Everything you need to know about the new Income Tax Changes

The Inland Revenue (Amendment) Bill was published in the Gazette on the 11th of October 2022. This new bill was issued to amend the old tax laws under the Inland Revenue Act, No.24 of 2017 and improve the financial state of the country. So, if you’re here to get the tea on the new income tax changes and how they’ll apply to you, keep reading!

In this blog, we will break down and simplify the new income tax changes, making it easier for you to do your part as a tax-paying citizen.

Individual Income Tax Changes

The below income tax rates are applicable to all resident and non-residents citizens:

Taxable income from 1st of April 2022 – 31st of December 2022 (First 9 months)

Taxable Income	Tax Rate
First Rs.2,250,000	6%
Next Rs.2,250,000	12%
Balance	18%

Taxable income from 1st of January 2023 – 31st of March 2023 (Balance 3 months)

Taxable Income	Tax Rate
First Rs.125,000	6%
Next Rs.125,000	12%
Next Rs.125,000	18%
Next Rs.125,000	24%
Next Rs.125,000	30%
Balance	36%

Taxable income from 1st of April 2023 onwards

Taxable Income	Tax Rate
First Rs.500,000	6%
Next Rs.500,000	12%
Next Rs.500,000	18%
Next Rs.500,000	24%
Next Rs.500,000	30%
Balance	36%

Personal Relief Threshold

The below personal relief thresholds apply to all resident and non-residents citizens:

Time Period	Relief
1st of April 2022 – 31st of December 2022	Rs.2,250,000
1st of January 2023 – 31st of March 2023	Rs.300,000
From 1st of April 2023 onwards	Rs.1,200,000

Expenditure Relief

Time Period	Relief
1st of April 2022 – 31st of December 2022	Rs.900,000
From 1st of January 2022 onwards	Not applicable going forward

Note – Expenditure relief is available for residents only

Other exemptions/changes

The maximum tax rate of 14% for individual income from the following sources will no longer be applicable

a . payment received in respect of gems and jewellery
b . payment received on the supply of electricity to the national grid generated by using renewable energy resources by any individual

Advance Personal Income Tax (APIT) Changes

• APIT will be applicable to all employment defined (as per defined by the Commissioner General of Inland Revenue) regardless of consent provided by the employee, effective from the date of the commencement of the Amendment Act.
• The IRD is yet to prescribe the APIT Tables.

Corporate Income Tax Changes

Standard Tax Rate

Time Period	Tax Rate
1st of April 2022 – 31st of December 2022	24%
1st of January 2023 – 31st of March 2023	30%
From 1st of April 2023 onwards	30%

Concessionary Tax Rate

Time Period	Tax Rate
1st of April 2022 – 31st of December  2022	14%
1st of January 2023 – 31st of March 2023	30%
From 1st of April 2023 onwards	30%

Liquor, Tobacco, Betting and Gaming Tax Rates

Time Period	Tax Rate
1st of April 2022 – 31st of December  2022	40%
1st of January 2023 – 31st of March 2023	40%
From 1st of April 2023 onwards	40%

Capital Gain Tax Rate for Corporates

Time Period	Tax Rate
1st of April 2022 – 31st of December  2022	10%
1st of January 2023 – 31st of March 2023	30%
From 1st of April 2023 onwards	30%

Capital Gains Tax rates for Partnership / Trust / Unit Trust/ Mutual Funds/ Charitable Institutions & NGOs will remain at the same rate of 10%.

Other changes

Description	Tax Rate
	On or before 31 December 2022	From 1st of January 2023
Agriculture	14%	30%
Banks, NBFI & Insurance	24%	30%
Construction	14%	30%
Exports	14%	30%
Healthcare	14%	30%
IT and enabled services	0%	30%
Leisure	14%	30%
Manufacturing	18%	30%
Renewable Energy	0%	30%
Retail	24%	30%
SMEs	14%	30%

Advance Income Tax (AIT) Changes

Payments of dividends, interest, discounts, charges, payments for natural resources, rent, royalties, and premiums with a source in Sri Lanka will be subject to mandatory AIT deductions at the following rates, effective from the date of the commencement of the Amendment Act.

Type of Payment	Tax Rate
Rent equivalent or exceeding Rs.100,000 per month (applicable to residents only)	10% on total rent (Not a final tax for residents)
Interest or discount	5% (Not a final tax for residents)
Dividend payment	15% (Final Withholding payment)
All other payments	14% (Not a final tax for residents)

Withholding Tax

Service Fee Payments

The following withholding tax rates are applicable to service fee payments, effective from the date of the commencement of the Amendment Act.

Type of Payment	Tax Rate
Service fee or an insurance premium with a source in Sri Lanka to a non-resident	14%
Service fee for teaching, lecturing, examining, invigilating or supervising an examination (applicable to residents only)	5%
Service fee as a commission or brokerage to resident insurance, sales or canvassing agent (applicable to residents only)	5%
Service fee for services provided by individual in the capacity of independent service provider such as doctor, engineer, accountant, lawyer, software developer, researcher, academic or any individual service provider as may be prescribed by regulation (applicable to residents only)	5%

Changes to Final Withholding Payment

• A resident company’s dividend payment will be considered as final withholding payment, effective from the date of the commencement of the Amendment Act.

Other Tax Rate Changes

Tax rate for trust

Time Period	Tax Rate
1st of April 2022 – 31st of December  2022	18%
1st of January 2023 – 31st of March 2023	30%
From 1st of April 2023 onwards	30%

Tax rate for unit trust or mutual funds and non-governmental organization

Time Period	Tax Rate
1st of April 2022 – 31st of December  2022	24%
1st of January 2023 – 31st of March 2023	30%
From 1st of April 2023 onwards	30%

Exemptions

Introduction of Exemptions

• Dividient payment received from or falls under another dividend payment from the  resident company or another resident company which is already subject to AIT, effect 1st of October 2022.
• Gain from the realisation of a capital asset used in business or investment or a liability by a company fully owned by the Government of Sri Lanka (GOSL), provided that the gain was made as a result of a GOSL decision that is crucial to Sri Lanka’s economic development and was approved by the Minister’s in advance, effective 1st of April 2023

Removal of Exemptions

The following exemptions will be removed, effective 1st of October 2022:

• Dividend paid by a resident company to a member who is a non-resident person.
• Gain from the sale, exchange, or transfer of land or building to a real estate investment trust (REIT).
• Dividends and gains on the sale of units or amounts received by unit holders from REITs as gains on the sale of capital assets of a business or investment.

The following exemptions will be removed, effective 1st of April 2023:

• Gains and profits received from providing information technology and enabled services.
• Any vocational education programmes of any Vocational Education Institution.
• Any business that is involved in exporting gold, gems, or jewellery, or from the business of cutting and polishing of gems which are imported to Sri Lanka and exported after such cutting and polishing, where gains and profits are received in foreign currency is transferred to Sri Lanka through a bank.
• Gains and profits from the following undertakings:
1. An undertaking engaged in the sale of recycled building materials.
2. An undertaking started by an individual after successful completion of vocational education from any Vocational Education Institution.
3. An undertaking started by a native individual with the intention of producing boats or ships in Sri Lanka.
4. Any renewable energy project that can generate at least 100 Mega Watts of solar or wind energy.
5. An undertaking by any resident person who builds and installs communication towers and related appliances.
6. An undertaking for leasing bonded facilities or warehouses for offshore business in the ports of Colombo and Hambanthota.

Administrative Review

The time frame to appeal for an Administrative Review and to receive an acknowledgement by the CGIR has been revised as follows if you’re not in agreement with the assessment provided to you:

Time Period	Time frame for Appeal
Before 1st of April 2023	30 days after the taxpayer was notified of the decision
From 1st of April 2023	14 days after the taxpayer was notified of the decision

You can access a complete guide on income taxes here.