The Parliament of Sri Lanka passed a new Inland Revenue Act on 7 September 2017, although it is yet to be certified by the Speaker of the Parliament. The new act will take effect on 1 April 2018 for the 2018/19 Year of Assessment and later years.
The government has indicated that it will publish related regulations by end of this year. Highlights of the new IRA are as follows:
- The sources of income have been condensed and re-classified from ten categories currently to four categories: employment, business, investment and other.
- The tax on capital gains arising on investment assets has been reintroduced at the rate of 10 percent.
- The tax-free allowance for the employees has been increased.
- The loss utilization rules have been revised, limiting the carryforward of losses to 6 years.
- The scope of the withholding tax has been expanded, and withholding tax rates have been revised. Withholding tax will apply to service payments to resident individuals and certain other services that the minister of finance may prescribe.
- The tax rate for dividends and certain interest has been increased to 14 percent (from 10 percent).
- A three-tier tax rate structure has been introduced. The highest rate of 40 percent applies to businesses in the liquor, tobacco and betting and gaming industries, while the lowest 14 percent rate applies to certain identified industries. All other businesses are taxed at the standard rate of 28 percent.
- The time bar for raising assessments has been extended to 30 months and 4 years, except for default assessments. The time for the Commissioner General of Inland Revenue to determine an appeal has been reduced to 3 months.
- Sri Lanka’s advanced ruling system has been strengthened.
- The Department of Inland Revenue has been given enhanced powers to revisit transactions, especially those between associated persons.
- Certain provisions have been introduced in relation to the Double Tax Treaty Agreements.
- Enhanced depreciation allowances have been introduced for investments in certain regions based on the investment’s value.