2022 Budget update

The 2022 Budget proposal is out!

The current minister of finance has brought forward the budget proposal for the year 2022, focusing on directing the country towards a journey of revival and recovery.

The Sri Lanka Budget for 2022 had a few key points of focus that would affect the business community directly. We have summarized all those key points in this blog in order for you to easily

Special Goods and Service Tax

A special Goods and Service Tax (GST) will be applicable on alcohol, cigarettes, telecommunication, vehicles, betting, and gaming. This is targeted to improve the efficiency of tax collection by unifying multiple institutions. Management of these taxes will be implemented online with effect from 01st January 2022. 

25% Surcharge tax

A surcharge tax of 25% will be charged from both individuals and companies that have a taxable income of over LKR 2 Billion for the year ahead 2020/2021.

Social Security Contribution

The budget for 2022 proposes to implement a Social Security Contribution of 2.5% effective from 01st of April 2022, applicable to those who tend to have a turnover exceeding LKR 120 Mn annually.
You need to submit your SET calculation for the entirety of the financial year (2021/2022 in this case) on the 15th of AThis tax has been put in place with the aim of rebuilding the country’s economy, which has been affected by the COVID pandemic. However, the application is expected to be temporary.

Establishment of new investment zones

Dedicated investment zones for the following industries are proposed to be established by the 2022 budget proposal: 

• Organic fertilizer
• Pharmaceuticals
• Raw material for textile and apparel industry
• Rubber industrial products
• Export based agro-processing
• Livestock
• Agricultural equipment and machinery
• Fisheries and aquaculture development
• Production and chemical materials
• Electronic appliances and IT products
• Production of sports equipment
• Steel and heavy metal industry

Special projects like developing the Colombo Port as an Entrepot Hub, the Trincomalee Port as an industrial Port, the Galle Port as a Tourist Port, and the Hambanthota Port as a Service Port will be given special attention with the intention to revive the country’s economy further.

Value Added Taxes (VAT)

VAT on financial services is proposed to increase to 18% from the previous 15%. This is a temporary implication for the period from 01st January 2022 to 31st December 2022. This tax will not be shifted to the customers.

Excise duty and Cess

1. A grading system has been proposed to be implemented for exporters in order to provide free customs facilities to those with high grades.
2. It has also been proposed to increase the excise duties on cigarettes and liquor.
3. The Harmonized System code which is currently being used in customs will be updated along with the introduction of advanced technological tools that are globally being used in custom operations
4. The custom duties and CESS rates (excluding liquor, cigarettes, motor vehicles and domestically produced agriculture products) have been proposed to be simplified together with the licensing mechanism for imports. It was also proposed that establishment of a Single Window System to facilitate the import-export process by integrating all institutions that are connected with Sri Lanka Customs.

Tax administration

1. In order to further increase the revenue generated from large taxpayers, the Inland Revenue Department (IRD) will take measures to strengthen the ‘Large Taxpayer’s Unit’ and Upper Corporate Unit.
2. There will be measures taken to connect all banks and financial institutions with Lanka Clear through an online payment platform.
3. The Excise department hopes to implement a digital revenue collection system and simplify it’ss licensing process.
4. No business registration fees in the year 2022 in an attempt to promote start-ups
5. There will be amendments made to the Finance Act to simplify the complex process for new business registration process adopted by the Board of Investment, Department of Foreign Exchange and Export Development Board and consolidate fees levied by various institutions in this regard.
6. Several amendments will be introduced to the tax law in relation to digital identification numbers and other legal requirements. The tax filing system is proposed to allow the submission of digital invoices and documents through a digital platform.

Other taxes and levies

1. Introduction of a fee for modernization, modification or upgrading of vehicles. 
2. Introduction of a fee for vehicles that undergo motor traffic accidents and allowing the insurer to reimburse the fee from the insurance.
3. It was proposed to legalize all unauthorized roadworthy motor vehicles by paying a penalty during a period of amnesty.
4. Introduction of a licensing system for conducting leisure-related activities at premises developed as special zones.
5. Proposal to issue a telecom related license by the Telecommunication Regulatory Commission will be carried out by way of an auction.