2 CORPORATE TAX (2002/2003)
Companies are divided into two categories for taxation.
Company with taxable income of less than 5 million taxed at 20%
Taxable income of 5millon or more will be tax at 30%.
Special Housing Banks are liable to pay income tax at 20%. New Venture Capital Companies set up on after 1St April 2003 tax rate will be Nil. Unit Trust and mutual funds in specific areas will be taxed at 10%. Other unit trust and mutual funds will be tax at 20%. Other companies will be tax at 30%. On dividends including foreign dividends will be tax at 10%.
50% of the tax savings generated by the rate deduction will be required to be placed by each company in a Human Recourses Fund.
The 5% tax credit to certain quoted pubic companies withdrawn from 1" April 2003. Effective from 1" April 2003 exemption on dividends will be withdrawn.
7.3 CAPITAL GAINS
Taxation of capital gains is abolished.
7.4 VALUE ADDED TAX
Value added tax is introduced from 1St August 2002. In place of GST and NSL which was abolished from 30th June 2002. Vat system will consist of lower rate of 10% and stranded rate of 20%.
0 rate suppliers will be same as in the GST law except for addition to the list of the following:
Any supply of services for the consumptions outside Sri Lanka for which payment has be credited to bank in Sri Lanka in foreign exchange.
7.5 WEALTH TAX
It has been completely abolished from the year of assessment 1992/93
.6 ESTATE DUTY
No estate duty is payable in respect of the estate of a person dying on or after 13 November 1985 (vide Estate Duty (Abolition) Act No.53 of 1985). However, administration of the estate is compulsory if the value of the estate is compulsory if the value of the estate is Rs.500,000.00 or more or he has left a last will.
7.7 TURNOVER TAX
Turnover tax is payable on business which is defined to include professions and services as well. With the devolution of powers to the Provincial Councils (under the 13th Amendment to the Constitution) the Provincial Councils in all the provinces except the North East Province have enacted Financial Statutes imposing a tax on turnover on sale by wholesale or retail of any article or commodity other than the sale by a manufacturer. There is no exemption limit under these statutes. All businesses engaged in the wholesale or retail sale of articles and commodities irrespective of their turnover are liable to turnover tax. The manufacturers and the others are liable to continue to pay the turnover tax to the Central Government.
7.8 RETIREMENT BENEFITS.
On the first Rs. 1,000,000 - Nill
On the next Rs. 500,000 - 5%
On the next Rs. 500,00 - 10%
On the balance - 15%
RETIRING GRATUITY
Excess of Rs.1,8 Million or average salary of last three years multiplied by number of years of service (which ever is more) Tax as normal income.
Any sum paid to any employee by the employer of such employee being a sum paid as compensation for loss of any office br employment consequent to voluntary reitament by such employee in accordance with a scheme which in the opinion of the Commissioner General is uniformly applicable to all employees employed by such employer or the retirement of such employee by such employer in accordance with a scheme approved by with Commissioner of Labour such payment shall be exempted from income tax.
7.9 WITHHOLDING TAX ON INTEREST
The tax free limit on interest received from deposits made in Banks and financial institutions increased from Rs. 72,000 to Rs. 108,000 effective from 1 January 2003. In the case of a charitable institution, not less than Rs.12,000 per month or Rs.144,000 per annum, and Tax rate will be 10% on the total amount of such interest.
7.10 DEBIT TAX
The Debit tax of 0.1 % will be applicable to all accounts with effect from 1 st January 2003. Withdrawals from any account upto a maximum of Rs.20,000 per month will be exempted from Debit tax. |
