Sri Lanka – 2015 interim budget proposals

Sri Lanka – 2015 interim budget proposals

KPMG in Sri Lanka provides updates on taxes and levies introduced or amended in the 2015 interim budget proposals, which were passed by Sri Lanka’s parliament in October 2015.

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Value added tax (VAT) rate and threshold

The standard rate of VAT has been reduced to 11 percent (from 12 percent) as of 1 January 2015, while the threshold was increased to 15 million Sri Lankan rupees (LKR) in supplies per year (from LKR 12 million). 

For wholesale and retail trade, the liability threshold is reduced from LKR 250 million per quarter of value of supplies to LKR 100 million per quarter for a period of three months with effect from 1st January 2015. 

New and enhanced VAT exemptions

New VAT exemptions are introduced for the following items:

  • imports or supplies of agricultural tractors, or road tractors for semi-trailers 
  • ethyl alcohol imported or manufactured and supplied as a by-product 
  • machinery, equipment or spare parts imported by Sri Lanka ports authority to be used exclusively within its ports 
  • imports or supplies of motor vehicles including unsold stocks as of 25 October 2014  
  • imports or supplies of cigarettes including unsold stocks as of 25 October 2014 
  • imports or supplies of liquor including unsold stocks as of 25 October 2014 
  • supplies of locally manufactured coconut milk as of 1 November 2015

The exemption for the import of samples for business purposes rose to LKR 50,000 (from LKR 25,000). 

Additionally, telecommunication services have been specifically excluded by the Telecommunication Levy Act and are exempt from the levy as of January 2014.

Changes affecting the leasing industry

Any new lease entered into after 25 October 2014 is liable for VAT on financial services on the basis that a lease is a ‘supply of financial service’. Existing exemptions for motor coaches, lorries, tractors and other items listed on the exemption schedule for finance leases are withdrawn in respect of lease agreements entered into after 25 October 2014 and are subject to VAT on financial services. However, the leasing of land and buildings continues to be subject to normal VAT. 

Leases in effect after 25 October 2014 that were entered into before that date continue to be subject to normal VAT. 

Dispositions of repossessed vehicles supplied under finance lease agreements entered into before 25 October 2014, are subject to VAT where the lessor has claimed an input credit on the agreement. 

Supplies excluded from deemed VAT liability

Wholesale and retail supplies of locally produced, fresh milk, rice, fruits and vegetables are not subject to the deemed VAT liability.

Changes to the nation-building tax (NBT)

Threshold

The threshold for application of the NBT is increased to LKR 15 million per year (from LKR 12 million). 

Real estate business

The business of real estate, including improvements, is now included in the definition of a ‘service’ and thus liable for NBT. Projects involving the construction and sale of residential accommodation with a project value of up to 10 million US dollars (or equivalent) are excepted services and exempt from NBT. 

Finance leasing of movable properties

The NBT exemption for finance leasing of movable properties is eliminated as of 25 October 2014. After 25 October 2014, finance leasing of movable property is liable for NBT on financial services. 

Wholesale and retail trade

Turnover arising from the following articles is not subject to NBT:

  • liquified and liquid petroleum gas 
  • imports and sales of motor vehicles by the importer, including unsold stock as of 25 October 2014 
  • imports and sales of cigarettes by the importer, including unsold stock as of 25 October 2014 
  • imports and sales of liquor by the importer, including unsold stock as of 25 October 2014. 

New exemptions

Exemptions from the NBT are introduced for the following items:

  • machinery or equipment purchased locally for the purpose of generating electricity by the CEB or by any institution that has entered into an agreement with Ceylon Electricity Board with the approval of the Minister of Finance
  • imports of machinery, equipment and spare parts by Sri Lanka ports authority 
  • telecommunication services liable to telecommunication levy and the telecommunication services specifically excluded by the Telecommunication Levy Act, as of 1 January 2014.
  • imports or manufacture of motor vehicles including unsold stock as of 25 October 2014 
  • imports or manufacture of liquor including unsold stock as of 25 October 2014 
  • imports or manufacture of cigarettes including unsold stock as of 25 October 2014. 

Additionally, the exemption for imports of samples for business use is increased to LKR 50,000 (from LKR 25,000). 

New taxes and levies added to the Finance Act

Mansion tax

Owners of mansions constructed on or after 1 April 2000 for residential purposes are subject to an annual levy of LKR 1 million. For this purpose, a ‘mansion’ is any building:

  • with a floor area per the approved building plan of more than 10,000 square feet, or 
  • with a value of LKR 150 million, as determined by the Government Chief Valuer. 

Migration tax

Citizens who leave Sri Lanka permanently and transfer money out of the country are liable to a tax of 20 percent on the foreign exchange arising on the transfer. 

Motor vehicle importer license fee

Importers of motor vehicles (except for private use) will be charged an annual Import license fee of LKR 1.5 million with effect from 01 January 2016. 

One-off levies

Bars and taverns levy – A one-off levy of LKR 250,000 per license is payable by 15 November 2015 by any person who holds licenses as listed in the statute as of 31st March 2015. 

Casino industry levy – A one-off special levy of LKR 1 billion is payable by 15 November 2015 by any person carrying on the business of operating a casino as of 29 January 2015. 

Super gains tax – A 25 percent one-off tax on taxable profits applies to:

  • companies and individuals who have earned profits over LKR 2 billion in the tax year 2013/14 
  • each company of a group of companies where aggregate accounting profits before tax of the group exceeds LKR 2 billion for the 2013/14 assessment year
  • each company of a group of companies having profits before tax exceeding LKR 2 billion, regardless of the aggregate accounting profits before tax of the group. 

Mobile telephone operator levy – Licensed mobile telephone operators are required to pay a one-off levy of LKR 250 million by 15 November 2015. 

Satellite location levy – A one-off levy of LKR 1 billion is payable by any person who owned a satellite and was permitted to utilize Sri Lankan satellite locations on or before 15 November 2015. 

Dedicated sports channel levy – A levy of LKR 1 billion is payable by any person who was operating an island-wide, dedicated sports channel using five or more transmitting locations on or before 15 November 2015.

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