Tax Legislation Overview and Changes
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Questions and Answers

What was the effective date for the removal of the Nation Building Tax (NBT) in Sri Lanka?

01st December 2019

Which Act instituted the Remittance Fee in Sri Lanka?

Foreign Exchange Act, No. 12 of 2017

Which tax was abolished alongside the Nation Building Tax (NBT) on 01st December 2019?

Debt Repayment Levy (DRL)

What legislation governs the Casino License Fee in Sri Lanka?

<p>Casino Business (Regulation) Act, No. 17 of 2010</p> Signup and view all the answers

When was the Economic Service Charge (ESC) abolished?

<p>01st December 2020</p> Signup and view all the answers

Which tax was removed effective 01st January 2016?

<p>Construction Industry Guarantee Fund Levy (CIGFL)</p> Signup and view all the answers

What is the new mechanism for taxation introduced under the IR Act No.24 of 2017 for high revenue compliance?

<p>The 'Self Estimated Tax' mechanism.</p> Signup and view all the answers

Explain the concept of 'Final Withholding Payment' in the context of the IR Act No.24 of 2017.

<p>It refers to tax payments that are considered final and settled at the point of withholding by the payer.</p> Signup and view all the answers

What are the three corporate income tax rates stipulated by the IR Act No.24 of 2017?

<p>14%, 28%, and 40%.</p> Signup and view all the answers

Identify the tax rate for rent paid to a resident person according to the withholding tax provisions.

<p>10%.</p> Signup and view all the answers

What role does the withholding agent play under the new tax regulations?

<p>The withholding agent is responsible for deducting the tax at source and remitting it to the tax authority.</p> Signup and view all the answers

Which income sources now have a more practical alignment with accounting according to the IR Act No.24 of 2017?

<p>Four specified income sources.</p> Signup and view all the answers

What is the withholding tax rate for payments made to a non-resident person as per the IR Act?

<p>It is specified in the IR Act or the relevant Double Taxation Avoidance Agreement.</p> Signup and view all the answers

What is the withholding tax rate applied to partners’ relevant share of any partnership income?

<p>8%.</p> Signup and view all the answers

What was the initial tax rate on divisible profit for partnerships from 01.04.2018 until 31.12.2019?

<p>8%</p> Signup and view all the answers

What is the tax rate on divisible profit for partnerships effective from 01.01.2020?

<p>6%</p> Signup and view all the answers

What remains constant regarding the capital gain tax for partnerships between 2018 to 2022?

<p>10%</p> Signup and view all the answers

What change occurred with the partnership income tax rate on divisible profits effective from 01.10.2022?

<p>It remained 6%.</p> Signup and view all the answers

Who is responsible for the tax regulation updates mentioned in the document?

<p>D.M.G.S.K.Dissanayake, CIR, Department of Inland Revenue Sri Lanka</p> Signup and view all the answers

What type of tax is applied to the divisible profit under the proposed rates from 01.10.2022?

<p>Partnership Income Tax - PIT</p> Signup and view all the answers

What is the VAT standard rate set to on 01.01.2024?

<p>18%</p> Signup and view all the answers

As of 01.01.2022, what is the VAT rate for food and services?

<p>18%</p> Signup and view all the answers

What was the VAT registration threshold for wholesale and retail trading activities in 2013?

<p>Rs.3Mn per Quarter</p> Signup and view all the answers

What was the maximum VAT registration threshold for wholesale and retail trading activities by 01.01.2020?

<p>Rs.75Mn per Quarter</p> Signup and view all the answers

When was the Social Security Contribution Levy introduced?

<p>01st October 2022</p> Signup and view all the answers

What did the telecommunications levy tax rate change to on 01st June 2022?

<p>15%</p> Signup and view all the answers

Which thresholds were proposed to be reduced under the Betting & Gaming Levy?

<p>Liable thresholds</p> Signup and view all the answers

What was the change in tax rate for the Betting & Gaming Levy?

<p>From 10% to 15%</p> Signup and view all the answers

How is assessable Net Rent calculated for individuals in Sri Lanka?

<p>Assessable Net Rent is calculated by deducting actual expenses from the gross rent or by deducting 25% as a Qualifying payment.</p> Signup and view all the answers

What was the withholding tax (WHT) rate on gross rent in Sri Lanka until December 31, 2019?

<p>The withholding tax rate on gross rent was 10% up to December 31, 2019.</p> Signup and view all the answers

What is the income tax rate applicable to individuals for rental income in Sri Lanka from January 1, 2020?

<p>From January 1, 2020, individuals are taxed on rental income at progressive rates of 6%, 12%, or 18% depending on their income bracket.</p> Signup and view all the answers

What is the income tax rate applicable to companies for rent income in Sri Lanka?

<p>Companies are liable for income tax on rent income at a rate of 24%.</p> Signup and view all the answers

What can individuals claim regarding WHT on rent paid up until December 31, 2019?

<p>Individuals can claim the WHT paid on rent as tax credits when calculating their income tax liability.</p> Signup and view all the answers

What change occurred in the taxation of rent income in Sri Lanka after January 1, 2020?

<p>After January 1, 2020, gross rent received became liable for income tax rather than WHT.</p> Signup and view all the answers

Study Notes

Tax Legislation Overview

  • Migrating Tax established under Act No. 13 of 2007.
  • Finance Act No. 10 of 2015 introduced Tax on Voluntary Disclosure.
  • Surcharge Tax enacted through the Surcharge Tax Act No. 14 of 2022.
  • Remittance Fee regulated by the Foreign Exchange Act No. 12 of 2017.
  • Casino License Fee governed by the Casino Business (Regulation) Act No. 17 of 2010.

Recent Tax Abolishments

  • Nation Building Tax (NBT) removed effective 01st December 2019.
  • Debt Repayment Levy (DRL) abolished on 01st December 2019.
  • Economic Service Charge (ESC) repealed as of 01st December 2020.
  • Construction Industry Guarantee Fund Levy (CIGFL) ceased on 01st January 2016.

Changes to Income Tax (IR Act No. 24 of 2017)

  • Introduced four income sources aligned with accounting principles.
  • "Final Withholding Payment" concept implemented for tax purposes.
  • PAYE (Pay As You Earn) made mandatory for employment income, allowing refunds.
  • Withholding Tax (WHT) responsibilities expanded for agents and withholdees.
  • "Self Estimated Tax" method rolled out to enhance revenue compliance.
  • Individual Income Tax (IIT) system revamped for efficiency.
  • Partnership Income Tax (PIT) introduced for partnerships.
  • Corporate Income Tax (CIT) features a three-tier rate system: 14%, 28%, and 40%.

Withholding Tax Rates (up to 31.12.2019)

  • PAYE tax rates for employment income ranged across Tables 01-07.
  • Interest paid to individuals subject to a 5% withholding rate if exceeding Rs. 1,500,000.
  • Rent paid to residents taxed at 10% withholding rate.
  • All other payments had a standard withholding tax of 14%.
  • Partnership profit allocations taxed at 8%.
  • Specific gem sales subject to a reduced withholding rate of 2.5%.
  • Non-resident payment withholding tax aligned with the IR Act or relevant double taxation agreements.

Partnership Income Tax Rate Changes

  • Previous WHT on divisible profits was 8%, now 6% effective from 01.01.2020.
  • Capital Gains Tax for partnerships remains at 10%.

Value Added Tax (VAT) Adjustments

  • Standard VAT rate is set to increase to 18% from 01.01.2024.
  • VAT on Financial Services adjusted from 15% (up to 31.12.2021) to 18% (effective 01.01.2022).

VAT Registration Threshold Changes

  • Progressive adjustments to VAT registration thresholds affecting wholesale and retail activities, with pivotal changes on:
    • 01.01.2013: Rs. 3Mn per quarter (for retail trading of Rs. 500Mn).
    • 01.01.2014: Rs. 3Mn per quarter (retail of Rs. 250Mn).
    • 01.01.2020: Rs. 75Mn per quarter (retail of Rs. 75Mn).
    • 01.01.2023: Rs. 20Mn per quarter (retail of Rs. 20Mn).

Introduction of New Taxes

  • Social Security Contribution Levy (SSCL) initiated on 01st October 2022.
  • Telecommunication Levy increased from 11.25% to 15% as of 01st June 2022.
  • Proposed adjustments to Betting & Gaming Levy from 10% to 15% while reducing liable thresholds.

Rent Income Taxation

  • Assessable income from rent determined by net rent calculation, deducting actual expenses from gross rent.
  • For individuals, net rent can also be calculated using a 25% qualifying payment deduction.
  • Gross rent subjected to a 10% WHT until 31.12.2019; no WHT from 01.01.2020.
  • WHT payments before 31.12.2019 can be credited against tax liability.
  • Current income tax rates apply to gross rent with individuals taxed at progressive rates (6%, 12%, or 18%) and partnerships at 6%; companies at 24%.

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Test your knowledge on the various tax legislations and recent changes in tax policies, including the introduction and abolishment of different taxes. This quiz covers key acts and regulations that shape the current tax landscape.

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