Sri Lanka: Summary of the Tax System, May 1989
|Tax||Nature of Tax||Exemptions and Deductions||Tax Rates|
|1. Taxes on income and profits||Percent|
|1.1 Tax on companies, Inland Revenues Act No. 28 of 1979, as amended in 1980, 1981, 1982, 1983, 1984, 1985, 1986, 1987, 1988, and 1989.||1. For resident companies, tax is levied on net profits received from all sources, both local and foreign.|
2. For nonresidents companies, tax is levied on income and profits arising in or derived from business in Sri Lanka.
3. The year of assessment is from April 1 to March 31, and tax payment should be made on quarterly basis.
4. Resident companies are those that have registered or principal offices in Sri Lanka or that control and manage their business in Sri Lanka.
|(a) Five-year tax holidays are available for certain import-substitution industries. (Companies commencing business on or after November 17, 1983 and approved by the Minister).|
(b) Five-year tax holiday for nontraditional exports and certain services paid for in foreign currency (from 1984 to 1990).
(c) A “half tax holiday” is available for companies for a further period of five years, if the net foreign exchange earnings from exports exceed 50 percent of f.o.b. prices.
|1. Resident companies|
|(a) Quoted public companies||40|
|(b) Small companies1|
|Taxable income between|
|SL Rs 0-333,333|
|On the first 250,000||33 ½|
|On the balance (83,333 or part of it)||100|
|(c) Other companies||50|
|(d) Tax and dividends||20|
|2. Nonresident companies|
|(a) Income tax||50|
|(b) Remittance tax 2||11 1/9 or 33 ½|
|3. Cooperative clubs and trade associations||20|
|4. Public corporations||50|
|1.2 Tax on individual income, Inland Revenue Act No. 28 of 1979, as amended in 1980, 1981, 1982, 1983, 1984, 1985, 1986, 1987, 1988, and 1989.||1. The tax is payable by individuals who are in Sri Lanka for a period of more than six months on profits and income accruing from all sources, including trade, business, professional employment, real estate, dividends, net capital gains, interest, royalties, premiums, discounts, and annuities.|
2. Nonresident individuals are liable to tax on income arising in or derived from Sri Lanka.
3. The year of assessment is from April 1 to March 31, and tax payments should be made on quarterly basis.
|The following are exempted from income tax:|
(a) Official emoluments of public sector employees;
(b) Certain subsidies and grants;
(c) Dividends received from companies under the GCEC Law and from other companies in the tax holiday period;
(d) Net annual value of one house occupied by the owner;
(e) Interest paid by the National Savings Bank, up to SL Rs 2,000 or 12.5 percent of the interest income (whichever is higher) per person.
The following qualifying payments can be deducted from assessable income subject to a maximum limit of SL Rs 50,000 or 12.5 percent of the assessable income, whichever is less.
(a) The amount spent on the construction or the purchase of the first house.
(b) Purchase of ordinary shares (other than existing shares) in approved undertakings.
(c) Premiums paid for life and medical insurances, payments for the purchase of an annuity, and provident fund contributions.
(d) Medical expenses for inpatient treatment in hospitals and clinics.
Donations to the Government of Sri Lanka, to local authorities, and to approved charity organizations are deductible without any upper limit.
|1. Tax exemption limit is SL Rs 27,000.|
|Income Slab (SL Rs)||Marginal Tax Rate (percent)|
|2. Preferential treatment for terminal benefits paid to employees:|
|Income Slab (SL Rs)||Marginal Tax Rate (percent)|
|Balance in excess of 200,000||15|
|1.3 Withholding turnover tax on sales by importers and manufacturers. Turnover Tax Act No. 69 of 1981, as amended in 1989.||Importers and manufacturers of articles (other than excepted articles) are required to collect a 1 percent withholding tax on their sales.||Purchases liable to the tax on resales can claim credit for the amount due.||1 precent.|
|1.4 Withholding tax, Inland Revenue Act No. 28 of 1979, as amended in 1986 and 1989.||The tax applies to interest income from deposits held with banks and financial institutions and from Treasury bills.||An offset against other tax liability is available.||20 percent, or in the case of Treasury bills, 20 percent of interest or 2.5 percent of the face value, whichever is less.|
|1.5 Other withholding taxes on payments to nonresidents, Inland Revenue Act No. 28 of 1979, as amended in 1980.||The tax applies to payment of interest, rents, ground rents, royalties, and annuities to persons outside of Sri Lanka.||—||33 1/3 percent.|
|1.6 Capital gains tax, Inland Revenue Act No. 28 of 1979, as amended in 1980 and 1987.||It is levied on gains arising from changes in the ownership of property, the surrender or relinquishment of a right to redemption of shares, and on similar gains.|
Capital losses can be offset only against capital gains; unabsorbed losses can be carried forward to be set off against the total statutory income of a subsequent year that includes such gains.
|There is no liability for capital gains from the change in ownership of a motor vehicle in respect of which depreciation has not been granted; household effects; effects, articles of personal use other than jewelry or property passing from a trustee to a beneficiary or from an executor to an heir; and property donated to the Government. Capital gains as surrender or extinction of life insurance interest or life insurance policy, those arising from sale of movable property not exceeding SL Rs 2,000 in any year other than stocks, shares, debentures, and debenture stocks are exempt. Capital gains up to SL Rs 5,000 are exempt for individuals with total assessable income for three years that does not exceed the total of tax-free allowances for those three years.||Sold within two years of its acquisition||Tax Rates applicable for nominal income|
|More than 25 years||No tax|
|1.7 Surcharge on income tax, Inland Revenue Act No. 28 of 1979, as amended in 1989||The surcharge is imposed on every person liable to pay income tax. Applicable only for the period April 1, 1989 to March 31, 1991.||—||15 percent of the income tax payable.|
|2. Taxes on property|
|2.1 Wealth tax, Inland Revenue Act No. 25 of 1982.||The taxes are levied on persons resident in Sri Lanka on the values of property wherever situated, except immovable property outside Sri Lanka. Immovable property (situated in Sri Lanka) of nonresident companies is also liable to the tax. A person who is nonresident is liable to the wealth tax on the value of property in Sri Lanka. Liability is calculated on the basis of the market value of property. The tax is imposed on the net wealth of a person, arrived at by deducting debts from the gross wealth. The values of immovable properties are frozen as at March 31, 1977.||Exemptions include one house used as a residence, any house completed after October 1, 1966 with floor space not exceeding 500 square feet for the year of construction and for the next six years of assessment; furniture and household effects; heirlooms; instruments for scientific research; jewelry up to SL Rs 50,000; one motorcar kept for private use; provident fund balances of employees; surrender value of life insurance policy; tools, and instruments necessary for a profession up to SL Rs 50,000; works of art, books, manuscripts, and paintings not intended for sale; and pensions or other annuities. A deduction of SL Rs 500,000 is allowed in arriving at the taxable wealth.||Tax rate on taxable wealth (percentage)|
|For charitable institutions||0.5|
|For nonresident companies||2|
|For others: Taxable wealth on first|
|SL Rs 500,000||0.5|
|Next SL Rs 1,000,000||0.75|
|Next SLRs 1,500,000||1.0|
|This wealth tax and income tax payable by person is subject to a limit of 50 percent of assessable income.|
|2.2 Surcharge on wealth tax, Inland Revenue Act No. 28 of 1979, as amended in 1989.||Imposed on the wealth tax, it is applicable only from April 1, 1989 to March 31, 1991. Taxpayers are liable to pay not less than 50 percent of the amount payable on or before August 15 of the relevant year.||—|