The salient features of Inland Revenue Amendment Bill issued on 11th October 2022 are as follows.
The changes resulting from the Bill are subject to committee stage amendments and will take effect once it is signed into law.
Taxes and other levies specified by the Commissioner General is non-deductible. This prohibition has been extended to any tax or levy which is not allowed to be deducted in calculating a person’s income in terms of any other written law.
Where the tax written down value of the depreciable asset is zero, the deduction for improvements will be deducted in equal installments as follows;
The claiming of capital allowance has been limited to the cost of the depreciable asset.(w.e.f. 01st April 2022)
The Bill provides that, where there are no financial costs incurred during the year, the unused limitation for the above deduction can be computed by using the same amounts of the immediately preceding year.
Loss from business: Claim on account of a loss in relation to the business where the tax rate has been substantially increased, the losses incurred at lower rates will not be considered as being taxable at a reduced rate. This proposal would allow companies with unrelieved losses prior to proposed changes to claim such losses against profits under the amended tax rate. .
The law currently has a restriction on the time available for carrying forward unrelieved losses from business up to 6 years. This has been extended to investment losses, which will also only be deductible within six years of assessment commencing on the first date of the year of assessment immediately succeeding the year of assessment in which such losses were incurred.
No loss can be deducted from the gain on realization of an investment asset.
Additional deductions available for Marketing & communication expenses will be limited to 2 years commencing from 01st April 2021.
Personal Tax relief has been restricted to Rs.1,200,000 per annum w.e.f 01.10.2022 for resident and non-resident citizens. Accordingly, Individuals with gross monthly earnings exceeding above of Rs. 100,000 are subject to income tax.
Expenditure Relief available for resident individuals up to Rs.1.2Mn has been withdrawn with effect from 01.10.2022.
Individuals will be taxed at 6% to 36% on their income as follows.
| Taxable Income p.a. (Rs.) | Rate |
|---|---|
| First 500,000 | 6% |
| Next 500,000 | 12% |
| Next 500,000 | 18% |
| Next 500,000 | 24% |
| Next 500,000 | 30% |
| Next | 36% |
The individual's gains and profits from employment shall not include any retirement payment which are received at the time of retirement from employment. This applies as long as the employee has already paid tax on the retirement contributions for income tax purposes in a previous year of assessment and the respective retirement contributions have already been considered.
Consideration received in respect of gems and jewellery
Amounts received on the supply of electricity to national grid generated by using renewable energy resources by any individual
The concessionary tax rate of 14% and 18% applicable on identified gains and profits will not be applicable w.e.f. 1 October 2022.
Accordingly standard rate would be 30% and Liquor, Tobacco, Betting and Gaming at 40%.
Trust - 30%
Unit trust or Mutual funds - 30%
Non-Governmental Organizations - 30%
30% on gains from realization of investment assets
The reduction on tax payable for persons engaged in agro farming together with agro processing or manufacturing is to be restricted as "Tax payable reduced by 25% for the period of two years of assessment commencing on April 1, 2021"
An individual whose tax payable for the year of assessment is exclusively derived from employment income from which advance personal income tax has been deducted is not required to file a Personal Income Tax Return.
Every employer is mandated to deduct Advance Personal Income Tax ("APIT") from payments made to employees beginning on October 1, 2022 upon exceeding the limit.
Dividend, interest, discount, charge, natural resource payment, rent, royalty or premium which has a source in Sri Lanka will subject to Advance Income Tax (“AIT”)/ WHT at the following rates.
The AIT deducted on dividends paid by a resident company will be treated as a final withholding payment.
Any person making a payment for service fee or an insurance premium with a source in Sri Lanka to a non-resident person will be liable to withhold tax at 14% or the relevant DTA rate with effect from the commencement of the amendment act.
Service fee paid with a source in Sri Lanka to a resident individual who is not an employee of the payer and exceeds Rs. 100,000 per month will be subject to withholding tax at the rate of 5%.
Service fee will be for;
Any interest, charges, annuities, a royalty, technical service fee, or similar payment paid by the Government of Sri Lanka, including such payments made by any institution on behalf of the Government of Sri Lanka will be considered to have a source in Sri Lanka.
Time period to request for Administrative Review : 30 day period provided to make a request for an administrative review to CGIR has been reduced to 14 working days after the taxpayer is notified of the decision, w.e.f. 1 April 2023.
Time period to issue acknowledgement by the CGIR : 30 day period provided to CGIR for acknowledgment of receipt of an administrative review has been reduced to 14 working days, w.e.f. 1 April 2023.
The estimated gains derived or expected to be derived from the realization of an investment asset during the year of assessment shall not be considered for the purpose of ascertaining the quarterly income tax payment.
Where a person has expenses incurred in common or commonly used any assets on all business or investment activities, and such expense or deduction cannot be separately identified for the calculation of tax accounts, it is permitted to divide such expenses or deductions on a proportionate basis (according to the proportion of turnover or proportion of asset usage) .