Navigating Tax Changes in Sri Lanka for 2023/2024: A Simple Guide

Introduction

Individual Income Tax (IIT):

1. Personal Relief: Good news for all residents and non-residents – you now get a tax-free allowance of Rs. 1,200,000. In simpler terms, no tax is owed on the first Rs. 1.2 million of your income.
2. Rent Relief: If you earn rental income, you can deduct 25% of the total amount.
3. Solar Panel Deduction: Embracing sustainable energy, you can deduct up to Rs. 600,000 per year for installing solar panels connected to the national grid.
4. Progressive Tax Rates: Tax rates start at 6% for the first Rs. 500,000 of taxable income and increase gradually. The maximum rate is 36% for incomes exceeding Rs. 3,000,000.
5. Special Rate for Specific Gains: Certain sectors like liquor, tobacco, betting, and gaming face a higher rate of 40%.

Tax on Partnerships:

• For small partnerships, there’s zero tax on income up to Rs. 1,000,000. Beyond that, a nominal tax rate of 6% applies.

Tax on Incorporated Companies:

• Industries like gaming and tobacco are subject to a higher tax rate of 40%, while other corporate incomes face a standard rate of 30%.

Tax on Other Incorporated Entities:

• Trusts, charities, NGOs, and funds like Employees’ Trust Fund (ETF) and Employees’ Provident Fund (EPF) have specific tax rates ranging from 14% to 30%.

Qualifying Payments:

• Individuals and entities can deduct certain amounts from their taxable income, with specific limits.

Tax On Value Additions – Value Added Tax (VAT):

• The current VAT rate is increasing from 15% to 18% starting January 1, 2024.
• VAT registration is mandatory if taxable supply value exceeds Rs. 20 million in a taxable period or Rs. 80 million over twelve months.

Social Security Contribution Levy (SSCL):

• SSCL introduces a new structure based on liable turnover, with rates and thresholds specified for different sectors.

Withholding Tax (WHT) and Advance Income Tax (AIT):

• Various payments, such as service fees, rent, and lottery or gambling winnings, are subject to specific WHT/AIT rates.

Administrative and Legal Changes:

• Amendments aim to streamline revenue administration and clarify existing provisions.
• Special tax return requirements for withholding tax on gem sales, mandatory submission of a Tax Identification Number (TIN) for various transactions, and changes in the tax treatment of salary arrears effective from January 1, 2024.

Conclusion:

As Sri Lanka embraces these tax changes, it’s crucial for individuals and businesses to stay informed and compliant. If you have any tax-related queries or need guidance, feel free to reach out for assistance. Stay ahead and navigate the evolving tax landscape with confidence!