TAX INFORMATION AT A GLANCE AN UPDATE (01.01.

2005)
Income Tax
Legislation: Inland Revenue Act No. 38 of 2000 Implementation Agency: Department of Inland Revenue. The global system is adopted in computing taxable income. Income from all sources computed according to the provisions of the Inland Revenue Act is considered as total statutory income from which certain specific deductions are made to arrive at the assessable income. Tax free allowance and qualifying payment allowance (on certain specific payments) are deducted from the assessable income to arrive at the taxable income. Date of Payment: Any income tax shall be paid in four installments on or before the 15th day respectively of August, November, February , in the year of assessment and 15th May of the next year of assessment.. Non-uniform compensation for loss of employment - 20%

Capital gains (also applicable to Corporate Income Tax) - abolished from 1.4.2002 Rates of Depreciation (also applicable to Corporate Income Tax ) Type of asset Rate (%) Plant, machinery or fixtures, 12 1/2 Vehicles & furniture 20 Qualified buildings 6.67 Intangible Assets other than goodwill 10 Any other Information technology equipments & calculating equipments 25 Railway, Bridges, Reservoirs, electric or Water distribution lines, toll roads 6.67

Corporate Income Tax Tax Rates Rate (%) Taxable Income < Rs.5 Mn 20 Taxable Income Rs.5 Mn(2.5% for HREF) 32.5 Taxable Income > Rs. 5Mn (listed Co.s not less than 300 shareholders) 30 Exports, Tourism, Construction and Agriculture(any person) 15 Specialised Housing Banks 20 Provided Funds, Charities (all) 10 Clubs and Associatiares (all) 20 Remittance Tax (N/R.Cos.) (10% of remittance out of taxable profit) 10 On dividends 10 New Venture Capital Companies 5 year tax holiday (w.e.f.1.4.2003) Existing VCC 20 Unit Trusts and Mutual Funds (specified areas) 10 Unit Trusts and Mutual Funds ( Unspecified areas)20 Interest on compensation payable in respect of property vested in Government LRC ect. 10 Interest on loans granted by a party outside Sri Lanka 15 Royalty paid out of Sri Lanka 15 On FCBU arising from any on shore 30 FCBU transaction (off shore) 20 After tax exemption period for companies under Sec. 21 A, 21C, 21E 10 After tax exemption period for companies Sec. 21 B or 21 D 15 After tax exemption period for companies under Sec. 21 A/C/E and where 10% or 15% is not applicable 20 On qualified export profits 15(Max) On deemed exports 15 Emoluments and fees earned in Foreign currency by an individual or by a partner or a partnership 15

Personal Income Tax Tax free threshold Rs. 300,000 per year (only for residents) w.e.f. 1/4/2004 Tax Rates w.e.f (1/4/2004)

Taxable income First Rs. 240,000 Next Rs. 240,000 Balance

Rate 10% 20%

30%

Terminal Benefits on Retirement

First Rs. 2,000,000 Next Rs. 500,000 Next Rs. 500,000 Balance effective - 1.4.2004
Retiring Gratuity

Rate exempt 5% 10% 15%

Retiring gratuity in excess of Rs. 1.8 million or average salary of last 3 years multiplied by number of years of service(whichever is more) Taxed as normal income. Compensation under approved voluntary retirement schemes or retrenchment exempt.

Final Withholding Taxes (WHT) Rate(%) Any interest, royalties etc paid by a person out of Sri Lanka to another person out of Sri Lanka 20 Interest paid in Sri Lanka(on deposits) 10 Interest paid in SL in excess of Rs. 108,000 p.a per deposit (w.e.f.1.1.2003) 10 All dividends (w.e.f.1.4.2002) 10 Interest on specified corporate debt securities 10 On specified fees paid to specified persons 5 On non - residential rent income > Rs. 50,000 p. m or Rs. 500,000 p. a. (1.4.2002) 10 Government rewards (w.e.f. 1.4.2004) 10 Lottery prizes >Rs. 500,000 (w.e.f. 1.4.2004) 10 10 Treasury Bills at source (w.e.f. 1.4.2002) Interest paid to Charitable Institutions in excess of Rs.12,000 p.m/Rs.144,000 p.a(1.4.2002) 10 Foreign Entertainers or Artists 15

Tax Rates

Zero rate Export of goods International transportation Services directly connected with any movable or immovable property outside Sri Lanka Exemptions : Schedule relating to VAT exempted items and services are attached. (Annexure I)

Basic rate on following items (w.e.f 05% 19.11.2004.) Sugar, Dhal, Potatoes, Onions,Dried Fish, Milk Powder, Chilies Standard rate (w.e. f 01.01.2004) 15%

Luxury Rate on following items (w.e.f 01.01.2005.) 18% Air Conditioning Machines, Refrigerators, Dish Washing Machines, Washing Machines, Vacuum Cleaners/ Floor Polishers, Kitchen Waste Disposers, Watches/Clocks, Musical Instruments, Equipment for Games (Casino etc), Food Grinders & Mixers, Liquor, Ovens & Cookers, Hair dryers/Hair dressing Equipments, Video Player (VCD,DVD), Cameras, Radios, Cassettes & Music Systems, Televisions, Jewellery, Aerated Water. Motor Vehicles other than three wheelers, passenger transport buses, lorries, trucks, motor bicycles and any other vehicle used for transport of goods. The supply of services by hotels, guest houses, restaurants or similar institutions so far as such services are for wedding receptions and other receptions other than seminars and also including the hiring of halls for such receptions.

VALUE ADDED TAX (VAT) Legislation: Value Added Tax Act No. 14 of 2002, Value Added Tax (Amendment) Act No. 7 of 2003, Value Added Tax (Amendment) Act No.13 of 2004. Implementing Agency : Department of Inland Revenue. Date of payment : The due date of the submission of return and the payment has been advanced from the last date of the month after the expiry of each taxable period to 15th day of the month of the expiry of each taxable period Effective from 01.08.2002 VAT Threshold : (a) Turnover exceeding Rs. 500,000 in any quarter ending on the month of March, June, September, December. (a) Turnover exceeding Rs. 1,800,000 in any four successive quarters. However, there is no threshold for imports. Tax Liability : (a) On taxable supplies of goods or services made in Sri Lanka (b) On the importation of goods taxable into Sri Lanka

VAT on Financial Sector Banks & Other specified financial sector instuitions on the supply of financial services are liable to financial VAT from 01.01.2003. Any other person who supply such services also are liable for VAT from 01.07.2003. 10% rate applicable upto 31.12.2003 and 15% rate applies from 01.01.2004.

Credit for input Tax : (a) VAT on inputs for zero rated and taxable goods and services is refundable. (b) Input Tax Credit in relation to items at 5% will not be allowed other than the purchase of vehicles for transport or machinery for the production. (c) Input Tax Credit in relation to items at 18% will be restricted to 15%.

Computation of VAT

On manufacturing : Sale price excluding VAT component multiplied by the VAT rate. On services : Final consumer price excluding VAT component multiplied by the VAT rate. On imports : CIF with the addition of duty, any surcharge, cess any excise duty, PAL and 5% of CIF (w.e.f. 01.01.05) and multiplied by the VAT rate. Annexure I For any taxable period commencing on or after January 1, 2005(a) The supply or import of (i) Paddy, seed paddy, rice, wheat, cardamom, cinnamon, cloves, nutmeg, mace, pepper, desiccated coconuts, rubber, latex, fresh coconuts, tea including green leaf, rice flour, wheat flour, bread, infants powdered milk, eggs and liquid milk (not made out of powdered milk or any grain); Pharmaceutical products and drugs (other than cosmetics) including such products and drugs certified by Cosmetics, Devices and Drugs Authority, established by the Cosmetics. Devices and Drugs Act, No. 27 of 1980, and raw materials for the production or manufacture of such products or drugs; Ayurvedic preparations which belongs to the Ayurveda pharmacopoeia or Ayurveda preparations (other than cosmetic preparations) or unani, siddha or homeopathic preparations (other than cosmetic preparations) and raw materials for such preparations; Aircrafts, helicopters and

(ii)

(iii)

(iv)

temporary import of any plant, machinery or equipment or any goods to be used as exhibition materials or as materials, in any technical demonstration; (v) Books (other than cheque books, periodicals, magazines, newspapers, diaries, ledger books and exercise books), and unused postage and revenue stamps of the Government of the Democratic Socialist Republic of Sri Lanka or of a Provincial Council; (vi) Crude petroleum oil, kerosene, aviation fuel and oil for ships; (vii) Artifical limbs, crutches, wheel chairs, hearing aids, accessories for such aids or appliances which are worn or carried or implanted in the human body to compensate for a defect or disability, white canes for the blind, Braille typewriters and parts, Braille writing papers and Braille writing boards; (viii) Agricultural tractors; (ix) Cellular mobile phones; (x) Agricultural machinery and fertilizer. (w.e .f. 1.7.2004); (xi) Agricultural seeds agricultural plants, shrimp feed inclusive of prawn feed and animal feed excluding poultry feed ; (b) The supply of (i) Educational services by an educational establishment or government schools or schools funded by the government or schools registered with the Ministry of Education that follow the government curricula and public library services by the government, a Provincial Council or a local authority; (ii) Public passenger transport services (other than air transport, water transport, or transport of tourists, excursion tours, and taxi services) or the provision of leasing facilities for such motor coaches with seating capacity not less than twenty eight passenger seats and used for such public passenger transport if such lease agreement entered into prior to January 1, 2004 and the provision of leasing facilities for three wheelers on any lease rental payable on the leasing facility for three wheelers on or after January 1, 2005.

(iii)

(iv)

(v) (vi)

(vii)

(viii)

(ix)

(x)

Electricity not exceeding 30 kwh per consumer as defined under the Electricity Act (Chapter 205 ) per month; and electricity through alternate energy projects other than energy through hydro power or thermal power; Free or subsidized meals by an employer to his employees at their places of work and transport free or at a subsidized rate by an employer to his employees using a motor coach between the place of residence and work place of such employees; Services in relation to burials and cremations by any institution or person; Services by a person in Sri Lanka to another person outside Sri Lanka to be consumed or utilized by such other person outside Sri Lanka for which the payment is made in Sri Lanka rupees; Services at a restaurant situated beyond the immigration counter at the Bandaranayake International Air Port; Goods and services to the mission of any state or any organization to which the provisions of the Diplomatic Privileges Act, No. 9 of 1996 applies or to any diplomatic personnel of such mission or organization who is entitled to such benefits provided that reciprocal benefits are available to their counter parts from Sri Lanka and identified as such by the Commissioner General; Goods funded directly by foreign organizations as approved by the Minister for the relief of sudden distress caused by natural or human disasters; The following financial services (a) the operation of any current, deposit or savings account; (b) the exchange of currency; (c) the issue, payment, collection or transfer of ownership of any note, order for payment, cheque or letter of credit; (d) the issue, allotment, transfer of ownership, drawing, acceptance or endorsement of any dept security, being any interest in or right to be paid money owing by any person; (e) the issue, allotment or

transfer of ownership of any equity security, debt security or participatory security; (f) the underwriting or supunderwriting the issue of any equity security, debt security or participatory security; (g) the provision of any loan, advance or credit; (h) the provision (a) of the facility of installment credit finance in a hire purchase conditional sale or credit sale agreement for which facility a separate charge is made and disclosed to the person to whom the supply is made; (b) of goods under any hire purchase agreement or conditional sale agreement, which have been used in Sri Lanka for a period not less than twelve months as at the date of such agreement; (i) the life insurance, Agrahara insurance and crop and livestock insurance; (j)the transfer of non-performing loans of a licensed commercial bank by way of transfer of such loans to any other person in terms of a re-structuring scheme or other scheme of such bank as approved by the Central Bank of Sri Lanka with the concurrence of the Minister. (xi) The supply, lease or rent of residential accommodation other than the supply, lease or rent of residential accommodation by an enterprise which has entered into an agreement with the Board of Investment of Sri Lanka, under section 17 of the Board of Investment of Sri Lanka Law, No. 4 of 1978, on or after April 1,2001 and the total cost of the projects which such agreement relates is not less than ten million United States of American dollars or its equivalent in any other lease or rental; All healthcare services provided by medical institutions or professionally qualified persons

(xii)

providing such care, other than the supply of healthcare services by a medical institution which has entered in to an agreement with the Board of Investment of Sri Lanka under section 17 of the Board of Investment of Sri Lanka Law No. 4 of 1978, on or after April 1, 2001 and the total cost of the project to which such agreement relates is not less than ten million United States of American dollars. (c) The import of (i) Goods by the mission of any state or any organization to which the provisions of the Diplomatic Privileges Act, No. 9 of 1996 applies, or by any diplomatic personnel of such mission or organization, including the import under a temporary admission carnet for re-export; (ii) Any article entitled to duty free clearance under the Passengers Baggage (Exemptions) Regulations made under section 107 of the Customs Ordinance, or any article cleared duty free reimportation certificate as provided in Schedule A under the Customs Ordinance, or any article cleared ex-bond for use as ship stores; (iii) Goods by any organization approved by the Minister, where he is satisfied that such good are gifts from persons or organizations abroad for the relief of sudden distress caused by natural or human disasters or such goods being medical machinery, medical equipment or an ambulance; (iv) Goods by any person who has entered into an agreement (a) prior to May 16, 1996; or (b) prior to April 1, 1998 in respect of a project, the total cost of which is not less than Rs. 500 million. With the Board of Investment of Sri Lanka under section 17 of the Board of Investment of Sri Lanka Law No. 4 of 1978, which goods are prescribed as a project related article, to be utilized in the project specified in the agreement, during (i) the project implementation

period of such project as specified in such agreement; or (ii) up to the date of completion of such project, which date shall not be later than thirty six months from the date of the last agreement entered into prior to the 19th November, 2003. Whichever is earlier, other than any article in the negative list published by the Secretary to the Treasury for the purpose of this paragraph. Goods by any person who has entered into an agreement with the Board of Investment of Sri Lank under section 17 of the Board of Investment of Sri Lanka Law No 4 of 1978, which is prescribed as a project related article, to be utilised in the project specified in the agreement, which project one completed will be solely in the business of making exempt supplies, (a) for a period of two years from August 1, 2002; or (b) until the completion of the project as determined by the Board of Investment of Sri Lanka. Whichever is earlier, other than any article in the negative list published by the Secretary to the Treasury for the purpose of this paragraph; Personal items and samples in relating to business worth not more than ten thousand rupees through parcel post or courier; A motor vehicle by a disabled person specially designed for use by disabled persons approved by the Minister, on his being satisfied that such vehicle is for use specifically by such person; Any capital items required for the purposes of providing training by any institution providing vocational training or practical training approved by the Minister in charge of the subject of Tertiary Education and Training in consultation with the Minister where the Government has provided funds or other assistance to such institution and the surplus funds of such

(v)

(vi)

(vii)

(viii)

institution are re-invested as to the maintenance or improvement of such institution; (ix) Goods to any project approved by the Commissioner General, as having a capital investment of not less than rupees one hundred million which are considered as project related capital goods, other than the in the negative list published by the Secretary to the Treasury, during the project implementation period which shall not exceed three years from the commencement of the project, provided that such project makes taxable supplies upon the completion of the project (effective from 01.01.2005) (x) mples of garments for business purposes by garment buying office in Sri Lanka registered with the Textile Quota Board so long as such item is not sold. (d) import and supply of goods at duty free shops for payment in foreign currency. The supply of locally manufactured goods to duty free shops for payment in foreign currency.

Zero duty Vegetable Seeds, Petroleum Oil, LP Gas, pharmaceuticals, Printed books, yarn, sewing thread, fabrics & natural pearls. 2.5% - most consumer needy items, raw materials other than the zero duty items. 6% - Machinery, infant milk powder 15% -Intermediate goods, milk powder, coconut oil, canned fish and household, electric goods. 28% - Finished products, Vegetable and fruits (frozen) and vehicles edible oil other than coconut oil. Specific ratesRice Rs. 9.00 / kg Chilies Rs. 30.00 / kg Red onion Rs. 5.00 / kg Big onion Rs. 10.00 / kg Potatoes Rs. 20.00 / kg Sugar Rs. 4.50 / kg Green gram Rs. 5.00 / kg T/dhal Rs. 5.00 / kg Cowpea Rs. 5.00 / kg

Item Wheat grain Wheat flour Masoor ghal Split yellow lentils Sugar Potatoes Chilies Milk power

(e)

Rate of Customs Duty 2.5% 15% 2.5% 2.5% Rs. 4.50 per Kg. Rs. 20.00 per Kg. Rs. 30.00 per Kg. 15%

Level of Duty Waived Full Full Full Full Full Rs. 1.50 per Kg. Rs. 10.00 per Kg 6%

Customs Duty
Legislation: Customs Ordinance No.17 of 1869 as amended from time to time. Implementing Agency: Department of Customs. Tax Liability: Customs Duty is levied on the CIF value of all goods, wares and merchandise imported into Sri Lanka.

Computation of duty
Duty rate is applied on CIF value or quantity of imports. CD= value of CIF X Rate or Customs Duty or CD =Quantity X unit rate of duty Date of Payment : At the point of imports.

Duty Waiver Applicable partial/full duty waiver has granted the approval for waiver of customs duty on the following items until further notice. (as at 31 December 2004.

Surcharge
Legislation : Levies under Customs Ordinance Act No. Implementing Agency: Sri Lanka Customs. Computer of Duty: Amount of customs duty & surcharge rate. Date of Payment : At the point of Customs.

Tax Rates
Surcharge Exemption Items : Milk powder Potatoes Onions Lentils Chillies Coriarde Wheat grain Rice Sugar Infant Milk food Cement Paper Auto trishaws Textiles and Yarn Cigarettes < 60 mm in length 60 mm 67 mm 67 mm 72 mm 72 mm 84 mm >84 mm Rs. 1,640 per 1000 sticks Rs. 3,137 per 1000 sticks Rs. 5,088 per 1000 sticks Rs. 5,904 per 1000 sticks Rs. 6,150 per 1000 sticks

Pipe tobacco Rs. 250/- per Kg Diesel Rs. 2.50 per liter Kerosene Rs. 1.25/- per liter Petrol Rs.20/- per liter Motor vehicle Petrol cars < 1000cc 30% 1000 cc 1500 cc 40% >1500 cc 60% Diesel cars <1000 cc > 1500 cc <1500 cc > 1500 cc Auto trishaws Petrol Computation of Duty Diesel Motor Cycle > 125cc Vans 95% 115% 72% 89% 4% 14% 15%

Turnover Tax
Legislation: Turnover Tax Act No. 69 of 1981 as amended from time to time. Implementing Agency: Department of Inland Revenue. Turnover Tax on wholesale and retail trade is devolved to the provincial councils. TT collected by the Department of Inland Revenue was abolished from 12.10.2001.

Aerated and mineral water Rs. 6.0 per liter Publications on Horse racing - Rs. 2/- per liter Certain Electrical and Electric goods 10%

Computation of Duty

Excise (Special Provisions) Duty

Legislation: Excise (Special Provisions) Act No: 13 of 1989 and Amendments Act No. 40 of 1990 and Act No. 8 of 1994. Implementing Agency: Excise (Special Provisions) unit of Department of Customs. Tax liability: On the following articles manufactured locally or imported.

Domestic Wholesale price excluding Excise (Special Provisions) Duty multiplied by the Excise (Special Provisions) Duty rate. Imports 105% of CIF with all fiscal levies excluding Excise (Special Provisions) Duty, multiplied by the Excise (Special Provisions) Duty rates. Date of payment: Cigarettes & Petroleum products - monthly Liquor - quarterly Imports - at the point of import

Excise (Ordinance) Duty

Legislation :Excise Ordinance No. 8 of 1912 and subsequent amendments. Implementing Agency : Department of Excise

Tax Liability : Spirits (ethyl alcohol) and Domestically produced liquor. Tax Rates: Coconut and processed Arrack - Rs. 366.00 per proof litre Country Made Foreign Liquor - Rs. 490.00 per proof litre Molasses and Palmyrah Arrack - Rs. 366.00 per proof litre Malt liquor above 5% in strength - Rs. 43.50 per litre Malt liquor less than 5% in strength - Rs. 27.50 per litre Wine - Rs.200 per proof liter Spirits use for industrial purposes - Rs. 200/-per liter Date of Payment : Monthly

A concessionary levy at the rate of .25 per centum (w.e.f.01.01.2005) on these articles imported for processing and re-export. Exemptions :-

(a) Imports by any diplomatic mission or Any other organization within the province of Diplomatic Privileges Act No. 9 of 1996. (b) Imports of diamonds, gems, gold, Jewellery and any electronic items or components import for processing and re-export.

Debits Tax
Effective from 01.06.2002 Legislation: Debits Tax Act (awaits parliamentary approval). Implementing Agency : Department of Inland Revenue Tax Liability : The Debits Tax at the rate of one tenth of one per Centrum (0.1%) will be charged on all debits on current account transaction, proceeds realised by the enchshment of certificates of deposits and travellers cheques .

Luxury Motor Vehicle Tax

Legislation :The motor vehicle levy was introduced in Sri Lanka by the Finance Act No. 16 of 1995 and implemented from 1st April 1995. Implementing Agency : Department of Motor Traffic Tax liability :- Luxury motor vehicles as classified below liable to a levy which is imposed on an annual depreciation over a period of 7 years.

(i) (ii) (iii)

Exemptions
If tax liability of a current account during a particular month is not more than Rs. 10 Debits made on tax payments and loan/interest payments to the government. Payments in relation to (a) pension fund benefits (b) settlement of transactions for licensed produce brokers (c) trading in government securities for primary dealers. (d) Outright and repurchase and reverse repurchase transactions of government and corporate debt securities in the secondary market. (e) Settlement of transactions in the Colombo Stock Exchange. Debits in relation to: (a) inter- and intra-bank transactions (b) collection accounts (c) any exempt account (d) dishonored cheques and error corrections.

Tax Rates
Vehicle Type Luxury Capacity Levy in the first year 50,000/Diesel-exceeding 2500cc Petrol-exceeding 2000cc

Semi luxury Diesel-2200cc-2500cc Petrol-1800cc-2000cc Semi luxury dual purpose Diesel-exceeding 2500cc Excluding vans Petrol-exceeding 2000cc

25,000/-

10,000/(iv)

Ports and Airports Development Levy

Effective from 01.05.2002 Legislation : Finance Act No. 11 of 2002 Implementing Agency : Department of Customs Tax Liability : A levy at the rate of 1.5 per Centrum (w.e.f.19.11.2004) on CIF value of imported article.

Betting and Gaming Levy

Legislation : Betting and Gaming Levy Act No. 40 of 1990. Implementing Agency : Department of Inland Revenue.

Tax Liability
Gaming - Rs. 12 million per year Bookmaking - with live telecast Rs. 500,000 per year Bookmaking - without live telecast Rs. 10,000 per year Quarterly payments Each place of business will be liable to the above duty The above rates are effective from 1.4.2002

Computation formulae for imported goods

Where v c d s e t p l re rt = = = = = = = = = = CIF value in Rupees Cess Levy under Sri Lanka Export Development Act Customs Duty Surcharge Excise (special provisions) Duty (ED) Value Added Tax (VAT) Ports and Airports Development Levy (PAL) Social Responsibility Levy (SRL) Rate of Excise (special provisions) Duty (ED) Rate of Value Added Tax (VAT) = = Surcharge (s) Cess Levy (c) = = = = (CIF value)* (Customs duty rate) or (quantity) * (unit rate of customs duty) (Customs duty)* Surcharge rate (CIF value)* (Cess levy rate) or (quantity)*(unit rate of Cess levy) or (Value of Customs duty)*10%1 (CIF value)* PAL rate

Customs duty (d)

Port and Airports Development Levy (p) = Value Added Tax (t) = =

(v + 5% of v + d + s + c + p + e)*VAT rate or [(v+5%v+d+s+c+p)*(1+ re)]* rt ................................................. (1-( re * rt))

Excise (Special Provisions) Duty (e) = = (v+5% of v +d +s +c + p + t)*(ED) rate or [(v+5%v+d+s+c+p)*(1+ rt)]* re .................................................. (1-( re * rt)) = (d + s + e )*SRL rate

Social Responsibility Levy (l)

applicable only to the items with Customs duty equal or more than 45% of the CIF