Sri Lanka has to rationalize spending, no point in just raising taxes: Treasury Secretary
ECONOMYNEXT – Sri Lanka President Ranil Wickremesinghe has announced tax changes in an effort boost revenues and also make external trade easier, according to a budget presented for 2023;.
Sri Lanka will phase out CESS, a para tariff in three years starting from January 2023.
Ports and Airports Levy, another border tax will be phased out in five years.
Instead standard import duty will be raised from 0, 10 and 15 percent to 0, 15 and 20 percent.
Customs Import Duty on a total of 378 selected HS Codes will be revised the Export Development Board Act, No.40 of 1979, effective from November 15,2022.
A Surcharge Tax will be charged at the point of importation, on diesel, petrol and crude oil.
Value Added Tax
A new Value Added Tax Act will be introduced consolidating the amendments inhoduced from the year 2002 to the year 2022.
The exemptions specified in the First Schedule to the VAT Act will be rationalized with effective from April 2023
Crude estimate suggests that revenue forgone due to the VAT exemptions granted to various sectors, indcuding electricity, tsansport and fuel, is estimated to be more than 1 percent of GDP.
Hence it is proposed to remove certain exemptions after reviewing. Amendments to the VAT Act to remove
certain exemptions will be made effective from 01 April 01, 2023.
Social Security Contribution Levy
In 2022 the tax system was further complicated by a cascading social contribution levy, which applies on top of value added tax.
Commercial hub enterprises will be exempted from the the Social Security Contribution Levy Act, No.25 of 2022
Importation of any motor vehicle identified under Harmonized Commodity Description and Coding Numbers for Custom purposes and liable to Excise Duty under the Excise (Special Provisions) Act, No. 13 of 1989, will be exempted from Social Contribution levy with effect from 01.01.202
Equipment used by differently abled persons and the pharmaceutical product categorized under HS code 2844.110, will be exempted from SSCL.
Finance Act/Hub activities
Any business or project intends to engage in the commercial hub activities will be eligible for exemptions granted under the Strategic Development project Act, No.14 of 2008, if identified as Strategic
Exemptions under the commercial hub activities will be extended to bunkering services.
The definition of “bookmaker” in Betting and Gaming Lery Act wiJl be extended to include a person receives or negotiates bets on all type of sports event, including online betting.
A licensing mechanism for the business of bookmaker will be introduced, for a fee. Betting and Gaming Levy Act will be amended to permit the licensed bookmakers to register with Inland Revenue Department.
Transitional provision on dividends
Provisions will be introduced to improve the clarity of income tax liability on dividend during the period from October’1.,2022 to the effective date of the Inland Revenue (Amendment) Act, 2022, as follows:-
i. exempt dividend received or derived by non-residents during that period
ii. apply income tax rate of 15% for dividend received or derived by residents during that period
iii exemption will be applicable on any dividend paid by a resident company to a member to the extent that such dividend payment is attributable to, or derived fronL another dividend received by that
resident company or another resident company.
Income tax for grant aid projects
Income eamed by non-resident persons from engagaing in Govemment projects approved by the Minister of Finance taking into consideration the economic benefit to the country, where such project is totally funded from foreign grants.
PAYE tax paid by SOEs for workers
lt is noticed that some State0wned Enterprises (SOEs) are still paying the PAYE / APIT tax liability of employees. This issue has also been questioned at the Committee on Public EnterPrises (COPE) and by the Auditor General as well.
Hence, I propose to sto such payments effective from 1 January 2023,