Highlights of budget 2018 and tax updates

AIYAR&CO.
TAXUPDATES
AND
HIGHLIGHTSOFBUDGET2018
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This publication is distributed by Aiyar & Company to its clients and other interested parties as a means of disseminating recent tax
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IYAR
Budget Proposals – 2018
Dear Client,
We take pleasure in forwarding you the recent tax updates and highlights of the Budget
Proposals – 2018, presented in the Parliament on November 09, 2017 by Hon. Minister of
Finance, Mangala Samaraweera.
You would also find enclosed a supplementary as ‘Tax Data 2018/2019’ which provides
many useful information relating to the existing key tax laws and key economic indicators
in last 7 years, based on the central bank report.
Should there be any clarification required in relation to this publication, our tax
professionals would be pleased to assist you. Please refer the contact details at the end of
this publication.
Yours faithfully,
CHARTERED ACCOUNTANTS
“Havelock Central”
No.104-4/1, Havelock Road,
Colombo 05,
Sri Lanka.
P.O.Box : 1029
Telephone : + 94-11-2505516 - 17
Tele Fax : + 94-11-2505518
E-mail : aiyar@aiyarca.lk
Web : www.aiyarca.lk
A

AIYAR & CO. | Tax Updates3
Table of Contents
PART I
1 SALIENT FEATURES OF THE BUDGET 2017..........................................................................9
2 EXCISE (SPECIAL PROVISIONS) DUTY................................................................................12
3 EXCISE DUTY UNDER EXCISE ORDINANCE ......................................................................14
4 FINANCE ACT............................................................................................................................15
4.1 Cellular Tower Levy...............................................................................................................15
4.2 SMS Advertising Levy............................................................................................................15
4.3 Carbon Tax ............................................................................................................................15
4.4 Debt Repayment Levy...........................................................................................................15
4.5 Luxury Tax on Motor Vehicles...............................................................................................15
5 VALUE ADDED TAX (VAT) [AMENDMENTS TO VAT ACT NO 14 OF 2002]..................16
5.1 Removal of Exemptions ........................................................................................................16
5.2 New Exemption.....................................................................................................................16
6 NATION BUILDING TAX (NBT) [AMENDMENTS TO NBT ACT NO.9 OF 2009].............17
6.1 Exemptions............................................................................................................................17
7 ECONOMIC SERVICE CHARGE (ESC) [AMENDMENTS TO ESC ACT NO 13 OF 2006].17
8 CUSTOMS IMPORT DUTY .......................................................................................................17
9 CESS DUTY.................................................................................................................................18
10 PORTS AND AIRPORTS DEVELOPMENT LEVY..................................................................18
11 GOVERNMENT AGENCY FEES ..............................................................................................18
12 OTHER PROPOSALS .................................................................................................................18
13 KEY STATUTES THAT WILL BE ENACTED, AMENDED, OR REPEALED. .....................19
13.1 New Acts to be Enacted........................................................................................................19
13.2 Acts to be Repealed ..............................................................................................................19
13.3 Acts to be Amended..............................................................................................................20
14 Supporting the SME companies ...................................................................................................20
15 SUPPORTING THE STARTUPS AND THE INNOVATION CULTURE................................23
15.1 The “Erambuma” Credit Scheme..........................................................................................23
15.2 The “IT Initiative” ..................................................................................................................24
15.3 The “I2I Initiative”.................................................................................................................24
15.4 Export Access Programme ....................................................................................................25
15.5 Supporting Tourism...............................................................................................................25
15.6 Employment Preparation Fund.............................................................................................25
16 SUPPORTING THE USE OF SOLAR POWER .........................................................................26

17 SUPPORTING THE CONVERSION FROM NON-BIO DEGRADABLE POLYTHENE TO
ENVIRONMENTALLY FRIENDLY ALTERNATIVES...................................................................26
18 THE “PAVITHRA GANGA” INITIATIVE ................................................................................26
PART II
19 EMPLOYMENT INCOME..........................................................................................................29
19.1 Taxable Employment Income ...............................................................................................29
19.2 Income Excluded from Employment.....................................................................................29
19.3 Tax Free Threshold................................................................................................................30
19.4 Employment Income of Non- Citizens and Residence Persons ............................................30
19.5 Rate of Tax ............................................................................................................................30
19.6 Exempt Income .....................................................................................................................30
20 BUSINESS INCOME...................................................................................................................31
20.1 Taxable Business Income ......................................................................................................31
20.2 Allowable Deduction.............................................................................................................31
20.3 Specific Deductions...............................................................................................................31
20.4 Disallowed Expenditure ........................................................................................................33
20.5 Expenditure subject to WHT.................................................................................................34
20.6 Business or Investment Losses..............................................................................................34
20.7 Tax Exemption and Incentives ..............................................................................................35
20.8 Qualifying Payments .............................................................................................................36
21 INVESTMENT INCOME............................................................................................................37
21.1 Dividend Income ...................................................................................................................37
21.2 Interest Income.....................................................................................................................38
21.3 Capital Gain...........................................................................................................................39
22 TAX RATES ................................................................................................................................40
23 WITHHOLDING TAX.................................................................................................................43
24 ADMINISTRATIVE PROVISION..............................................................................................45
24.1 Registration...........................................................................................................................45
24.2 Year of Assessment...............................................................................................................45
24.3 Payment of Tax .....................................................................................................................45
24.4 Filing of Tax Return ...............................................................................................................46
24.5 Tax Assessment.....................................................................................................................46
24.6 Time bar Provision ................................................................................................................47
24.7 Penalties................................................................................................................................47
24.8 Interest on Late Payment......................................................................................................48

25 TRANSFER PRICING.................................................................................................................49
25.1 Introduction ..........................................................................................................................49
25.2 Transfer Pricing Penalties......................................................................................................50
26 VALUE ADDED TAX.................................................................................................................51
26.1 Threshold for VAT Registration.............................................................................................51
26.2 Deemed Input VAT................................................................................................................51
26.3 VAT Rate................................................................................................................................51
26.4 VAT on Local sale of Garments and Fabrics..........................................................................52
26.5 VAT on Operating Leases ......................................................................................................52
26.6 Removal of Exemption..........................................................................................................52
26.7 New VAT Exemption .............................................................................................................53
26.8 Taxable Period.......................................................................................................................53
26.9 Filling of Returns and Payments ...........................................................................................53
26.10Payment Period Codes.........................................................................................................54
27 NATION BUILDING TAX..........................................................................................................55
27.1 Liable Articles........................................................................................................................55
27.2 Excepted Articles...................................................................................................................55
27.3 Liable Services.......................................................................................................................55
27.4 Excepted Services..................................................................................................................55
27.5 Threshold for NBT Registration.............................................................................................56
27.6 NBT Rates..............................................................................................................................57
27.8 Payment period cords...........................................................................................................57
28 ECONOMIC SERVICE CHARGE..............................................................................................58
28.1 ESC Rate ................................................................................................................................58
28.2 Liable Person.........................................................................................................................58
28.3 Maximum Liability.................................................................................................................58
28.4 Carried Forward ESC Credit...................................................................................................58
28.5 Liable Threshold....................................................................................................................58
28.6 Advance ESC..........................................................................................................................58
28.8 Date of Payment ...................................................................................................................59

PART I
Highlights of the Budget
Proposals – 2018

1 SALIENT FEATURES OF THE BUDGET 2017
a) Fast Tracking Liberalization
Old laws will be revisited and made amendments where necessary and new laws will
be introduced to enable vibrant and dynamic market economy.
b) Blue - Green Economy
Green economic programme to be initiated to generate growth by utilizing under-
utilized ocean resources, thereby, facilitating the diversification of the economy,
adopting new and sustainable technologies especially in agriculture, fisheries and
manufacturing sectors.
• All vehicles in the country to be powered by non-fossil fuel sources by 2040.
• All Government vehicles to be converted to hybrid or electric vehicles by 2025.
• Incentive structure on the importation of electric vehicles including electric three
wheelers, cars and buses to be provided.
• The loan to value ratio to be revised to 90/10 for the electric busses and three
wheelers and will be extended for domestically assembled electric three wheelers,
cars and busses, as well.
• Introducing 50 electric busses into the SLTB bus fleet.
• Incentives to encourage the use of off-grid solar power in establishing electric car
charging stations and in agriculture and agro processing including drip irrigation,
poultry, canning, plantation and, in the hotel industry.
• Duties to be removed for all machinery, equipment, raw materials and intermediary
goods used in manufacturing of bio degradable packaging material.
• Establish the Eco-Friendly Parks with a jogging track in every Pradeshiya Saba
Division, and in keeping with the ancient Athenian concept of a balanced mind,
body and spirit, this will include a library, gymnasium and a roof garden for yoga,
meditation or other spiritual activities.
c) Encouraging Sustainable Agri and Fishery Ventures
• Strengthen the eco-certification programme to facilitate access to export markets.
• To provide insurance cover of Rs. 40,000 per acre for 6 crops including paddy and
other 5 emerging crops such as Maize, Soya, Big Onion, Potato, and Chilli.
• To exempt NBT on the import of selected equipment including greenhouse
technology that enables advanced technology agriculture practices.
• Backward integrated activities related to agriculture will be taxed at the
concessional Income Tax rate of 14%.
• To support the fisheries industry by contributing for introducing technology and
buying equipment, developing and anchorages and landing sites of fishery harbors,
establishing Milk Fish Hatchery and a Marine Ornamental Fish Hatchery and
improve fishery villages in coastal areas.
d) Creating the Next Generation Of Local Entrepreneurs
• To facilitate the establishment of a Development Bank with an EXIM window, to
provide access to finance.
• To introduce 8 credit schemes on low interest rates to support the SMEs and Micro
level entrepreneurs.

• Initiating Government’s angel fund for the IT industry operated through the EDB
to local startups and to attract foreign startups, Small and Medium sized IT
Companies, and create the enabling environment by supporting establishment of
Incubators.
e) From Local Entrepreneurs to Global Leaders
• To focus on entering into Free Trade Agreements (FTA) and the removing of para-
tariffs.
• To support the local industries with the introduction of strong Anti-Dumping and
countervailing laws together with strengthened Consumer Protection laws while
also augmenting the National Quality Infrastructure.
• To introduce an “Export Market Access Support” programme.
• To grant tax concessions on imported capital goods through bonding facilities
during the construction period for large scale pharmaceutical investments, dairy
industry and solid waste management ventures.
• To remove NBT on the domestic Coconut oil and kernel products for a period of 1
year.
• To provide on lease basis underutilized state farms or land to develop modern
poultry farms.
• To remove NBT on the gem stones imported for service cutting and to re-export.
f) Stimulating the Tourism Industry
• To promote tourist service providers to register with Sri Lanka Tourism
Development Agency (SLTDA) and to bring the informal sector in to the broader
tax net to impose 1% on the commission derived or accrued by online travel agents
from reservations in Sri Lanka.
• To develop the domestic airports at Sigiriya, Batticaloa, China Bay and Koggala
will be developed as PPP’s to support tourism.
• To remove PAL and NBT on the import of non-motorized water sports equipment
such as Kayaks, Canoes, Kite Surfing Equipment etc.
• To implement VAT refund scheme for foreign passport holders at the Airports and
Sea Ports with effect from 01st May 2018.
• A programme to introduce Tourist Board approved tuk tuks will be established and
the drivers will be trained as local guides. These classes will be held free of charge.
g) Enabling Environment for Foreign Direct Investments
• To establish a one stop, shop for business registration, at the ROC.
• To remove restrictions that limit the land ownership rights of listed companies with
foreign ownership together with the restrictions on foreigners’ ability to purchase
condominiums below the 4th floor.

h) Harnessing Our Young Entrepreneurs
• To invest in university education with focus on modern curricula, research facilities
and standardization.
• To invest in developing vocational training institutions to develop high quality
market oriented training programmes.
• To establish the “Employment Preparation Fund” at the Ministry of National
Policies and Economic Affairs which will finance,
o The cost of such training courses to be made available
o The cost of the stipend to be paid during the training period amounting to
Rs. 3,500 per month
o A portion of the monthly allowance up to Rs. 6,000 for a period of 6 months
and the partner employer will pay a further allowance of Rs. 10,000.
• To provide skill development programmes through the National Youth Corps.
• To provide world class training in hospitality management, civil, electrical and
motor mechanical engineering etc. by establishing 5 Technical and Vocational
schools.
i) World Class University Education
• To establish State medical faculties at Wayamba, Sabaragamuwa and Moratuwa
Universities to expand medical education.
• To expand the technology degree programmes in subjects such as Information and
Communication Technology, Engineering Technology and Bio Systems
Technology in 7 new technology faculties which include, the Universities of
Rajarata, Ruhuna, Sabaragamuwa, Kelaniya, Colombo, Sri Jayewardenepura and
the South-Eastern University.
j) Revenue Administration
Customs
• To introduce new legislation to replace the 148 year old Customs Ordinance to meet
our commitment to liberalize trade with the necessary safeguards.
• To adopt the 2017 version of Harmonised Commodity Description and Coding
System (HS Codes) as published by the World Customs Organisation with effect
from 10th November 2017.
• Documentation processes to be automated from 1st January 2018.
• To issue license to import Cigarettes and Cigars while clamping down heavily on
smuggling.
• The Usance LC facility will also not be permitted to be used for the importation of
motor vehicles from 1st January 2018.
Inland Revenue
The RAMIS will be appropriately changed to facilitate the implementation of the IRD
Act.

2 EXCISE (SPECIAL PROVISIONS) DUTY
Motor Vehicles
• Ad-valorem rate of excise duty on motor vehicles will be removed
• Excise duty will be applied based only on the Engine Capacity (cubic centimeter
(cm3
)) for petrol and diesel motor vehicles
• Excise duty base for electric vehicles will be the motor power of the engine (kilowatt
(Kw))
• The rate for Engine capacity based excise duty on petrol fuel & petrol hybrid motor
cars are as follows.
Engine capacity Petrol fuel
(Rs. Per cm3)
Engine capacity
(Rs. Per cm3)
≤ 1000cm3 1,750 1,250
1000cm3 < x ≤ 1300 cm3 2,750 2,000
1300cm3 < x ≤ 1500 cm3 3,250 2,500
1500cm3 < x ≤ 1600 cm3 4,000 3,000
1600cm3 < x ≤ 1800 cm3 5,000 4,500
1800cm3 < x ≤ 2000 cm3 6,000 5,000
2000cm3 < x ≤ 2500 cm3 7,000 6,000
2500cm3 < x ≤ 2750 cm3 8,000 7,000
2750cm3 < x ≤ 3000 cm3 9,000 8,000
3000cm3 < x ≤ 4000 cm3 10,000 9,000
4000 cm3< 11,000 10,00
• The rate for Engine capacity based excise duty on diesel fuel & diesel hybrid motor
cars are as follows:
Engine capacity Diesel fuel
(Rs. Per cm3)
Engine capacity
(Rs. Per cm3)
≤ 1500cm3 4,000 3,000
1500cm3 < x ≤ 1600 cm3 5,000 4,000
1600cm3 < x ≤ 1800 cm3 6,000 5,000
1800cm3 < x ≤ 2000 cm3 7,000 6,000
2000cm3 < x ≤ 2500 cm3 8,000 7,000
2500cm3 < x ≤ 2750 cm3 9,000 8,000
2750cm3 < x ≤ 3000 cm3 10,000 9,000
3000cm3 < x ≤ 4000 cm3 11,000 10,000
4000 cm3< 12,000 11,000
• Duty rates for Electric vehicles are as follows:
Motor power Unregistered (brand new)
vehicle (Rs. Per kw)
Used vehicle
(Rs. Per kw)
≤ 50 Kw 7,500 15,000
50Kw < x ≤ 100 Kw 12,500 25,000
100 Kw < x ≤ 200 Kw 25,000 40,000
200 Kw 40,000 55,000

• Duty rates for three wheelers are as follows:
Petrol - Rs.2,100 per cm3
Diesel - Rs.1,250 percm3
Electric
Unregistered (brand new) - Rs.7,500 perKw
Registered (used) - Rs.10,000 per Kw
• Applicable duty will be revised for off-road electric sports vehicles classified under
HS Code 8703.10.11, 8703.10.19, 8703.10.21, 8703.10.29 to facilitate promotion
of sports tourism
Vehicle Permits for Public Sector Employees
• Upper ceiling of excise duty concession of vehicle permits for public sector
employees will be defined in rupee value without changing the existing concession
rate.
• Upper ceiling of CIF value of imported vehicles will be removed
• Restriction on transferability will be removed
• Payable duty will be the higher value of the duty calculated as per Column (IV) below
Authorization
(I)
Transferability
(II)
Upper
limit for
CIF (III)
Payable Excise duty
(IV)
Trade and Investment Policy Circular No. 01/2016
Transferable No upper
limit
duty after deducting Rs.3.0
million from payable duty (i.e. Payable
duty – Rs.3.0 million) or 35% of the
payable duty
Foreign Affairs Circular No.210(III)
Transferable No upper
limit
payable duty
Public Administration Circular No. 22/99 –Employee Category
Group I Transferable No upper
limit
duty after deducting Rs 9.0
payable duty
Group II Transferable No upper
limit
duty after deducting Rs 7.5
duty – Rs 7.5 million) or 20% of the
payable duty
Group III Transferable No upper
limit
payable duty

Canned Beer
• Excise (Special Provisions) Duty applicable on canned beer will be removed.
Sugar Tax on Sweetened Beverages
• Excise duty based on the quantum of sugar contained will be introduced for the
beverages with added sugar.
• This duty applicable for beverages classified under HS Code 22.02
• The rate will be 50 cts per gram of sugar
Plastic Resin
• Excise duty on plastic resin will be introduced at Rs.10 per Kg.
• This duty will be applicable for items classified under the HS Codes 3901.10,
3901.20, 3902.10, 3903.11 and 3904.10
3 EXCISE DUTY UNDER EXCISE ORDINANCE
Liquor
Alcohol volume based Excise Duty depending on the type of liquor will be introduced as
follows:
Hard liquor - Rs. 3,300/- per liter of alcohol
Beer - Rs. 2,400/- per liter of alcohol
Wine - Rs. 2,400/- per liter of alcohol
Non-potable Alcohol
Excise duty will be imposed on import of non-potable alcohol at Rs.15/- per Kg.
Raw Material Used for Manufacturing of Ethanol
Excise Duty will be imposed on raw materials used for manufacturing of ethanol to be as
follows:
Type of raw material Proposed Duty (Rs.)
Toddy Rs.05/- per liter
Molasses/Maize/Rice/Fruits Rs.10/- per Kg
Liquor Licenses
• Rate structure of Liquor license fee will be simplified w.e.f. 01/01/2018
• Issuance of new liquor license will be simplified to promote tourism.
Changes to Excise Duty will be published by Gazette.

4 FINANCE ACT
4.1 Cellular Tower Levy
• A tax will be introduced on mobile towers
• Rate will be Rs.200,000/- per month per tower
• The levy will be paid monthly by the mobile tower operator
4.2 SMS Advertising Levy
• For bulk SMS advertisements a levy of 25 cts per SMS will be imposed
• The levy will be paid by the advertiser
4.3 Carbon Tax
• Carbon tax will be imposed on motor vehicles based on the engine capacity.
• Rate will depend on age and fuel type of vehicle as follows:
Type of vehicle Less than 05
years
05 to 10
years
Over 10 years
Hybrid (Petrol/Diesel) 25 Cts per cm3 50 Cts per cm3 Rs.1.00 per cm3
Fuel (Petrol/Diesel) 50 Cts per cm3 Rs.1.00 per cm3 Rs.1.50 per cm3
Passenger bus Rs.1,000/- Rs.2,000/- Rs.3,000/-
• Electric vehicles are exempted from the levy
4.4 Debt Repayment Levy
• Debt Repayment Levy (DRL) will be introduced on cash transactions by financial
institutions
• Rate is Rs.2/- per Rs.10,000/- cash transaction (i.e. 0.02%)
• Levy will be charged on total cash transactions and should be paid by the financial
institutions.
4.5 Luxury Tax on Motor Vehicles
• One-time payment luxury tax will be introduced in lieu of the present system of
payment over 7 years
• The present system will be continued for the vehicles already registered
• Tax depends on the band of engine capacity or motor power of the vehicle as
follows:
Super Luxury
(Rs.)
Luxury
(Rs.)
Semi-Luxury
(Rs.)
Dual purpose (Petrol/diesel) 2200cm3< 250,000/-
MotorCar
Petrol 1800cm3 < x ≤ 2500 cm3
Diesel 2200cm3 < x ≤ 3000 cm3
Electric 200 kW < x ≤ 300 kw
500,000/-
Petrol 2500cm3 < x ≤ 3500 cm3
Diesel 3000cm3 < x ≤ 4000 cm3
Electric 300 kW < x ≤ 400 kw
1,000,000/-
Petrol 3500cm3 <
Diesel 4000cm3 < Electric 500 kW <
2,000,000/-

5 VALUE ADDED TAX (VAT) [AMENDMENTS TO VAT ACT NO 14 OF 2002]
5.1 Removal of Exemptions
• Import or supply of imported goods set out below will be liable for VAT:
Item Description Exempted HS Code
Plants & Flowers 06.01, 06.02.10, 06.02.20, 06.02.30, 06.02.40,06.02.90.90
Plastic Beads 39.26.90.70
Yarn /Fabrics 50.01, 50.02, 50.03, 50.04, 50.05, 50.06, 50.07, 51.11,51.12,
51.13,52.01, 52.03, 52.05, 52.06, 52.08, 52.09,52.10, 52.11,
52.12, 53.09,53.10, 54.02, 54.03, 54.07,54.08, 55.09, 55.10,
55.12, 55.13, 55.14,55.15, 55.16,58.01, 58.02, 58.04.21,
58.04.29, 58.04.30, 58.06,58.09, 58.11, 60.01, 60.02, 60.03,
60.04, 60.05, 60.06,62.15
Wood & Articles 44.03, 44.07, 44.08, 44.09
Dyes 32.04.11 32.04.12,32.04.13,32.04.14,32.04,15,32.04.16,32.04.17
Dyes 70.18.10
Plant and Machinery /
Industrial racks
84.07, 84.11.91, 84.13.40, 84.43.19.10, 84.43.32.30,84.43.32.40,
84.43.39.20,84.43.99.30,84.44,84.45,84.46,84.47,84.48,
84.51.40.10,84.51.50,84.51.80.10, 84.51.90, 84.70.10,
84.79.89.10,84.79.89.20,84.79.89.30 84.79.89.40
Electronic goods 85.16.40, 85.16.72, 85.27.21, 85.27.29, 85.27.91, 85.27.92,
85.39.31.20, 85.43.70.30, 85.43.70.90, 85.43.90
Aeroplanes & Parts 88.02, 88.03.30, 88.05.21, 88.05.29
Spectacles 90.01, 90.02, 90.03, 90.04, 90.05
Cameras & Projectors 90.06, 90.07, 90.08, 90.10
Watches 91.01, 91.02, 91.05
Watches 91.01, 91.02, 91.05
• Sale of condominium housing units
5.2 New Exemption
• Solar tracker classified under HS Code 84.79.89.50

6 NATION BUILDING TAX (NBT) [AMENDMENTS TO NBT ACT NO.9 OF 2009]
6.1 Exemptions
• Importation of non-motorized equipment and accessories for water sports such as
Kayaks, Canoes, Kite Surfing, and diving
• Importation of non-powered equipment and accessories for aero sports such as Hang
Gliding, Ballooning, dirigibles, Parachutes and Para-Gliders
• Importation of gem stones for cutting and re-export purposes
• Importation of equipment that enables advanced technology agriculture
practices, including greenhouses, poly tunnels and materials for the construction of
greenhouses, by any grower.
• NBT on domestic coconut products and Kernel product will be removed for the
period of one year
Exemption on liquor will be removed.
7 ECONOMIC SERVICE CHARGE (ESC) [AMENDMENTS TO ESC ACT NO 13
OF 2006]
• ESC base for imported motor vehicles will be amended as follows;
- Motor vehicles liable for Excise duty - Payable Excise Duty
- Motor vehicles not liable for Excise duty - CIF value
8 CUSTOMS IMPORT DUTY
• Exemption of Custom Import Duty
- Importation of Crust (semi processed) leather for further processing (Tanning
Industry) and supply of raw materials for leather products industry.
- Importation of machinery, equipment, accessories and raw materials or
intermediate materials, to be used only for manufacturing of biodegradable
packaging products and materials.
• Customs Import Duty will be updated on importation of goods in line with the HS
2017 version and also revised on importation of selected goods.

9 CESS DUTY
• Cess will be removed on 253 items under the HS Codes specified in Table 1 to this
annexure, facilitating the emerging sectors namely, tourism, value adding industries
and other industries.
• Cess will be revised on 22 items classified under the following HS Codes, facilitating
the availability of goods for value addition and consumption purposes.
0406.10.00 0406.40.00 0709.99.12 0709.99.20
0712.20.00 2922.42.10 4805.24.00 4805.25.00
4810.29.00 5208.11.20 5208.21.10 5208.21.90
6402.19.90 6403.19.90 6506.10.20 8509.40.00
8708.91.10 8708.91.20 4013.90.10 4013.90.90
9105.21.00 9105.29.00
10 PORTS AND AIRPORTS DEVELOPMENT LEVY
• PAL on the items classified under following HS Codes will be reduced
8415.90.90 8450.90.00 7212.40.00 8501.20.00
8418.91.10 8401.40.00 3920.30.10 8471.41.90
8418.91.20 7411.10.00 9032.10.00 8471.49.90
8418.99.00 8501.10.90 7210.30.00 8471.50.90
8414.30.00 8414.90.10 8483.50.00 8473.30.90
• PAL on the 253 items classified under HS Codes specified in Table 2 to this
annexure, including importation of non-powered equipment and accessories for aero
sports such as Hang Gliding, Ballooning, dirigibles, Parachutes and Para-Gliders
will be removed.
• PAL will be revised on the importation of non-motorized equipment and accessories
for water sports such as Kayaks, Canoes, Kite Surfing, and diving.
11 GOVERNMENT AGENCY FEES
The rates of fees and charges of government agencies which have not been revised in last
03 years will be increased by 15%.
12 OTHER PROPOSALS
• Sri Lanka will revise and adopt 2017 Version of Harmonized System of
Commodity Classification and Coding System, as amended by the World Customs
Organization (HS System 2017 Version) effective from November 10, 2017.
• Value Limit of Export Trade Sample (Selected Goods only) will be revised to US
$400 or its equivalent per shipment, effective from January 01, 2018.
• Next Stage of the Tariff Liberalization Programme (Phase II) of the South Asian
Free Trade Agreement (SAFTA) will be implemented effective from November 10,
2017.

• In line with the emerging technology and environmental and safety standards, Pre-
Shipment Inspection Certification for importation of used motor vehicles will be
revised effective from January 01, 2018.
• Issuance of Usance Letter of Credit Facility for importation of motor vehicles will
be canceled effective from January 01, 2018.
• Importation of Motor Vehicles below the Emission Standard of the EURO 4 or its
equivalent will be prohibited effective from January 01, 2018 in line with the
health and environmental safeguard measures.
• Importation of Motor Vehicles, which are not complied with the safety measures
namely (a) Air Bags for driver and the front passenger, (b) Anti-Locking Breaking
System (ABS) and (c) Three Point Seat Belts for driver and the passengers
travelling in the front and rear seats, will be prohibited effective from January 01,
2018 in line with the safety of passengers / travelers.
• Para-Tariffs applicable on importation of sports shoes (for the use of football and
rugby players) will be removed / exempted with a view to facilitate development
of such sports activities among the rural youths
13 KEY STATUTES THAT WILL BE ENACTED, AMENDED, OR REPEALED.
It is proposed in the Budget to change many laws which are remaining archaic and
regressive and to provide a more vibrant and a dynamic market economy.
13.1 New Acts to be Enacted
• Liability Management Act
• Public Finance Management Act
• National Audit Act
• Demutualization Act
• Securitization Act
• National Pensions Fund Act
• Development Bank Act
• Public Enterprises Act
13.2 Acts to be Repealed
• Revival of Underperforming Enterprises or Underutilized Assets Act, No. 43 of 2011

13.3 Acts to be Amended
• Public Contracts Act No 03 of 1987
• Land (Restrictions and Alienation) Act, No. 38 of 2014
• Rent Act, No. 7 of 1972
• Tea and Rubber Estates (Control of Fragmentation) Act, No. 2 of 1958
• Paddy Land Act, No. 01 of 1958
• Agricultural Lands Act, No. 42 of 1973
• Shop and Office Employees Act, No. 15 of 1954
• Wages Boards Ordinance, No. 27 of 1941
• Bankruptcy laws
• Secured Transactions Act, No. 49 of 2009
• Recovery of Loans (Special Provisions) (Amendment) Act Nos. 1 and 19 of 2011
• Land Development Ordinance, No. 19 of 1935
• Debt Recovery (Special Provisions) Act No. 2 of 1990
• Mortgage Act, No. 98 of 1981
• Mediation Board Act, No. 72 of 1992
• Monetary Law Act, No. 58 of 1949
• Banking Act, No. 30 of 1988
The Limited Liability Partnership (LLP) structure will be introduced
14 Supporting the SME companies
• The SME companies will be companies incorporated under the Companies Act, No.
7 of 2007 and will have at least 10 shareholders each contributing at least Rs.10,000
in equity. These companies could engage in any business from agriculture to
apparels to IT.
• The support provided by the Government will include:
• Provision of equipment and facilities such as storage facilities, planting
and seeding equipment, weed removers, boats, fishing nets etc.
• Extension of leasing facilities from the State banks to these companies to
purchase such machinery.
• Provision of a letter of undertaking or a guarantee to the respective State bank
for the equipment, and other facilities purchased and, to bear at least 75% of
the lease cost on behalf of the company during the lifetime of the lease.
• Make available the “Enterprise Sri Lanka Credit Schemes” to these companies.
• Provision of technical support to incorporate companies, maintain books and
records, negotiations with financial institutions will be provided by the private
sector consultants. Each company incorporated under this mechanism will
have a consultant company to support and the cost of the company for
consultations for a period of 36 months will be borne by the Government in
full, while for a period of another 24 months the Government will bear 50% of
such cost. An incentive package based on the performance of these companies
will be made available to these consultants.
• Bear the hire purchase lease rental and the interest subsidies by the
Government

• These facilities by the Government will be 10% above the norm for companies
headed by women.
• The above facilities for companies headed by differently abled will be 15%
above the norm.
Financial and non-financial support such as transfer of technical knowhow, packaging
and marketing of products or services etc. will be coordinated and provided by the
Department of Development Finance at the Ministry of Finance and Mass Media.
“Enterprise Sri Lanka” Credit Schemes
Name of the
Loan Scheme
Description
1. Ran
Aswenna
Category I
Beneficiaries: Small Scale Farmers and Farmer Organizations,
Floriculture farmers, Entrepreneurs in ornamental fish related
businesses
Maximum Loan Amount (Rs.): 5,000,000
Interest Subsidy from the Government: 50%
Interest rate to the Customer: 6.54%
Category II
Beneficiaries: Agro Processing Establishments
Maximum Loan Amount (Rs.): 300,000,000
Category III
Beneficiaries: Commercial Scale Farming
Maximum Loan Amount: (Rs.) 750,000,000
2. Govi
Navoda
Beneficiaries: Small scale farmers, Farmers’ organizations
(for mechanizing the cultivation activities)
Maximum Loan Amount: (Rs.) 500,000

3. Riya
Shakthi
Beneficiaries: Owners of the school service vans
4. Rivi Bala
Savi
Beneficiaries: Households
Interest rate to the Customer: 6%
5. Diri Saviya Beneficiaries: Poultry producers, Self-employees
6. Jaya Isura Category I
Beneficiaries: Small enterprises with an annual turnover between Rs
25 Mn to Rs 250 Mn and with an employment cadre of 10 to 50 who
are engaged in agriculture, fisheries, livestock, floriculture,
horticulture, light engineering, printing, tourism, handicrafts, apparel,
information technology and manufacturing industry sectors.
Category II
Beneficiaries: Medium entrepreneurs with an annual turnover
between Rs 250 Mn to Rs 750 Mn and with an employment cadre of
51 to 300 who are engaged in the same sectors mentioned under the
Category I.
7. Sonduru
Piyasa
Beneficiaries: Owners of the houses with less than 750 sq.ft.

8. Madya
Aruna
Category I - (To purchase media equipment)
Beneficiaries: Registered journalists
Category II - (To upgrade media equipment)
Beneficiaries: Registered journalists
9. Rooftop
Solar Power
Generation
Project
Category I
Beneficiaries: Households
Category II
Beneficiaries: Entrepreneurs
Maximum Loan Amount: (Rs.) Min. 7,500,000 (No maximum
limit)
The “Enterprise Sri Lanka” Credit Scheme also includes the other loan Schemes which
are explained below.
15 SUPPORTING THE STARTUPS AND THE INNOVATION CULTURE
15.1 The “Erambuma” Credit Scheme
• University graduates with viable business ideas are eligible to utilize the
“Erambuma” credit facility.
• The maximum loan size is Rs. 1.5 million per idea per person.
• The interest is 100% subsidized by the Government and the repayment is fully
guaranteed through a Government guarantee.

15.2 The “IT Initiative”
• The Government will finance the “IT Initiative” by providing Rs. 3 billion over a
period of 3 years.
• This initiative will provide both financial and non-financial support by way of
grants, equity investments, credit facilities, mentoring, technical support etc. to:
- local startups
- attract foreign startups
- Small and medium IT companies with a turnover around USD 2-3 million per
annum to at least double their revenue in 3 years.
- Create the enabling environment by supporting establishment of Incubators, the
acquisition and augmentation of skills and know-how in collaboration with the
local universities etc.
• The Government will facilitate effective collaboration between the Universities and
the Industry in the following manner.
- The IT industry to be able to acquire and augment the skills set in line with the
demand in collaboration with the University of Colombo (UoC) and
Moratuwa (UoM) and, the SLIIT.
For example, if an IT company requires training of its employees, non-
employees including undergraduates of Universities or Technical Colleges, the
company could collaborate with UoC, UoM or the SLIIT to design the required
courses. The “IT Initiative” will bear a portion of the cost while the company
will bear the balance. Those who successfully complete such courses will be
employed by the companies.
- This will be operated through the EDB and be managed by a Board
comprising mainly of experienced private sector professionals, investors and
entrepreneurs.
15.3 The “I2I Initiative”
• The “I2I” aims to connect university graduates and NVQ 4 certified graduates for
a registered patent or a viable business idea with the industry. (Industry will adopt
the Innovator).
• The Government will bear:
- the monthly salary, i.e., 50% up to a maximum of Rs. 50,000 per month for a
period of 24 months, and
- the cost of patenting in Sri Lanka and counsel on patenting

15.4 Export Access Programme
• We will introduce an “Export Market Access Support Programme” targeting the
extension of support to:
- local companies that already have exports of less than USD 10 million per
annum.
- potential new entrants to the export market to better access the global value
chains.
• This programme will facilitate:
- meeting of the cost of compliance which includes the cost of provision of
free samples, intellectual property registration, insurance and promotional
costs undertaken overseas.
- meeting of the full or partial cost of rent of retail shop space or shelf space
occupied by domestic brands that reach overseas markets for a maximum
period of 36 months.
• Product development assistance to exporters to develop new products or
improve existing products to meet the export market standards and financial
support will be provided through the “Enterprise Sri Lanka” Credit schemes.
• This programme will be implemented through the EDB.
15.5 Supporting Tourism
• Homestay Programme:
• A credit scheme will be introduced to support home owners registered with the
SLTDA to upgrade their houses to meet the standards required to be in the
Homestay programme.
• The facility under the scheme up to a maximum of Rs. 5 million per person at an
interest rate of 6%, with a maturity period of 10 years will be introduced.
15.6 Employment Preparation Fund
• An “Employment Preparatory Fund” will be established under the Ministry of
National Policies and Economic Development and will be operated through the
National Youth Corps.
• This fund will finance vocational training courses that are required by the private
sector. The courses will be designed in collaboration with the private sector and
such courses may be conducted at institutions such as Hotel Schools, Nursing
Schools etc.
• Most of these courses will be short termed with duration of 3-6 months and at the
successful completion, employment will be guaranteed by the private sector.
• This fund will be further utilized to:
- Pay a stipend of Rs. 3,500 per month for those following training courses up to
a maximum duration of 6 months, and
- Finance the cost of the training course, in full or partly.

• The Government will further incentivize the private sector to employ these youths
who successfully follow these training programme(s) by bearing the cost of the
salary of an employee up to Rs. 6,000 per month for a period of 6 months and the
partner employer will pay a further allowance of Rs. 10,000 per month.
16 SUPPORTING THE USE OF SOLAR POWER
• Tax benefits
The NBT and PAL will be exempted on machines and equipment including solar
panels and, storage batteries which will be imported for the establishment of solar
charging stations.
• Credit schemes
Individuals, companies incorporated under the Companies Act, No. 7 of 2007, co-
operative societies, farmers/fisheries societies engaged in agriculture, agro
processing including drip irrigation, poultry, canning, plantation and tourism
industry, that will invest in technology for the generation of solar power to be used
for their own operations, will be supported through the introduction of a loan
scheme at a subsidized interest rate of 8%.
17 SUPPORTING THE CONVERSION FROM NON-BIO DEGRADABLE
POLYTHENE TO ENVIRONMENTALLY FRIENDLY ALTERNATIVES
• The Government will bear 50% of the investment cost incurred on equipment and
machinery by SME polythene producers when converting from polythene to
environment friendly alternatives.
• A concessionary Green Loan Scheme will be introduced by the Pradeshiya
Sanwardena Bank (also known as the Regional Development Bank) to encourage
local entrepreneurs to engage in manufacturing bags, packing materials etc. out of
bio degradable materials such as banana fiber, palm leaves, coir, and bamboo
18 THE “PAVITHRA GANGA” INITIATIVE
• The companies that already discharge their waste into the Kelani River, lagoons
and estuaries will be:
- Supported in the next 5 years to invest in technology to ensure zero discharge
of waste into these water bodies.
- Eligible to utilize the “E- Friends” credit facility at a concessionary
interest rate of 6-8%.
• The CEA will issue relevant regulations and will strictly monitor this process.

PART II
Recent Tax Updates

19 EMPLOYMENT INCOME
19.1 Taxable Employment Income
Following gains and profits received or derived from an
employment by any individual are taxable under this
source.
(a) Salary, wages, leave pay, overtime pay, fees,
pensions, commissions, gratuities, bonuses and other
similar payments;
(b) Personal allowance, including any cost of living,
subsistence, rent, entertainment or travel allowance;
(c) Discharge or reimbursement of expenses incurred by
the individual or an associate of the individual;
(d) Payments for the individual’s agreement to conditions
of employment;
(e) Payments for redundancy or loss or termination of
employment;
(f) Retirement contributions made to a retirement fund
on behalf of the employee and retirement payments
received in respect of the employment other than
contribution made by the employer to a pension fund,
provided or savings/society approved by the
Commissioner General of Inland Revenue;
(g) Payments or transfers to another person for the benefit
of the individual or an associate person of the
individual;
(h) The fair market value of benefits received or derived
by virtue of the employment by an individual or an
associate person of the individual;
(i) Other payments, including gifts received in respect of
the employment; and
(j) The market value of shares at the time allotted under
an employee share scheme, including shares allotted
as a result of the exercise of an option or right to
acquire the shares, reduced by the employee’s contribution for the shares.
19.2 Income Excluded from Employment
Following incomes are excluded from the Employment Income,
(a) Profits and gains which are exempt from income tax and final WHT payments;
(b) Discharge or reimbursement of expenses incurred by the individual on behalf of the
employer;
(c) Discharge or reimbursement of the person’s dental, medical or health insurance expenses
where the benefit is available to all full-time employees on equal terms;
(d) Payments made to or benefits accruing to employees on a non-discriminatory basis;
(e) Value of a right or option to acquire shares at the time of grant.
(f) Contribution made by an employer to an employee’s account with an approved pension,
provident or savings fund or provident or savings society approved by CGIR.
• New Act will be effective
from 1st April 2018.
• The Inland Revenue Bill
was published by Gazette
on 19 June 2017.
• The Committee stage
amendments was passed by
Parliament on 7 September
2017.
• The Hon Speaker’s
certification yet to be
received to implement the
laws as an Act of
Parliament.
Sources of Income
The new Act will compress
many different sources into
four main sources of
income.
• Employment
• Business
• Investment
• Other
The employment income is
to be taxed on cash basis

19.3 Tax Free Threshold
The normal tax-free allowance is Rs. 500,000/- with effect
from 1st
April 2018, the qualifying payment of Rs. 250,000/-
will be increased to 700,000/- and accordingly, employment
income up to 1,200,000/- (Rs. 100,000/- per month) is exempt
from tax.
Exemption on vehicle provided by employer with driver and
fuel on such employer’s account or any vehicle allowance
paid up to Rs.50,000/- in lieu of provision of vehicle will be
removed and will be liable for PAYE from 1st
April 2018.
19.4 Employment Income of Non- Citizens and Residence Persons
Any employee who is a non-citizen and resident in Sri Lanka can enjoy the tax free allowance.
19.5 Rate of Tax
The rates and the slabs have been revised and the upper ceiling of 16% have been removed
with effect from 1st
April 2018 and the new tax structure is given below.
On regular Income On Terminal Benefits
Income Range Rate Service Period ≤ 20 Years Service Period ≥ 20 Years
First 1,200,000
1,200,000-1,800,000
1,800,000-2,400,000
2,400,000-3,000,000
3,000,000-3,600,000
3,600,000-4,200,000
Exceeding 4,200,000
Free
4%
8%
12%
16%
20%
24%
First Rs. 2Mn - Exempt
Next Rs. 1Mn - 5%
Balance - 10%
First Rs. 5Mn - Exempt
Next Rs. 1Mn - 5%
Balance - 10%
19.6 Exempt Income
a) Employment income of President of Sri Lanka
b) Capital sums paid to a person as compensation or gratuity in relation to personal
injuries suffered by the person or the death of another person
c) Government Pension
d) Income of individuals entitled to privileges to the extent provided for by a diplomatic
immunities law or similar law or Specialized UN Agencies.
e) Benefit received or derived by a government employee from a road vehicle permit
issued to that employee.
• Qualifying payment is
increased from Rs.
250,000/- to 700,000/-
• Employment income up to
Rs. 100,000/- per month is
tax free.
• Exemption on vehicle
allowance or vehicle
provided by employer is
removed.

20 BUSINESS INCOME
A person’s income from a business for any year of
assessment shall be the person’s gains and profits from
conducting business. Business includes a trade, profession,
vocation or isolated arrangement with a business character
however short the duration of the arrangement. An
individual or any entity conducting business shall maintain
accounts on accrual basis. Cash basis accounting is possible
subject to the approval of the CG.
20.1 Taxable Business Income
a) Service fees;
b) Consideration received in respect of trading stock;
c) Gains from the realization of capital assets;
d) Gains from realization of depreciable assets of the business;
e) Amounts derived as consideration for accepting a restriction on the capacity to
conduct the business;
f) Gifts received by the person in respect of the business;
g) Amounts derived that are effectively connected with the business and that would
otherwise be included in calculating the person’s income from an investment; and
h) Any other amount to be included under the act.
In computing profit from business income, exempt amounts and amounts subjected to final
withholding tax payment should be excluded.
20.2 Allowable Deduction
In calculating profit income from business, expenses to the
extent they are incurred during the year in the production
of income shall be deducted. However, no deduction is
allowed for expense of capital nature.
20.3 Specific Deductions
a) Interest Expense
Allowed only if;
• The borrowed money is used during the year to
acquire assets that is used during the year, or
• Incurred in the production of income.
Further, the amount of excess interest paid on loans
are disallowed as follows,
• For Manufacturers - The interest attributable to
loans more than 3 times of the issued share capital
and reserves of the entity.
• For Others - The interest attributable to loans more than 4 times of the issued share
capital and reserves of the entity.
Excess interest paid for which a deduction is denied as a result of above restriction, may
be carried forward and treated as incurred during any of the following six years of
assessment, subject to above restriction.
• Business includes a trade,
profession, vocation or
isolated arrangement.
• Business income is to be
taxed on accrual basis
unless approved otherwise
by CG.
Allowable Deductions
Expenses incurred in the
production of income is
allowed.
Expenditure allowed
with conditions
• Interest Expenses
• Allowance for trading Stock
• Repairs and Improvements
• Research and Development
Expenses and Agricultural
Start-up Expenses
• Depreciation Allowance

b) Depreciation Allowance
Class Depreciable Assets Number of
Year
01 Computers and data handling equipment together with
peripheral devices
05 Years
02 Buses and minibuses, goods vehicles; construction and earth-
moving equipment, heavy general purpose or specialized
trucks, trailers and trailer-mounted containers; plant and
machinery used in manufacturing
05 Years
03 Railroad cars, locomotives, and equipment; vessels, barges,
tugs, and similar water transportation equipment; aircraft;
specialized public utility plant, equipment, and machinery;
office furniture, fixtures, and equipment; any depreciable
asset not included in another class
05 Years
04 Buildings, structures and similar works of a permanent nature 20 Years
05 Intangible assets, excluding goodwill Actual useful or
20 Years where
the intangible
assets has an
indefinite useful
life
No depreciation allowance is granted for road vehicles other than a commercial vehicle, a
bus or mini bus, a goods vehicle or a heavy general purpose or specialized truck or trailer.
c) Allowance for trading Stock
This refers to the cost of sales in the normal course of the business and it is in line with
generally accepted accounting principles. Closing stock to be valued at lower of cost or
market value.
d) Repairs and Improvements
Repairs or improvement of depreciable assets are deductible irrespective of whether they
are of capital nature or not.
However, the deduction is restricted to
- 5% of the written down value of the assets at the end of the previous year in the case of
“class 4” Assets,
- 20% of the written down value of the assets at the end of the previous year in all the
other classes of Assets.
The expenses which is not allowed due to above limitation will be added to the assets.

e) Research and Development Expenses and Agricultural Start-up Expenses
Research and development expenses and agricultural start-up expenses can be deducted
irrespective of whether they are of a capital nature or not.
For this purpose, “agricultural start-up expenses” means expenses incurred by the person in
• Opening up any land for cultivation or for animal husbandry;
• Cultivating land with plants;
• The purchase of livestock or poultry
• Maintaining tanks or ponds or the clearing or preparation of any inland waters for
the rearing of fish and the purchase of fish to be reared in such tank, pond or inland
waters, as the case may be;
For this purpose, “research and development expenses” means expenses incurred by the
person in –
• carrying on any scientific, industrial, agricultural or any other research for the
upgrading of the person’s business through any institution in Sri Lanka (or for any
innovation or research relating to high value agricultural products, by the person or
through any research institution in Sri Lanka); or
• the process of developing the person’s business and improving business products
or process which shall be beneficial to Sri Lanka,
but must exclude expenses incurred that are otherwise included in the cost of an asset under
this Act.
20.4 Disallowed Expenditure
The following expenditures are not allowed in calculating
the profit –
a) domestic expenses incurred by the person
b) tax payable under this Act;
c) interest, penalties, and fines payable to a government or
a political subdivision of a government of any country
for breach of any written law;
d) expenditure to the extent incurred by a person in
deriving exempt amounts or final withholding
payments;
e) retirement contributions, unless they are included in
calculating the income of an employee or consist of a
contribution by an employer to a pension, provident or
savings fund or to a provident or savings society, which
is approved by the CG subject to any specified
conditions;
f) dividends of a company;
g) outlays or expenses for entertainment;
h) an amount that a person has transferred, in his financial
accounts, to a reserve or provision for expenditures or
losses not yet incurred but expected to be incurred in a future year of assessment;
i) amounts incurred on lotteries, betting or gambling, other than amounts incurred from
conducting a business of lotteries, betting or gambling; or
j) taxes or other levies specified by the CG.
Disallowable
• Domestic expenses
• Income Tax
• Interest, penalties and fines
for breach of any written
law
• Expenditure relating to
exempt income or income
subject to final WHT
• Contributions to
unapproved provident
funds or pension funds
• Dividend payments
• Entertainment expenses
• Reserve or provisions
• Payment subject to the
WHT is not allowed unless
the WHT has been
deducted and paid.

20.5 Expenditure subject to WHT
Where a person is allowed a deduction for a payment from which the person is required to
withhold tax, the deduction shall not be allowed until the tax withheld has been paid to the
Commissioner General.
20.6 Business or Investment Losses
In calculating the income of a person from a business,
losses can be deducted subject to following condition.
a) Losses pertaining to reduced rate can only be deducted
from income taxed at same reduced rate, lower reduced
rate or exempt amount
b) Losses pertaining to exempt income, the loss can be
only deducted against the exempt income.
In calculating income from an investment, losses can be
deducted subject to following condition.
c) Business losses can be deducted from business profits
or investment income.
d) Investment losses can only be deducted from an
investment income.
Any unrelieved loss of any person can be carried forward
and deducted subject to above conditions for six years of
assessment.
Limitations to claim
Losses
• Losses pertaining to the
reduced rate can be
deducted against the profit
taxed at;
- Same reduced rate,
- Lower reduced rate or
- Exempt income.
• Business losses can be
deducted against business
profit as well as investment
profit.
• Investment Losses can only
be deducted against
investment profit.

20.7 Tax Exemption and Incentives
The exemption provided under the old Act, BOI and other
legislations such as Strategic Development Projects and
Specified Projects approved by the minister will continue
to be effective for the balance tax exempt period.
Enhanced Depreciation Allowance
In the new Act instead of providing exemptions, it provides
enhanced depreciation allowances on the depreciable assets
in addition to normal depreciation allowance.
Investment Criteria Rate Extended Period for
Deducting
Unrelieved Loss
Investment in new Business in any part of Sri Lanka
other than the Northern Province
Total cost incurred on depreciable assets other than on
intangible assets during a year of assessment,
• Between USD 3Mn to USD 100Mn
• Exceeding USD 100Mn
100%
150%
The unrelieved
losses due to claim
of enhanced
depreciation
allowance any
unrelieved losses can
be claimed by that
person within next
10 Years from year
of investment.
Where the
investment exceeds
USD 1,000Mn, the
unrelieved loss can
be claimed with in
next 25Years from
the year of
investment.
Investment in new Business in the Northern Province
intangible assets during a year of assessment,
• Exceeding USD 3Mn 200%
Investment in assets of State Owned Company
intangible assets during that year of assessment
• Exceeding USD 250Mn
• Such assets are used in any part of Sri Lanka
For this purpose, State Owned Company means “a
company where 50% of shares are held by the
Government and includes a company of which 40% or
more of the shares held by the government are acquired
by a person for an amount not less than USD 250Mn.
150%
• The new Act provides
Enhanced Depreciation
allowance instead of tax
holidays.
• Tax holidays provided
under the old Act, BOI
and other legislations are
continue to be effective
for the balance tax
exempt period

20.8 Qualifying Payments
Following can be deducted when calculating taxable
income of the individual or entity.
a) Donation made by an individual or entity in money to
an approved Charitable Institution subject to following
limitation.
• In the case of Individual 1/3rd of Taxable Income
or Rs.75,000/-, whichever is less
• In the case of Companies 1/5th
of Taxable Income
or Rs. 500,000/-, whichever is less.
b) Donation made by an individual or entity in money or
otherwise to the following:
• the Government of Sri Lanka;
• a local authority;
• any Higher Education Institution established or deemed to be established under the
Universities Act, No. 16 of 1978;
• the Buddhist and Pali University or any Higher Educational Institution established by
or under the Buddhist and Pali University Act, No. 74 of 1981;
• a fund established by the Government of Sri Lanka;
• a fund established by a local authority and approved by the Minister;
• the Sevana Fund created and administered by the National Housing Development
Authority established by the National Housing Development Authority Act, No. 17
of 1979;
• a fund established by a Provincial Council and approved by the Minister;
• the Api Wenuwen Api Fund established by the Api Wenuwen Api Fund Act, No. 6
of 2008;
• National Kidney Fund established under the National Kidney Foundation of Sri
Lanka (Incorporation) Act, No. 34 of 2006;
c) Profits remitted to the President’s Fund established by the President’s Fund Act, No. 7 of
1978 by a public corporation as required by the law by or under which such corporation is
established.
Qualifying Payments
• Donation to approved
Charitable Institutions.
• Donation in money or
otherwise to Government
or other approved
Government Institutions.
• Profits remitted to the
President’s Fund by a
public corporation.

21 INVESTMENT INCOME
Gain and profits from following sources are categorized
under the Investment income.
a) Dividends, Interests, Discounts, Charges,
Annuities, Natural Resource Payments, Rents,
Premiums and Royalties;
b) Gains from the realization of investment assets
(Capital Gains)
c) Amounts derived as consideration for accepting a
restriction on the capacity to conduct the
investment;
d) Gifts received by the person in respect of the
investment;
e) Winnings from lotteries, betting or gambling; and
f) Any other investment income
21.1 Dividend Income
Dividend has been redefined in the new Act to cover broader area of distribution of profits
through various means and includes;
Payment derived by a member from a company
- As a division of profits;
- Payment made due to liquidation or reconstruction;
- Reduction of capital or share buy-back or otherwise;
- Capitalization of profits including bonus shares.
Tax on Dividend
At the time of distribution, the companies should withhold, tax of 14% on the gross dividend
declared other than dividend which are exempt from tax.
Dividend paid by a resident company to any person that is subjected to WHT will not be taxed
in the hands of recipient and WHT deducted is considered as the final tax.
Exemptions
a) Dividend Paid out of dividend received that is subject to WHT.
b) Dividend received by a non-resident person is exempt if the paying company has
invested more than USD 1,000Mn on assets eligible for enhanced depreciation
allowance (other than on an intangible assets).
c) Dividends from and gains on the realization of shares in a non-resident company
derived by a resident company with respect to a substantial participation (More than
10%) in the non-resident company.
Investment Income
Many different sources such
as,
- Dividends,
- Interests or Discounts,
- Charges or Annuities,
- Rent, Royalty or
Premiums,
- Winnings from lotteries,
betting or gambling,
are included under
investment income.

21.2 Interest Income
The interest income includes following.
a) Payments, including of a discount or premium, made under a debt obligation that is not
a repayment of capital;
b) Swap or other payment functionally equivalent to interest;
c) Commitment, guarantee or service fee paid in respect of a debt obligation or swap
agreement; and
d) Distribution by a building society;
Tax on Interest
Interest paid, to a resident person is subject to WHT of 5%. Interest received by any individual
that is subjected to WHT will not be taxed further and WHT will be considered as final tax. In
other cases, the interest will be part of assessable income and WHT deducted can be claimed
against tax liability.
Exemptions
a) Interest income up to Rs. 1,500,000/- received by a senior citizen is exempt from
income tax
b) Interest derived by a charitable institution, where it is proved to the satisfaction of the
CGIR that such interest is applied solely for the purpose of providing care to children,
the elderly or the disabled in a home maintained by such charitable institution;
c) Interest or discount paid to any non-resident person or to any licensed commercial bank
in Sri Lanka, on sovereign bond denominated in foreign currency by or on behalf of the
Government of Sri Lanka;

21.3 Capital Gain
Gain from realization of assets or liability is considered as capital gain for tax purposes. The
gain is calculated as follows.
Consideration Received
The amount received or receivable for the asset including fair market value of consideration in
kind determined at the time of realization.
Cost of an Asset
The sum of;
- expenditure incurred in acquiring the asset including,
where relevant, expenditure on construction,
manufacture or production of the asset;
- expenditure incurred in altering, improving,
maintaining or repairing the asset;
- incidental expenditure such as advertisement, transfer
taxes, duties, other expenses including cost of services
of agents, brokers, accountants, auctioneers,
consultants, legal advisors, surveyors, valuers etc.
When calculating the gain from investment assets held by a person as at 30th
September 2017,
the market value of the asset as at 30th
September 2017 will be considered as the cost of the
asset.
Tax Exemption
a. Gain made by a resident individual on sale of principal
place of resident, provided it has been owned by the
individual for 3 years and lived in for at least 2 years
b. Gain made on sale of share quoted in Stock Exchange
licensed by the Securities and Exchange Commission
c. Gain by a resident individual from realization of
investment assets that does not exceed Rs. 50,000/- per
assets and does not exceed Rs. 600,000/- per annum.
In the following circumstances, the Act deems that there would be no capital gain from the
realization of the assets as it deems the amount realized from the transfer to be the net cost of
the asset at the time of realization.
a) Transfer of asset to spouse or former spouse due to death or as part of divorce settlement
or bona fide separation
b) Transfer of asset to another person on death
c) Transfer of assets to an associate or gift to another person.
Capital Gain Tax Rate
The rate applicable on capital gain is 10%. The tax must be settle in one month and also the tax
payer should file a tax return for each realization within the same period.
Capital Gain = Consideration Received – Cost
Cost of Investment Asset
The market value of the
investment assets held as at
30th September 2017 is
deemed to be the cost of such
assets.
Exemptions
• Gain on sale of principle
place of residence.
• Gain from sale of listed
shares.
• Gain less than Rs.
50,000/- per asset or
aggregate gain of Rs.
600,000/- per annum.

22 TAX RATES
Tax Rates for Resident and Non-resident Individuals
Tax Rates for Companies
Standard Rate - 28%
Concessionary Rate - 14%
Betting and Gaming, Liquor and Tobacco - 40%
The Businesses qualifying for Concessionary Rate
a) Small & Medium Enterprises Note 01
b) Business of exporting goods or
services
Note 02
c) Agricultural Business Note 03
d) Providing Educational Services
e) Providing Information Technology
Services
Note 04
f) Promotion of Tourism Note 05
The companies (Other than Small & Medium Enterprises)
must have 80% or more of their gross revenue from above
businesses to enjoy the Concessionary Rate.
Slab Rate
First Rs. 600.000 4%
Next Rs. 600,000 8%
Next Rs. 600,000 12%
Next Rs. 600,000 16%
Next Rs. 600,000 20%
Balance 24%
Tax Rates
Individuals –
• Progressive Rates on
profits other than capital
gains
Companies –
• Standard Rate - 28%
• Concessionary Rate- 14%
• Higher Rate - 40%
Partnerships –
• WHT on share of profit
8%
Trust and mutual funds –
28%
Charitable Institution –
14%
NGOs – 28%
Trust Fund, Provident
Funds or Pension Funds
and Termination Funds –
14%
Remittance Tax - 14%

Note 01
Small & Medium Enterprises mean –
• The person who conducts business solely in Sri Lanka
(Other than an individual who is engaged in providing professional services individually or
in partnership being an individual who is professionally qualified);
• The person does not have an associate that is an entity; and
• The person’s annual gross turnover is less than Rs. 500Mn.;
Note 02
Export includes business engaged in the following activities;
• Entrepot trade involving import, minor processing and re-export;
• Offshore business where goods can be procured from one country or manufactured in one
country and shipped to another country without bringing the same into Sri Lanka;
• Providing front end services to clients abroad;
• Headquarters operations of leading buyers for management of financial supply chain and
billing operations;
• Logistic services such as bonded warehouse or multi-country consolidation in Sri Lanka;
• Transshipment operations;
• Supply of services to any exporter of goods or services or to any foreign principal of such
exporter directly, including any service provided by an agent of a ship operator to such
agent's foreign principal and the payment for such services are made by such exporter or
foreign principal in foreign currency;
• Production or manufacture, and supply to an exporter of non-traditional goods;
• The performance of any service of ship repair, ship breaking repair and refurbishment of
marine cargo containers, provision of computer software, computer programmes, computer
systems or recording computer data, or such other services as may be specified by the
Minister by notice published;
• Sale for foreign currency, of any gem or jewelry, being a sale made in Sri Lanka by any
person authorized by the Central Bank of Sri Lanka to accept payment for such sale in
foreign currency.
Note 03
Agriculture business means –
The business of producing agricultural, horticultural or any animal produce and includes and
undertaking for the purpose of rearing livestock or poultry.
Note 04
Information Technology means –
• Software development services; or
• The provision of information technology services under a business process outsourcing
arrangement or a knowledge process outsourcing arrangement;

Note 05
Undertaking for the promotion of tourism means – an undertaking for the operation of
• any hotel or guest house approved by the Ceylon Tourist Board; or
• any restaurant graded by the Ceylon Tourist Board as being in “Class A” or “Class
B”;
• any business of travel agent who provides travel management services for domestic
travel in Sri Lanka;
• any business of transporting tourists only; or
• any business approved by the Ceylon Tourist Board for providing facilities for
recreation or sports.

23 WITHHOLDING TAX
With effect from 1st
April 2018, following payment are subject to WHT at the rates given in
the table below,
Source Withholdee Rate Final Tax
Employment Income Resident and Non-
resident Individuals
At the rates specified
by the CGIR
Taxed at the
applicable rate
and Tax credit
available
Interest (Other than
from Government
Securities)
Resident Individual
(other than Senior
Citizen)
5% Final
Senior Citizen As per the prescribed
regulations (Exempt
up to Rs. 1.5Mn)
Final
Non-residents 14% (Subject to DTA)
Partners’ share of
Profit
Partners 8% Taxed at the
applicable rate
and Tax credit
available
Dividend Resident Person 14% Final
Rent Resident Person 10% Taxed at the
applicable rate
and Tax credit
available
Non-residents 14%
Royalty Resident Person 14% Taxed at the
applicable rate
and Tax credit
available
Discounts, Charge,
Natural Resource
Payments
Resident Person 14% Taxed at the
applicable rate
and Tax credit
available

Winning from a
Lottery, Reward,
Betting or Gaming
Any Person 14% Final
Service Fees And
Contract Payments
(Other Than For
Employment)
a) Teaching, Lecturing,
Examining,
Invigilating or
Supervising An
Examination;
b) Commission or
Brokerage, Sale or
Canvassing Agent;
c) Endorsement Fees;
d) Supply of Any
Article on Tender or
Quotation.
Resident Person 5% (On Amount
Exceeding Rs.
50,000/-)
Taxed at the
applicable rate
and Tax credit
available
Non-residents 14% Final
Gems sold at an
Auction of National
Gem & Jewelry
Authority
Any Person 2.5% Taxed at the
applicable rate
and Tax credit
available
• WHT Returns should be filed with Department of Inland Revenue within 30days from the
end of the year of assessment.
• Every Withholding Agent should remit the tax so withheld within 15 days after the end of
each calendar month.
• A WHT certificate should be prepared and served to the withholdee by the withholding
agent within 30 days after end of the month.

24 ADMINISTRATIVE PROVISION
24.1 Registration
Every person liable to furnish a return of income for a year of assessment, and who has not
already registered, should register within 30 days from the end of the year of assessment. The
CG may assign a Tax Payer Identification Number (TIN) which should be used in all
correspondence relating to the administration of tax payers file.
24.2 Year of Assessment
The year of assessment will be twelve months period ending 31st
March. However, companies
and Trusts may change the year of assessment with the approval of CG.
24.3 Payment of Tax
Income tax is payable in quarterly installments based on the estimated tax liability for the year
of assessment.
Due dates for the installment payments are as follows,
For persons whose Y/Aending on
31st
March
1st
Installment – on or before 15th
of August
2nd
of November
3rd
of February
4th
of May
Final payment on or before 30th
September
In other cases, On or before the 15th
day after each 3-month period
commencing at the beginning of each Y/A and
Final instalment on or before the 15th
day after the end
of each Y/A, unless it coincides with the end of one of
the 3 months periods.
The amount of each installment of tax payable by a person for any year of assessment is
calculated based on following formula.
Where;
A - The current estimated tax
B - The number of instalment remaining for the Y/A including the current installment
C - The sum of –
a) previous installments paid for the Y/A
b) Withholding Tax paid prior to the due date of installment payment
Installment = A - C
B

Every person who liable to pay tax in installment is required to file a statement of estimated
tax payable for the Y/A with the first instalment payment.
CG may specify tax payer who is not required to file a statement of estimate and CG makes an
estimate of the tax liability and inform the tax payer to make installment payments.
24.4 Filing of Tax Return
Every person changeable with income tax under Income Tax Act is required to file a tax return
in the form specified by the CG not later than 8 Months after end of each year of assessment.
Accordingly, any person whose year of assessment ending 31st
March, must file returns on or
before 30th
November. Since CG is empowered to grant approval for different period for year
of assessment, there can be multiple periods for filling the income tax return.
24.5 Tax Assessment
Depending on the circumstances, CG may make following
assessments
a) Self-Assessment –
Where a tax payer who has filed a return for any year of
assessment shall be treated as having made an assessment
of the amount of tax payable as set out in the return
(Including a nil return) for the relevant year of assessment.
Where a loss has been declared in Self-Assessment return,
the tax payer shall be treated as having made an assessment of the amount of loss.
b) Default assessment –
Where a tax payer has failed to file a tax return for a tax period, the CG may, based on any
evidence available and to the best of his judgement make a default assessment of the tax
payable by the tax payer.
c) Advance Assessment –
CG may, based on the evidence available and to the best of his judgement, make an advance
assessment in the following circumstances.
- The tax payer has not filed a tax return for the tax period
- The tax is collected by assessment
d) Amended or Additional Assessment –
The CG may amend the original assessment by making such alterations or additions based on
such evidence as may be available and to the best of his judgement to ensure that the tax payer
carried forward the correct amount of loss or the tax payer is liable to the correct amount of tax
payable.
Types of Assessments
a) Self-Assessment
b) Default assessment
c) Advance Assessment
d) Amended or Additional
Assessment

24.6 Time bar Provision
The assessment can be raised subject to following time barred
provision.
a) In the case of fraud or willful neglect at any time
b) In any other cases, within 30 Months from date of filing
the self-assessment return or the date on which the CG
served the notice of the assessment.
A tax payer who is dissatisfied with an assessment or decision may request CG to review the
decision giving the grounds within 30 days from the date of notification. A person aggrieved
with the decision of administrative review may appeal in the Tax Appeal Commission. If a
person not satisfied with the decision of the Appeal Commission may Appeal to the Court of
Appeal.
24.7 Penalties
Offence Penalty
Failure to register or notify of changes in
tax payer information
Not exceeding Rs. 50,000/-
Late filing of tax return Greater of 5% of the tax amount + 1% of the tax
per month/part and Rs. 50,000 + 10,000/- for
each month/part subject to a upper limit of Rs.
400,000/-
Late Payment
- Fails to pay all or part of tax due
within 14 days
- Fails to pay all or part of an
installment tax within 14 days
25% of amount due but not paid
10% of the amount due but not paid
Negligent or fraudulent underpayment
- If the underpayment is less than Rs.
10Mn or higher than 25% of the tax
amount
- If the under payment is more than
Rs.10Mn or higher than 25% of the tax
amount
25% of the underpayment
75% of the underpayment
False or misleading statement Greater of Rs. 50,000/- or amount underpaid
due to misleading statement
Failure to maintain documents Rs.1,000/- per day for each day of the failure
continues
Time bar Provision
• Fraud or willful neglect
- At any time
• In any other cases
- Within 30 Months

Failure to render reasonable facilities and
assistance to a tax official
Not exceeding Rs.10,000/-
Failure to comply with third party notice
( Notice to Debtors)
The difference between the amount payable by
the third party and the amount paid by due date
Failures to comply with notice to give
information
Not exceeding Rs. 1,000,000/-
24.8 Interest on Late Payment
In addition to the penalty, if the tax amount is not paid by due date, the tax payer is liable to an
interest of 1 1/2 % per month.

25 TRANSFER PRICING
25.1 Introduction
Arm's length price shall be applicable to any international transaction between any person or
partnership in Sri Lanka and its associated enterprises outside Sri Lanka or transactions
between associated enterprises in Sri Lanka in the ascertainment of any income, gain and
profits or loss to the person or partnership.
Permeant Establishment (PE) has been defined and any business organization that has a PE in
Sri Lanka shall be deemed to be a separate person from its head office and the transaction
between them will need to be ascertained having regard to Arm’s Length principle.
The payer are required to provide or maintained TP documentation as prescribe by the Gazette.
International transaction means –
A transaction between two or more associated enterprises either one or both of whom are non-
residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision
of services, lending or borrowing of money or any other transaction and includes any allocation
or apportionment of or any contribution to any cost or expense incurred or to be incurred in
connection with a benefit, service or facility provided or to be provided to any one or more
such associated enterprises under any mutual agreement or arrangement between two or more
such associated enterprises.
Associated Enterprises means –
"a person or partnership" shall be an associated enterprises of another enterprise, if one person
or partnership participates directly or indirectly or through one or more intermediaries in the
management, control or capital of the other person or partnership; or shall be deemed if one
person or partnership participates directly or indirectly or through one or more intermediates
in the management, control or capital in such manner or to such extent as may be specified.
For the purposes a PE also considered as an Associated Enterprises.
Safe Harbor Rule
In determining the arms length price, CG is empowered to introduce simplified transfer price
compliance requirements and prescribe comparable prices or margins.

25.2 Transfer Pricing Penalties
Offence Penalty
Required documents have not maintained Not exceeding 1% of aggregate value of
transaction with associated enterprises
Required documents have not been
submitted
Not exceeding Rs.250,000/-
Non-disclosure of any required
information
Not exceeding 2% of the value of transaction
with associated enterprises
Required documents have not been
submitted on the specified date
Not exceeding Rs. 100,000/-
Evading taxes by concealing particular of
income or furnishing inaccurate
particulars
200% of value of additional tax

26 VALUE ADDED TAX
The salient feature of changes in the VAT Law in the recent past is briefly described below.
26.1 Threshold for VAT Registration
The registration threshold has been revised with from April 1, 2016.
Supply Threshold
Supply of goods or services or supply of
goods and services (other than wholesale or
retail trade)
Rs.3 Mn. per quarter or Rs.12 Mn. per annum
or likely to exceed Rs.3 Mn. in the
succeeding quarter or Rs. 12 Mn. in the
succeeding twelve months period
A person or partnership engaged in the
business of wholesale or retail trade
Turnover/supplies exceed Rs. 12.5 Mn. per
quarter (including exempt or excluded
supplies) with effect from November 01,
2016.
VAT liability on wholesale and retail supply of goods continues other than deemed VAT
liability on the supply of exempt goods. The removal of the deemed VAT liability is effective
from January 01, 2016.
26.2 Deemed Input VAT
A deemed input VAT will be allowed to persons who would become liable to be registered on
or after May 2, 2016 under the category of wholesale or retail trade due to the reduction of the
threshold of supply for registration referred to in item in above;
- On account of the goods which are liable for VAT, if purchased from Non-Registered
persons;
- On the stock (if any) of VAT liable saleable goods remain unsold as at the date of
registration for VAT, if such registration takes place at any date on or after May 2, 2016
but prior to December 31, 2016,
Subject to maintenance of proper records for such purchases or stocks as specified by the
Commissioner General by Order published in the Gazette;
26.3 VAT Rate
The VAT rate on supply of Goods or Services including the supply of Financial Services has
been 15% with effect from November 01, 2016.

26.4 VAT on Local sale of Garments and Fabrics
VAT on local sale of garments and fabric listed below by export oriented garment companies,
is increased to Rs. 75/-
i. Locally supplied garments by export oriented garment companies as permitted by the
BOI/DGC;
ii. Locally supplied fabrics or the following fabric products by such companies as
permitted by the BOI/DGC:
- Linen or curtains/per kilogram;
- Towel /per item;
- Bag made out of fabric /per item;
- Excess fabric as cut pieces not more than two meters in length /per kilogram; or
- Any other fabric /per kilogram.
26.5 VAT on Operating Leases
Supplying of leasing facilities under any operating lease agreement is removed from VAT on
financial services and made liable under normal VAT.
26.6 Removal of Exemption
The following exemptions are made liable for VAT for the period from May 2, 2016 to
July 11, 2016 and for any period with effect from November 01, 2016:
- Supply of telecommunication services;
- Import or supply of telecom equipment or machinery, high-tech equipment including
copper cables for telecom industry;
- The issue of licenses to local telecom operators by TRC;
- Supply of healthcare services provided by medical institution or professionally
qualified person.
However, when supplying the healthcare services, VAT will not be charged on the cost
of the following services charged to the customer other than the cost related to medical
consultation services included in such cost:
• diagnostic tests;
• dialysis; and
• services provided by the OPD
- The supply of goods or services to any specified project approved on or after
02.05.2016 other than housing projects.
The following exemptions are removed and made such supplies liable to VAT with effect
from November 01, 2016:
 The import or supply of milk powder;
- The supply of locally produced powdered milk containing added sugar or other
sweetening matter out of locally produced fresh milk;
- The supply of any goods or services (other than exempt goods or services) provided by
any Cooperative Society or Lak Sathosa;
- The import or supply of cigarettes;

- The import or supply of liquor;
- The import or supply of light weight electrical and electronics [referred to in sub item
(c) of item (xix) of paragraph (a) of PART II of the First Schedule];
- The import or supply of perfumes;
- The supply of locally manufactured jewelry;
- The import or supply of coal;
- The import or supply of spare parts and accessories for exclusive use by Sri Lanka
Transport Board and Department of Sri Lanka Railways; and
- The lease or rent of residential accommodation (including long term leases)
26.7 New VAT Exemption
The supply of residential accommodation other than lease or rent are made exempt from VAT
with effect from November 01, 2016.
26.8 Taxable Period
Nature of Supply Taxable Period
Any persons make zero rated supplies (Exporters) One Month
Any persons who has obtained RIP status. One Month
Where any persons registered with the Textile Quota Board (TQB) or
Export Development Board (EDB)
One Month
Any persons has commenced a business and undertakes to comply with
the requirement of Section 22(7) of VAT Act.
One Month
All the other cases Three Months
26.9 Filling of Returns and Payments
Payments
Every registered person (other than manufactures) is require paying VAT twice a month on a
self- assessment basis.
- For the period from the 1st day to 15th day of any month on or before the end of that
month.
- For the period from the 16th day to the end of the month on or before the 15th day of
the subsequent month.
Manufactures for each month are due on or before the 20th day of the subsequent month.
Filing of Returns
VAT Returns for each taxable period must be submitted on before the 30th day of the
subsequent month.

26.10Payment Period Codes
Manufacturers – Quarterly
Payment period
from
Payment period
to
Period cord Due Date Installment
No.
01.01.2018 31.01.2018 18110 20.02.2018 1
01.02.2018 28.03.2018 18120 20.03.2018 2
01.03.2018 31.03.2018 18130 20.04.2018 3
01.04.2018 30.04.2018 18210 20.05.2018 1
01.05.2018 31.05.2018 18220 20.06.2018 2
01.06.2018 31.06.2018 18230 20.07.2018 3
Manufacturers – Monthly
Payment period
from
Payment period
to
No.
01.01.2018 31.01.2018 18110 20.02.2018 N/A
01.02.2018 28.03.2018 18120 20.03.2018 N/A
01.03.2018 31.03.2018 18130 20.04.2018 N/A
01.04.2018 30.04.2018 18210 20.05.2018 N/A
01.05.2018 31.05.2018 18220 20.06.2018 N/A
01.06.2018 31.06.2018 18230 20.07.2018 N/A
Other than Manufacturers – Quarterly
Payment period
from
Payment period
to
No.
01.01.2018 15.01.2018 18111 31.01.2018 1
16.01.2018 31.01.2018 18112 15.02.2018 2
01.02.2018 15.02.2016 18121 28.02.2018 3
16.02.2018 28.02.2018 18122 15.03.2018 4
01.03.2018 15.03.2018 18131 31.03.2018 5
16.03.2018 31.03.2018 18132 15.04.2018 6
01.04.2018 15.04.2018 18211 30.04.2018 1
16.04.2018 30.04.2018 18212 15.05.2018 2

27 NATION BUILDING TAX
Recent changes made to NBT law is highlighted in this chapter. The given information is based
on the NBT (Amended) Act No.13 of 2017 published in the Gazette on August 11, 2017.
27.1 Liable Articles
i The following articles are made liable with effect from August 01, 2017
(a) Supply of any goods required for the purpose of providing of services of
international transportation, being goods consigned to Sri Lankan Airlines Ltd,
Mihin Lanka (Pvt) Ltd or Air Lanka Catering Services Ltd;
(b) Supply of any goods provided by any Cooperative Society or Lak Sathosa;
ii Supply of Lubricants are made liable for the period from May 03, 2016 to July 10,
2016 and after November 01, 2016. (Petroleum and petroleum products other than
lubricants are continuing to be exempted)
27.2 Excepted Articles
Supply of printed books, magazines, journals, or periodicals other than newspapers are made
exempt with effect from August 01, 2017
27.3 Liable Services
The following services are made liable with effect from August 01, 2017
a) Construction services by a contractor other than by a sub-contractor (Services of a
Sub- contractor continue to be exempted.)
b) Services of a travel agent in respect of inbound tours other than services where the
payment is received in foreign currency through a bank;
c) The construction and sales of residential accommodation.
d) Supply of any services provided by any Cooperative Society or Lak Sathosa;
e) Services rendered, for payment in foreign currency, to any person or partnership
outside Sri Lanka and if such service are utilized in Sri Lanka will be liable.
(However,
27.4 Excepted Services
a) Supply of international telecommunication services to local operators by External
Gateway Operators are made exempt with effect from August 01, 2017
b) Supply of electricity other than supply of electricity by Ceylon Electricity Board
are made exempt with effect from April 01, 2017

27.5 Threshold for NBT Registration
The threshold of liable turnover of NBT per quarter is Rs. 3 Mn.
Every Person or Partnership who or which,
a. Carries on the business of manufacture of any article (other than any excepted
article),
b. Carries on the business of providing any service including business of providing
any Financial Service (other than any excepted service), or
c. Carries on the Wholesale or Retail Trade,
is required to pay NBT at 2% on the liable turnover.
In calculating the turnover from wholesale or retail trade, following should be excluded,
- Sale of goods which are subjected to the Special Commodity Levy being sales made
directly by the importer of such goods
- Pharmaceuticals
- Gems or jewelry for payment in foreign currency by authorized persons,
- Any printed book,
- Fresh milk,
- Green leaf,
- Cinnamon or rubber (latex, crape or sheet rubber) purchased from any manufacturer or
producer thereof,
- Export of any article,
- Sale of any article to any exporter for export,
- Distribution of LP Gas,
- Sale of any article at duty free shops for payment in foreign currency,
- Sale of petrol, diesel or kerosene in a filling station,
- Cigarettes,
- Vehicles or liquor categorized under HS code Chapter 87, 2203, 2204, 2205, 2206, 2207
and 2208 which are subjected to Excise (Ordinance) Duty or Excise (Special Provisions)
Duty as the case may be being sales made directly by the importer or manufacturer of
such goods.
The following components do not form part of liable turnover of any of the above categories
- VAT component;
- Bad debts incurred (However, bad debts previously written off and recovered
subsequently to be taken into account);
- Excise Duty paid under the Excise Duty (Special Provisions) Act No. 13 of 1989 in
that quarter, other than such Excise Duty paid on the importation;
- Rebate paid under Export Development Rebate Scheme;
- Turnover from the supply of any goods or services in relation to any international
event approved by the Minister.
Any article imported (other than excepted articles) is liable to NBT at the point of Customs
on the value for VAT purposes at that point. If such article is sold subsequently without subjecting
it to any manufacturing process, sale of such article is liable to NBT as Wholesale or Retail sale.
75% of the liable turnover from wholesale of any distributor (as defined in the Economic Service
Charge Act) and 50% of the liable turnover from the other wholesale or retail sale can be deducted
as a rebate. [Liability exists if the liable turnover exceeds the exempt threshold per quarter
before making this adjustment.]

Highlights of budget 2018 and tax updates

Highlights of budget 2018 and tax updates

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