Highlights Of The Proposed Act
Composition of taxable income,
o Business Income
o Investment Income
o Employment Income (only for individuals)
o Other Income
Business income
New disallowable expenses
• Building maintenance limited to 5% of written down value (WDV)
• Other Assets Maintenance limited to 20% of WDV
• Financial cost limited to 3 times of share capital and reserves for manufacturers (others 4 times)
• Capital allowances for building is reduced to 5%
• Entertainment expenses
• Expenses other than those expressly permitted by the act
Withdrawn Disallowances
• Foreign travelling
• Management Fees
• 25% of advertising
• Finance lease rentals
• Fixed rentals in respect of any travelling purpose vehicle or asset
Concessions
• Concessions are given through accelerated capital allowances for minimum investment starting from USD 3 million. No other tax exemptions for investments given.
Rates
• 14% SME, Direct Exports, IT, agriculture, education etc...
• 28% Standard rate for all other income (Indirect exports, services to exporters also included)
• 40% Betting, gaming, liquor and tobacco
Tax Administration
• CGIR (commissioner) has power to disregards schemes where the purpose is getting tax benefits.
• Associated undertaking determination is based on judgment in addition to share ownership.
• Losses can be deducted in full against profit (currently limited to 35% per year)
• Technical review committee to be reviewed findings prior to issue assessments
• Assessments can be issued without mentioning reasons.
• Time bar for assessments increased up to 4 years (currently 18 months)
• No tax benefits given for transfer pricing adjustments.
• Penalty provisions to be introduced for noncompliance with transfer pricing provisions.
Investment Income
Dividend Tax
• Rate is 14% and it is considered as final tax and companies to be acted as tax agents.
• Dividend distributed out of dividend received is not liable for dividend tax, (but if the dividend received from foreign investment it is liable)
Withholding taxes on investments
• For individuals the rate is increased to 5%, and it is a final tax
• For Companies the rate increased to 14%, the withholding tax credit cannot be claimed. Net income is taxed at 28%, hence the effective tax rate is 38%.
• Foreign currency investments, ordinary government securities and corporate bonds also to be liable for tax.
Capital gain taxes
• Includes gains realizing from non-depreciable assets such as lands... and other assets not connected to the business.
• Here the realization means sale, transfer, exchange, gifting, dead of owner (if individual) considered
• Tax rate is 10%
• No tax in imposed if the asset is principle place of residence and owned for at least 3 years and lived for at least 2 years
Exemptions for companies
• Gain on investments in quoted shares, invested in Colombo stock market
• Interest income from sovereign bonds denominated in foreign currencies
• Dividend paid out of dividend received
