As Sri Lanka’s fiscal year 2023/2024 unfolds, it’s crucial for taxpayers, businesses, and professionals to stay informed about the latest tax regulations and financial implications.
Income Tax
Individual Income Tax (IIT)
- Personal Relief: All residents and non-residents are now entitled to a substantial Personal Relief of Rs. 1,200,000, reducing the overall taxable income.
- Rent Relief: Taxpayers can now deduct 25% of their total rental income.
- Solar Panel Deduction: Encouraging sustainable energy, up to Rs. 600,000 per year can be deducted for installing solar panels connected to the national grid.
- Progressive Tax Rates: The IIT rates start at 6% for the first Rs. 500,000 of taxable income, and gradually increase for higher income brackets, reaching 36% for incomes exceeding Rs. 3,000,000.
- Special Rate for Specific Gains: A higher rate of 40% is applicable to income from certain sectors like liquor, tobacco, betting, and gaming.
Partnership and Corporate Income Tax
- Partnerships:
- A significant incentive for small partnerships is the introduction of zero tax on income up to Rs. 1,000,000.
- For income exceeding Rs. 1,000,000, a nominal tax rate of 6% is applied.
- Corporations:
- A higher tax rate of 40% is set for specific industries such as gaming and tobacco.
- Other corporate incomes are taxed at a standard rate of 30%.
- Other Entities:
- Trusts, charities, NGOs, and funds such as Employees’ Trust Fund (ETF) and Employees’ Provident Fund (EPF) have specific rates from 14% to 30%.
Qualifying Payments
- Individuals and entities can deduct certain amounts from their taxable income, subject to specified limits.
| ax Payer | Maximum amount deductible as Qualifying Payment |
| Individual | Whichever is lower of the following:1/3 of the individual’s taxable income for the Y/A or, Rs. 75,000 |
| Entity | Whichever is lower of the following:1/5 of the entity’s taxable income for the Y/A or, Rs. 500,000 |
Value Added Tax (VAT)
- A pivotal change sees the standard VAT rate increasing from 15% to 18% from January 1, 2024.
- VAT registration is required if taxable supply value exceeds Rs. 20 million in a taxable period or Rs. 80 million over twelve months.
Social Security Contribution Levy (SSCL)
- The SSCL introduces a new structure based on liable turnover, with rates and thresholds specified for different sectors.
- Threshold to apply for SSCL registration:
- Per quarter: Turnover exceeds Rs. 30 million, or,
- Per annum: Turnover exceeds Rs. 120 million
| Sector | Percentage of liable turnover |
| Distributor | 25% |
| Wholesale/ Retail | 50% |
| Manufacturing | 85% |
| Services | 100% |
| Financial Service | 100% |
Withholding Tax (WHT) and Advance Income Tax (AIT)
- Various payments, including services fees, rent, and winnings from lotteries or gambling, are subject to specific WHT/AIT rates.
Administrative and Legal Changes
- Several amendments aim to streamline revenue administration and clarify existing provisions. This includes:
- Special tax return requirements for withholding tax on gem sales
- Mandatory submission of a Tax Identification Number (TIN) for various transactions
- A change in the tax treatment of salary arrears, effective from January 1, 2024
As Sri Lanka adapts to these tax changes, it is crucial for individuals and businesses to stay informed and compliant.
If you have any tax-related queries or need guidance, please don’t hesitate to contact us for professional assistance. Simply fill out this contact form, and we will get back to you. Alternatively, you are welcome to reach out to us at:
- Call: 077 270 5624
- Email: tax@simplebooks.com
Our team is ready to provide you with the support and information you need to navigate these changes effectively.
