on business by the new act
With the vision
accompanied with the V2025 A Country Enriched, the government motive is t more
expansion in SME (Small & Medium Scale Business) & Agriculture sector.
In the Inland revenue act also they have
imposed lower tax rate for the SME’s & Agriculture as 14%. We see this as a
good motive since most of the business and GDP of Sri Lanka comes from SME’s. They
have included several other business also in this 14% layer such as Tourism,
IT, Education, & Exports. Development in Tourism and Export industries will help to increase foreign income which
will help to show positive impact on countries current account and development
in IT & Education will help for transforming Sri Lanka into the hub of the
Indian Ocean, with a knowledge-based, highly competitive, social-market
Most of other industries
such as banking & finance, leasing, Insurance, trading businesses will be
will be taxed at 28%, it will be decent rate to be taxed. Tobacco & Liquor
products will be taxed at highest rate of 40% which will help the government to
find more revenue since those products have high demand in Sri Lanka and they
are less sensitive to price level.
Business losses can be
settled against income from business or income from investment activities and
it can be carried forward until six years. The current restriction on utilization of losses up to 35% of annual income has been withdrawn by the
new act and this will have positive impact on businesses.
Some business are tied
with special rules with the new inland revenue act.
gains and profits liable to tax from the business of Life Assurance, whether
mutual or proprietary, is the aggregate of the following, subject to the deduction
of any unrelieved loss from business specified in the act:
a) The surplus distributed to shareholders from
the life insurance policyholders fund as certified by the Appointed Actuary,
b) The investment income of the shareholder fund
less any expenses incurred in the production of such income.
The surplus distributed to a life insurance
policy holder who shares the profits of a person engaged in life insurance
business shall be deemed as profits from business of that person and be liable
to tax accordingly.
Current restriction on utilisation of losses
from Life Assurance business against profits from other sources has been
Temporary concession has been granted via a
reduced rate of tax of 14% on the surplus distributed to life insurance
policyholders who shares profits, for three years of assessment from the
commencement of the proposed act.
(2) Information Technology
A company engaged predominantly in the business
of providing information technology services is eligible to claim a deduction
equal to 135% of the total amount paid to its employees (other than a
director), where such payments are to be included in computing the taxable
income of such employees, subject to the following conditions:
a) The company should have at least 50 employees
during the whole of the year,
b) Such employees are subject to tax under the
PAYE tax scheme
A company entitled for the above deduction shall
not be entitled to an enhanced depreciation allowance granted as temporary
concessions for first three years of enactment.
Furthermore, if the above deduction results in a
loss, such loss cannot be carried forward and deducted in any succeeding year
or loss from the business of banking should be computed separately from other
business activities. For this purpose, the term “banking business” means “the
banking business of a financial institution”.
The prevailing restriction on the claim of
doubtful debts (i.e. up to a maximum of 1% on aggregate debts outstanding at
the end of a year of assessment) has been withdrawn.
Furthermore, debts written off and doubtful
debts can be claimed as long as the person has taken reasonable steps in
pursuing payment and the person reasonably believes that such debt will not be
In the event a bank opts to claim doubtful debts
based on provisions made in line with regulations established by the Central
Bank of Sri Lanka, the amount deductible will be limited to the extent
specified by the Commissioner General of Inland Revenue.
(4) Finance Leasing
lease agreements to be considered loan granted by the lessor to the lessee.
Accordingly, the current method of calculating
the profits from the business of finance lease may change and the leasing
business would be subject to tax on profits derived from such operations being
the lease interest less expenses.
Current restriction on utilization of losses
from lease business against profits from other sources has been withdrawn. (Anon., n.d.)
Anon., n.d. Online
Available at: http://www.ft.lk/special-report/New-Inland-Revenue-Act–What-it-is-and-new-amendments/22-639300