Recent Tax Changes Announced

Government co-media spokesperson Dr. Bandula Gunawardena stated that certain changes have been made to taxes during the first Cabinet meeting yesterday (27.11.2019). Changes are as follows:

• Reduce VAT from current 15% to 8% w.e.f 01 Dec 2019 – VAT on Financial Services will remain at 15%.
• 2% NBT will be removed w.e.f 01 Dec 2019 – including for Financial Services businesses.
• Telecommunications Levy will be reduced by 25% (current voice levy of 15.3% likely to be reduced to 11.25%).
• Income earned from the supply of services for the receipt of foreign currency shall be exempted from income tax, with effect from December 01, 2019.
• Construction Industry to be placed on 14% income tax instead of 28%.
• IT & enabling services to be made tax free from all taxes.
• Tax free threshold for turnover for VAT to be raised from Rs. 1Mn per month to Rs. 25Mn per month.
• Farm income from agriculture, fishing & livestock to be made income tax free.
• Debt Repayment Levy charged on banks & financial institutions to be removed.
• Tourism business will be treated as export provided that 60% turnover is sourced from local supplies.
• Withholding Tax on interest income to be removed for those with monthly interest income less than LKR 250,000.
• PAYE tax free threshold to be increased to LKR 250,000 from current LKR 100,000 per month for all public & private sector employees w.e.f 1 Jan 2020.
• Economic Service Charge (ESC) to be removed.
• The personal income tax would be exempt for LKR 250,000 per month from any earnings, exceeding which incremental LKR 250,000 would be taxed in order of 6%, 12%, & the balance at 18% compared to the previous provision which had a ceiling rate of 24%.

As per news reports, all the other proposals, except for VAT, NBT reduction and changes to PAYE tax threshold will be implemented with immediate effect.