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24th October 2014

Dear Client,

B U D G E T P R O P O S A L S - 2015

His Excellency the President Mahinda Rajapakse presented the UPFA Government’s 16th Budget to engineer the fiscal policy towards strengthening public finance, developments and welfare of the people. The Government has maintained the trend of not increasing tax rates rather lowering it to bring it to a level which it hopes is competitive. It should be noted that we have some of the lowest rates of taxes in the region.

In this memorandum we have summarized the salient features of the Tax Proposals. This has been prepared as a guide. These proposals may be subjected to changes during the time of legislation through the Parliament.

Some of the highlights of the proposals are:

(a) Increase of threshold for VAT/NBT to Rs. 15 Mn per annum.(b) Reduction of threshold for applicability of VAT on retail and wholesale business to Rs.100 Mn per quarter.(c) Reduction of tax rate to a maximum of 16% for those who are in employment.(d) Reduction of VAT rate to 11% from the previous 12%

For additional information and guidance on the proposed changes, the Tax and Business Advisory Services of SJMS Associates will be pleased to assist you.

This information could be viewed on our website at www.sjmsassociates.lk

Yours faithfully,

SJMS ASSOCIATESChartered Accountants

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Budget Highlights 2015

Contents

1. INCOME TAX 4 - 102. VALUE ADDED TAX 11 - 123. NATION BUILDING TAX 13 - 144. MISCELLANEOUS 15 - 175. OUR COMMENTS 18 - 20

Appendix

A – Summary of Corporate Tax Rates 23 - 26

B – Comparisons of Current Corporate Taxes, Withholding Taxes, Indirect Taxes etc. 27 - 28

C – Comparison of effective tax rates for resident individual 29

D – Retiring Benefits 30

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1.1 Corporate income tax

1.1 CORPORATE INCOME TAX

1.1.1 EXEMPTIONS ON INTEREST RECEIVED

a) Proposed change

The interest or discount accruing or arising to any person from any investment made on or after 1st January 2015, in any Corporate Debt Security issued by the Urban Development Authority is exempted.

Present

No exemptions prevail.

1.1.2 MISCELLANEOUS EXEMPTIONS

1.1.2.1 EXEMPTIONS TO UNIT TRUSTS

a) Proposed change

Profits and income arising or accruing to any Unit Trust from investments made on or after 1st January 2015, in US Dollar deposits or US Dollar denominated securities listed in any foreign stock exchange is exempted.

Present

· Profits and income derived by a Unit Trust from dealing in debt instruments is taxable.

· The interest accruing to any person resident in Sri Lanka from any investment made outside Sri Lanka, where such interest is remitted to Sri Lanka through a bank is exempted.

1.1.3 EXEMPTION TO PERSONS OUTSIDE SRI LANKA

a) Proposed change

· Profits and income arising or accruing to any company, partnership or body of persons outside Sri Lanka, from any payment made by way of royalty as a specific requirement of any IT/ BPO company in Sri Lanka for period of 2 years from the commencement of such IT/BPO company is exempted.

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Present

· Royalty which is directly or indirectly borne by a person resident in Sri Lanka to persons outside Sri Lanka, shall be deemed to be profits and income of the person outside Sri Lanka and it is liable for income tax.

1.1.4 EXEMPTION FOR DIVIDEND DISTRIBUTED OR DEEMED DIVIDEND TAX FOR NEW INVESTMENT NOT LESS THAN US$ 2MN

a) Proposed change

Any new undertaking with an investment of not less than US$ 2Mn, engaged in the manufacture of products for export, will be eligible for an exemption on dividend distributed out of such profits or from deemed dividend tax in the event where no dividend distribution is made, for a period of 5 years from the commencement of commercial operations of the new undertaking.

Present

Such a provision is not available.

1.1.5 CONCESSIONS

1.1.5.1 TAX RATE FOR A LOCAL MANUFACTURER WHO HAS COMMENCED BUSINESS DURING THE 1970S (PIONEERING INDUSTRY ALLOWANCE)

a) Proposed change

The profit and income of a local manufacturer who commenced a business of manufacturing during the 1970s and survived in the local market in the face of stiff competition from imports, is eligible for a deduction of 10% of income tax payable.

Present

Such a concession is not available.

1.1.5.2 12% CONCESSIONARY RATE FOR THE SUGAR INDUSTRY

a) Proposed change

The meaning of “agricultural undertaking” will be extended to include the local sugar industry.

Present

Agricultural undertaking includes any undertaking for fishing and provision of services of management to any undertaking for cultivating land with plants of whatever description.

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1.1.5.3 TURNOVER THRESHOLD FOR UNDERTAKING ELIGIBLE FOR 12% CONCESSIONARY RATE

a) Proposed change

The turnover threshold for undertakings engaged in the manufacture of any article or provision of services (not being a holding company, a subsidiary company or any associate company of a group of companies) for which a concessionary rate of 12% is applicable, has been increased to Rs. 750 Mn.

Present

Current turnover threshold is Rs. 500Mn.

1.1.5.4 EXTENSION OF THE TIME PERIOD FOR A NEW COMPANIES WHICH HAVE BEEN APPROVED UNDER SECTION 17A

a) Proposed change

The time limit to complete investments and commence commercial operations by new undertakings which have been approved under Section 17A of the Act prior to 01.04.2014 and are not be able to complete their investments prior to 01.04.2015 and commence commercial operations prior to 01.04.2016, will be extended to 01.04.2017.

Present

Currently, the companies that have been identified above, have to make their investment after 31st March 2011, but prior to 1st April 2015 and have to commence commercial operations on or after April 1, 2011 but prior to 1st April 2016.

1.1.5.5 CONCESSIONARY TAX RATE GRANTED TO MANUFACTURING COMPANIES

I. EXISTING COMPANIES FOR EXPANSION PURPOSES

a) Proposed change

The tax rate applicable to existing companies engaged in the manufacture of products, other than liquor and tobacco, for expansion in any Province other than the Western Province is 14% up to a maximum not exceeding Rs. 500 Mn for 5 years, if the following conditions are satisfied:

· The rate at which the profits and income are taxed at is currently 28%.

· An investment of more than Rs. 300 Mn should be made between 1st April 2015 and 1st April 2017, to purchase fixed assets on which depreciation allowance can be claimed under Section 25.

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Present

Such a concession is not available.

II. NEW COMPANIES

a) Proposed change

The tax rate applicable to companies which manufacture products other than liquor and tobacco is reduced by 50% for 7 years from the commencement of commercial operations, if the following conditions are satisfied:

· The company is registered with the Department of Inland Revenue on or before 31st December 2015.

· Invest more than Rs. 500 Mn within a specified period, as approved by the Commissioner General of Inland Revenue.

Present

Such a concession is not available.

1.1.6 ASCERTAINMENT PROFITS AND INCOME

The following expenses are allowed to be deducted under Section 25:

1.1.6.1 EXPENDITURE INCURRED ON THE STANDARD SKILL DEVELOPMENT TRAINING THAT IS PROVIDED TO TRAINEES

a) Proposed change

Triple deduction granted on the expenditure incurred on standard skill development training to any person who is registered with the Tertiary Vocational Education Commission.

Present

100% deduction was granted on the expenditure incurred on staff training.

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1.1.6.2 FRONTLOADED DEPRECIATION ALLOWANCES FOR NEW INVESTMENTS THAT ARE NOT LESS THAN US$ 2 MN

a) Proposed change

Any new undertaking with an investment of not less than US$ 2 Mn will be granted a frontloaded depreciation allowance (including 100% on the) acquisition of any fixed asset , on which depreciation allowances are claimable, where such undertaking is engaged in the manufacture of products for export.

Present

Such a provision is not available.

1.2 PERSONAL INCOME TAX

1.2.1 CONCESSIONARY RATE ON EMPLOYMENT INCOME

a) Proposed change

The concessionary tax rate of 16% will be extended to cover all the employment categories.

Present

The concessionary tax rate was applicable only for the following professionals.

· Doctor registered under the Medical Ordinance (Chapter 105)

· Chartered Engineer

· Chartered Architect

· Member of the Institute of Chartered Accountants of Sri Lanka

· Member of the Association of Chartered Certified Accountants

· Member of the Chartered Institute of Management Accountants (U.K.)

· Attorney - at - Law

· Software Engineer

· Pilot licensed under the Air Navigation Act (Chapter 365)

· Navigation Officer

· Researcher or Senior Academic recognized as an accredited professional

· Qualified individuals under Section 40 B.

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1.2.2 CONCESSIONARY RATE ON THE PRODUCTION OF FILMS OR DRAMAS

1.2.2.1 FILMS

a) Proposed change

One half of the profits and income derived from the production of films by an individual who has received an award at an international film festival, will be exempt for a period of 5 years commencing from the year of receiving the award. The concession is not restricted to the earnings of the award winning film and is applicable to the profits on production of any film.

Present

There are no such exemptions for films.

1.2.2.2 DRAMAS

a) Proposed change

One half of the profits and income derived from the production of dramas by an individual who has received an award at an international drama festival, will be exempt for a period of 5 years commencing from the year of receiving the award. The concession is not restricted to the earnings of the award winning drama and is applicable to the profits on production of any drama.

Present

One half of the profits and income derived from a drama will be exempt for a period of 1 year commencing from the date of its first public performance.

1.2.3 WITHOLDING TAX ON INTEREST INCOME FROM DEPOSITS OF INDIVIDUALS AND CHARITABLE INSTITUTIONS

a) Proposed change

A single withholding tax rate of 2.5% will be introduced, irrespective of the amount of interest.

Present

Rates are applicable based on the Assessable Income as given below:

Assessable Income - (Rs.) Withholding tax rate %

Less than 500,000 0

Between 500,000 – 1,500,000 2.5

More than 1,500,000 8

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1.2.4 EXEMPTION OF INTEREST INCOME FOR SENIOR CITIZENS

a) Proposed change

Present threshold applicable for exemption of interest income earned on deposits maintained at the following institutions, will be removed and any amount of interest will be exempt.

· National Savings Bank

· Bank of Ceylon

· Peoples Bank

· State Mortgage and Investment Bank

· Housing Development Finance Corporation Bank of Sri Lanka

· SME Bank and Lanka Puthra Development Bank Limited

· Any banks established under the Regional Developments Bank Act No.6 of 1997

· Any registered society within the meaning of the Co - operative Societies Law No.5 of 1972.

Present

An exemption upto Rs. 500,000/- is applicable on the interest earned on deposits that are maintained with the specified institutions.

1.2.5 EMPLOYER’S CONTRIBUTION TO EPF

a) Proposed change

Employer’s contribution will be increased up to 14%.

Present

Employer’s contribution is 12%.

1.3 EFFECTIVE DATES OF PROPOSALS

The proposals in relation to Income Tax will take effect commencing form 1st April, 2015.

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2. VALUE ADDED TAX (VAT)

2.1 RATES

a) Proposed change

The standard rate and the rate applicable to VAT on Financial Services is 11%.

Present

The rate applicable is 12%.

2.2 EXEMPTIONS

a) Proposed change

Import of machinery, equipment and spare parts by the Sri Lanka Ports Authority (SLPA) to be used exclusively within specified ports are exempted.

Present

Import of machinery, equipment and spare parts by the Sri Lanka Ports Authority (SLPA) is liable.

b) Proposed change

The value of the samples for exemption from VAT at the point of import will be Rs.50,000/-.

Present

Current limit of the value of the samples on which exemption from VAT is given at the point of import is Rs.25,000/-.

2.3 VAT ON WHOLESALE AND RETAIL TRADE

a) Proposed change

The quarterly threshold of the value of supplies of any person or partnership carrying on a business of wholesale or retail trade for the chargeability to VAT, will be reduced from Rs. 250 Mn to Rs. 100 Mn.

Present

Current threshold is Rs. 250 Mn.

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2.4 REGISTRATION THRESHOLD

a) Proposed change

The threshold will be increased to Rs.15 Mn per annum.

Present

The threshold is Rs.12 Mn per annum or Rs. 3 Mn per quarter.

2.5 CONSOLIDATION OF TAXES IN SIMPLIFICATION OF THE TAX SYSTEM

a) Proposed change

· Excise (Special Provisions) Duty will be charged in lieu of the various levies and duties on certain articles specified under Chapter 87 of the Customs Tariff Guide; (vehicles other than railway or tramway rolling stock, parts and accessories thereof.)

· Excise (Ordinance) Duty will be charged on the manufacture of liquor in lieu of VAT and NBT.

· Customs Duty and Cess will be charged on the import of liquor in lieu of VAT and NBT.

· Excise (Special Provisions) Duty will be charged on the manufacture or import of cigarettes in lieu of VAT and NBT.

These will be charged at the rates and in the manner specified in the relevant Gazettes, published for that purpose.

Present

In addition to VAT, NBT, Cess, Customs Duty and Ports and Airport Development Levy (PAL) are charged.

Effective date of the relevant provisions of the NBT Act will be amended with immediate effect.

2.6 EFFECTIVE DATES OF PROPOSALS

These proposals in relation to VAT are expected to come into effect from 1st January, 2015.

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3. NATION BUILDING TAX (NBT)

3.1 EXEMPTIONS

a) Proposed change

· The value of the samples for exemption from NBT at the point of import will be Rs. 50,000/-.

Present

· Current limit of the value of the samples on which exemption from NBT is given at the point of import is Rs. 25,000/-.

b) Proposed change

· Import of machinery, equipment and spare parts by the Sri Lanka Ports Authority (SLPA) to be used exclusively within specified ports are exempted.

Present

· Import of machinery, equipment and spare parts by the Sri Lanka Ports Authority (SLPA) is liable.

3.2 CONSOLIDATION OF TAXES IN SIMPLIFICATION OF THE TAX SYSTEM

a) Proposed change

· Excise (Special Provisions) Duty will be charged in lieu of the various levies and duties, on certain articles that are specified under Chapter 87 of the Customs Tariff Guide; vehicles other than railway or tramway rolling stock and parts and accessories thereof.

· Excise (Ordinance) Duty will be charged on the manufacture of liquor in lieu of VAT and NBT.

· Customs Duty and Cess will be charged on the import of liquor in lieu of VAT and NBT.

· Excise (Special Provisions) Duty will be charged on the manufacture or import of cigarettes in lieu of VAT and NBT.

These will be charged at the rates and in the manner specified in the relevant Gazettes, published for that purpose.

Effective date of the relevant provisions of the NBT Act will be amended with immediate effect.

Present

· In addition to NBT, VAT, Cess, Customs Duty and Ports and Airport Development Levy (PAL) are charged.

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3.3 REGISTRATION THRESHOLD

a) Proposed change

Threshold will be increased to Rs. 3.75 Mn per quarter.

Present

Currently the threshold is Rs. 12 Mn per annum or Rs. 3 Mn per quarter.

Retail & wholesale businesses are liable for NBT on 50% of the turnover & distributors are liable for NBT on 25% of the turnover.

3.4 EFFECTIVE DATES OF PROPOSALS

These proposals in relation to NBT are expected to come into effect from 1st January, 2015.

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4. MISCELLANEOUS

4.1 BETTING & GAMING LEVY

a) Proposed change

· Tax rate applicable on gross collection will be increased to 10%.

Present

· Tax rate applicable on gross collection is 5%.

b) Proposed change

· An entry fee of US$ 100 will be charged from each person who enters a casino for entertainment purposes.

Present

· An entry fee is not levied on persons who enter casinos for entertainment purpose.

4.2 OTHER AMENDMENTS

a) Proposed change

To encourage modernization, disposal of machinery used for more than 10 years in a BOI Company will be exempt from duty. The BOI may confirm and issue a certificate to the Director General of Customs to exempt such machinery from duty.

Present

No such exemptions are given under the BOI law.

b) Proposed change

Cess and Customs Duty rates will be revised to strengthen the domestic value addition of tea, rubber, coconut, cinnamon and pepper crops for export. To encourage cultivation and related improvements of these crops, Cess and Customs Duty may be increased for exports in primary form.

Present

Cess & Customs Duty are at normal rates.

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4.3 CONSOLIDATION OF TAXES TO FACILITATE SIMPLIFICATION OF THE TAX SYSTEM

a) Proposed change

Excise (Special Provisions) Duty will be charged in lieu of VAT, NBT, Cess, Customs Duty and Ports and Airport Development Levy (PAL) on certain articles specified under Chapter 87 of the Customs Tariff Guide.

Present

Under Chapter 87 of the Customs Tariff Guide, on import of certain articles, taxes and levies such as Excise (Special Provisions) Duty, VAT, NBT, Cess, Customs Duty and Port and Airport Development Levy are charged separately under specific Acts.

b) Proposed change

In lieu of VAT and NBT :-

(a) Excise (Ordinance) Duty will be charged on the manufacture of liquor.

(b) Customs Duty and Cess will be charged on the import of liquor.

(c) Excise (Special Provisions) Duty will be charged on the manufacture or import of cigarettes.

These will be charged at the rates and in the manner specified in the relevant Gazettes, published for the purpose.

Present

(a) Excise Ordinance Duty, VAT and NBT are charged on the manufacture of liquor.

(b) Customs Duty, VAT, PAL, NBT & Cess are applicable on import of liquor.

(c) · Excise Duty, Custom Duty, VAT, PAL, NBT and Cess are applicable on the import of cigarettes.

· Excise Duty, VAT and NBT are applicable for the manufacture of cigarettes.

Effective date

Relevant provisions of the VAT and NBT Acts will be amended with immediate effect.

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4.4 MEASURE TO IMPROVE RECOVERY OF TAX IN ARREARS AND TAX ADMINISTRATION

4.4.1 DEFAULT TAX RECOVERY ACT

a) Proposed change

A special refinance facility scheme has been introduced to facilitate the settlement of arrears in EPF/ETF and arrears in taxes up to 31st December 2010. The scheme grants a period of 5 years for the repayment of the facility provided at an interest rate of 6%.

PRESENT

There are no such provisions in any law which provide for the above concessions.

4.4.2 TECHNICAL RECTIFICATIONS AND ADMINISTRATIVE PROVISIONS

a) Proposed change

Necessary amendments will be made to the respective provisions of the following Acts, in order to streamline the revenue administration and to rectify certain uncertainties and unintended effects (including differences in translations).

· Inland Revenue Act No. 10 of 2006

· Value Added Tax Act No. 14 of 2002

· Nation Building Tax Act No. 9 of 2009

· Economic Service Charge Act No. 13 of 2006

· Finance (Amendment) Acts

· Betting and Gaming Levy Act No. 40 of 1988

· Default Tax (Special Provisions) Act No. 16 of 2010

· Telecommunication Levy Act No. 21 of 2011

· Ports and Airports Development Levy Act No. 18 of 2011

· Tax Appeals Commission Act No. 23 of 2011

· Imports and Exports (Control) Act No. 1 of 1969

· Strategic Development Projects Act No. 14 of 2008

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OUR COMMENTS

BUDGET OVERVIEW

The 2015 budget proposals have been formulated with the continuing aim of reducing the now existing budget deficit, amounting to 5% of the GDP to 4.6% in 2015 and eventually to 3% by 2017.

The proposals focus on the country’s development by strengthening key economy sectors such as education, healthcare, agriculture, transport and export. The per capita income for 2015 is expected to be USD 4000, which is four times higher than that of 2005 and achieved a year ahead of the government’s expectations.We highlight below a few salient proposals that were presented.

STREAMLINING OF INTEREST INCOME

A single withholding tax (WHT) rate of 2.5% is expected to be applied on the interest income that is earned by individuals and charitable institutions, irrespective of the quantum of interest.

Further, the exemption threshold of Rs. 500,000 for senior citizens on their interest income received from state banks, would be removed.

The granting of this exemption for senior citizens will benefit them with the increase of interest rates to 12% by state banks on such category.

REDUCED TAX RATE FROM EMPLOYMENT

The concessionary PAYE tax rate of 16% introduced for professionals by the last budget, would be extended to other employment categories.

This proposal will benefit all persons earning an annual employment income of Rs. 2.6 Mn or more. Further understanding on this can be gathered through reference to Appendix C and D.

VALUE ADDED TAX (VAT) AND NATION BUILDING TAX (NBT) FOR SMALL ENTERPRISES/ WHOLESALE AND RETAIL BUSINESSES

The VAT and NBT registration thresholds would be increased to Rs. 15 Mn per annum from the existing Rs. 12 Mn per annum. This will create a tax free environment and reduce the tax burden on small enterprises.

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However, the VAT registration threshold for supermarket scale retail businesses would be reduced further to Rs. 100 Mn from the already reduced threshold of Rs. 250 million. While this will invariably further benefit the small enterprises who are not liable for VAT in terms of competitive pricing, it will no doubt impact adversely on the day to day expenses of the people, in spite of the proposed reduction of the VAT rate by 1% to 11%.

CONSOLIDATION OF TAXES AT THE POINT OF IMPORT

A single tax as Excise (Special Provisions) Duty at the point of import of motor vehicles would be charged in lieu of VAT, NBT, Cess, Customs Duty and Ports and Airport Development Levy (PAL).

Further, VAT and NBT at the point of import would be replaced as:· Excise (Ordinance) Duty on manufacture of liquor.· Customs Duty and Cess on import of liquor.· Excise (Special Provisions) duty on manufacture or import of cigarettes.

While the above consolidation of import taxes is expected to generate an additional revenue over Rs. 5,000 Mn, it will reduce the share of revenue the Department of Inland Revenue was contributing to the Government revenue.

CASINO ENTERTAINMENT TAXES

The proposal to charge USD 100 per person as entrance fees to premises carrying out casino entertainment activities and the increase of the Gaming Levy to 10% of the turnover is expected to raise of Rs. 2,500 Mn.

TAX REFINANCE FACILITY

As a measure to ensure statutory compliance, a refinance facility would be introduced from all the banks to provide a 5 year credit at 6% interest, to enable tax payers to pay their taxes in arrears in terms of prevailing taxes operational from 2010 and provident fund payments up to 31st March 2014.

The default tax payers who do not avail of this opportunity, run the risk of their property vesting in the State to the extent of their default taxes. However, the practical implementation of the proposed recovery procedure is not clear.

The so called default taxes have to be finalized or agreed to by the tax payer. There have been instances where the taxes settled have been shown as default taxes.

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PROPERTY TAX ON FOREIGN NATIONALS

As proposed in the 2014 budget, foreigners have access to state and private land only through long term lease arrangements subject to a land lease tax. Strict implementation of this land tax of either 7.5% or 15% (as the case may be) and other conditions is expected.

However, there are certain ambiguities on the recently passed Land (Restriction on Alienation) Act which questions the implementation of the said conditions in a practical sense.

It can be concluded that, the proposals submitted aims to ensure the upward trend of economic growth, while protecting the wealth of the country.

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Appendix

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2015/16%

2014/15%

2013/14%

2012/13%

2011/12%

2010/11%

Income TaxQuoted CompaniesTaxable Income > Rs. 5 Mn.

First 5 years 28 28 28 28 28 33 1/3

Thereafter 28 28 28 28 28 35

Taxable Income < Rs. 5 Mn 12 - 12 12 12 15

Unquoted Companies (excluding manufacturers and service providers)

Taxable Income > Rs. 5 Mn 28 28 28 28 28 35

Taxable Income < Rs. 5 Mn 12 - 12 12 12 15

Any Holding Company, Subsidiary or Ass. Company Taxable Income < Rs. 5 Mn

28 28 28 28 28 35

Unquoted Companies (being manufacturers and service providers)

Small Medium Industries (SMI) with turnover < Rs. 300 Mn.

Rs. 500 Mn from 01.04.2013Rs. 750 Mn from 01.04.2015

12 12 10 10 10 35

Turnover > Rs. 500 Mn 28 28 28 28 28 28

Others

Provident Funds 10 10 10 10 10 10

Clubs and Associations 10 10 10 10 10 20

Non Government Organizations

28 28 28 28 28 30

Partnerships 08 08 08 08 08 10

Manufacture & sale or import and sale of tobacco and liquor products

40 40 40 40 40 35

Operations and Maintenance of facilities for storage, local development of software or supply of labour

10 10 10 10 10 35

Educational Services 10 10 10 10 10 35

Deemed Dividend Tax 15 15 15 15 15 15

Profit Remittances – (Non Resident Companies)(as a % of remittance)

10 10 10 10 10 10

Foreign Dividends Exempt Exempt Exempt Exempt Exempt Exempt

Appendix A

SUMMARY OF CORPORATE TAX RATESY/A 2010/ 2011 – 2015/ 2016

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2015/16%

2014/15%

2013/14%

2012/13%

2011/12%

2010/11%

Concessionary Rate

Qualified Export Profits/ Construction/ Tourism

12 12 12 12 12 15

Agricultural undertakings

12 12 12 12 12 15

Agriculture Section 16 10 10 10 10 10 Exempt

Venture Capital Companies

12 12 12 12 12 20

Unit Trusts 10 10 10 10 10 10

Unit Trust Management Companies

10 10 10 28 28 35

Petroleum Exploration 12 12 12 12 12 15

Exports with 65% Value Addition

10 10 10 10 10 15

Share Transaction Levy on Sale of Shares of Quoted Companies

0.3 (1) 0.3(1) 0.3(1) 0.3(1) 0.3(1) 0.2(1)

Economic Service Charge (ESC)

0.25(2)(3) 0.25(2)(3) 0.25(2)(3) 0.25(2)(3) 0.1 - 1(2) 0.05 - 1(2)

Partnership 8 (5) 8 (5) 8 (5) 8 (4) 8 (4) 10 (4)

Note:

1) To be paid by both buyer and seller2) Of turnover 3) To be paid only by companies who are not paying income tax on trade

profits due to profits being exempt or due to incurring losses.4) Divisible profit in excess of Rs. 600,000/-5) Divisible profit in excess of Rs. 1,000,000/-

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2015/16%

2014/15%

2013/14%

2012/13%

2011/12%

2010/11%

Withholding Tax

Interest & Royalty paid 10 10 10 10 10 10

Interest (on loans obtained prior to 01.04.2012) & Royalty paid - to a person outside Sri Lanka (subject to DTTA)

15 15 15 15 15 15

Rent, annuities and ground rent - Non residents

20 20 20 20 20 20

Dividends (subject to DTTA) 10 10 10 10 10 10

Interest on listed debentures & Debt securities, Municipal Bonds

- - - 10 10 10

Management fees 05 05 05 05 05 05

Reward payments by Govt. - Lottery Prizes, Winning from - Betting and Gambling

10 10 10 10 10 10

Capital Allowances

Buildings 10 10 10 10 10 6 2/3

Plant, Machinery & Fixtures 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3 12 1/2

Software 25 25 25 25 25 25

Software (locally developed) 100 100 100 100 100 100

Commercial vehicles and office furniture

20 20 20 20 20 20

Bridges, Railway 6 2/3 6 2/3 6 2/3 6 2/3 6 2/3 6 2/3

Plant & Machinery for healthcare, printing on paper, gem cutting, polishing, rice milling & packaging

33 1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3

High tech plant, machinery and equipment for energy efficiency purposes

50 100 (1)

50 100 (1)

50 100 (1)

50 - -

Note:

(1) More than 30% of the total energy requirement is met through alternative energy resources.

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2015/16%

2014/15%

2013/14%

2012/13%

2011/12%

2010/11%

Deduction of Losses (restricted)

Life Insurance business

Loss restricted to

life insurance business

profit

Loss restricted

to life insurance business

profit

Loss restricted to life insurance business profit

Loss restricted

to life insurance business

profit

Loss restricted to life insurance business profit

Loss restricted

to life insurance business

profit

Finance Leasing business

Loss restricted to finance

leasing profit

Loss restricted to finance

leasing profit

Loss restricted to finance

leasing profit

Loss restricted to finance

leasing profit

Loss restricted to finance

leasing profit

Loss restricted to finance

leasing profit

Limited to 35 of total Statutory

income

35 of total Statutory

Income

35 of total Statutory

Income

35 of total Statutory

Income

35 of total Statutory

Income

35 of total Statutory

Income

Value Added TaxStandard 11 12 12 12 12 15

Zero 0 0 0 0 0 0

Luxury 11 12 12 12 20 20

Nation Building Tax (NBT) Standard 2 2 2 2 2 3

Retail & Wholesale business

2 of 50% of turnover

2 of 50 % of turnover

2 of 50 % of turnover

2 of 50% of turnover

2 of 50 % of turnover

-

Distributors 2 of 25% of turnover

2 of 25 % of turnover

2 of 25 % of turnover

2 of 25 % of turnover

2 of 25% of turnover

-

27

B u d g e t H i g h l i g h t s 2 0 1 5

Sri Lanka

%

India

%

Bangladesh

%

Singapore

%

Malaysia

%

Pakistan

%

Corporate Tax

Quoted Company 28 30 – 35 27.5 17 20 – 25 33 - 34

Unquoted Company 28 30 – 35 35 17 20 – 25 33 - 34

Clubs and

Associations

10 - 10 to 30 17 26 Maximum (Y/A 2014)

25 Maximum(Y/A 2015)

-

Foreign Dividends Exempt 15 or 30 20 - Exempt 10

Remittance Tax (Non resident company)

10 - 20 Nil N/A N/A

Capital Gains (Listed)

Exempt 0 to 40 15 Nil N/A 0 to 12.5

Partnership Tax 8 - 10 to 30 0 to 20 N/A 0 to 35

Withholding Tax

Interest 10 5 or 20 5,10 or 15 15 15 10 to 15

Royalty 10 or 15 25 10 10 10 15

Dividends 10 15 to 20 (Dividend

distribution tax)

10,15 or 20 Nil N/A 10 to 15

Rent - - - 15 10 -

Management Fee 5 - N/A 17 10 8 to 10

Directors Fee 10 and 16 N/A 20 N/A 20

Appendix B

COMPARISON OF CURRENT CORPORATE TAX RATES, WITHHOLDING TAXES, INDIRECT TAXES etc., Y/A 2014/15 WITH THE OTHER COUNTRIES IN THE REGION.

B u d g e t H i g h l i g h t s 2 0 1 5

28

Sri Lanka

%

India

%

Bangladesh

%

Singapore

%

Malaysia

%

Pakistan

%

Depreciation Allowance

Buildings 10 10 10 25 Initial 5 Annual

10 Initial 3 Annual

(Industrial Buildings)

15 Initial

10 Annual

Plant & Machinery 33 1/3 15 20 33 1/3 Normal

Additional 300

under the Productivity

and Innovation

Credit (PIC) scheme

20 Initial

14 Annual

25 Initial 15 Annual

Furniture 20 10 10 33 1/3 20 Initial 10 Annual

15

Motor Vehicles 20 15 20 33 1/3 20 15

Computers 25 60 30 100 Normal Additional 300 under

the PIC scheme

20 Initial 10 Annual

25 Initial 30 Annual

Indirect Taxes

Value Added Tax (VAT)

12 4 to 5 General

12.5 to 15 Residual

15 7 5 or 10

6 (w.e.f 1st April 2015)

15 to 17

Nation Building Tax (NBT) (Retail/Wholesale)

2

2 of 50 of T/O

Economic Service Charge (ESC)

0.25 on T/O

- - - - -

Customs Duty 0-30 10 Basic

Excise Duty 0-22 12.36 17

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Appendix C

COMPARISON OF EFFECTIVE TAX RATES FOR RESIDENT INDIVIDUALS

Y/A 2006/2007 - 2015/2016

An employee whose salary is Rs. 100,000 per month (1) Rs. 150,000 per month (2) Rs. 500,000 per month (3)

Y/A PersonalAllowance

Taxable Income Income Tax AverageEffective Rate %

1 2 3 1 2 3 1 2 3

Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

2006/2007 300 900 1,500 5,700 105 280 1,740 8.8 15.6 29.0

2007/2008 300 900 1,500 5,700 105 280 1,740 8.8 15.6 29.0

2008/2009 300 900 1,500 5,700 105 280 1,740 8.8 15.6 29.0

2009/2010 300 900 1,500 5,700 75 180 1,545 6.2 10.0 25.8

2010/2011 300 900 1,500 5,700 75 180 1,545 6.2 10.0 25.8

2011/2012 600 600 1,200 5,400 28 84 976 2.3 4.6 16.2

2012/2013 600 600 1,200 5,400 28 84 976 2.3 4.6 16.2

2013/2014 600 600 1,200 5,400 28 84 976 2.3 4.6 16.2

2014/2015 600 600 1,200 5,400 28 84 976 2.3 4.6 16.2

2015/2016 600 600 1,200 5,400 28 84 744 2.3 4.6 12.4

B u d g e t H i g h l i g h t s 2 0 1 5

30

Appendix DTaxation of Retiring Benefits

Rate Y/A Nil 5% 10%

2009/2010 (A) (1) First Rs. 5.000,000 Next Rs. 1,000,000 Balance

2009/2010 (A) (2) First Rs. 2,000,000 Next Rs. 1,000,000 Balance

2010/2011 (A) (1) First Rs. 5,000,000 Next Rs. 1,000,000 Balance

2010/2011 (A) (2) First Rs. 2,000,000 Next Rs. 1.000,000 Balance

2011/2012 (A) (1) First Rs. 5,000,000 Next Rs. 1,000,000 Balance

2011/2012 (A) (2) First Rs. 2,000,000 Next Rs. 1,000,000 Balance

2012/2013 (A) (1) First Rs. 5,000,000 Next Rs. 1,000,000 Balance

2012/2013 (A) (2) First Rs. 2,000,000 Next Rs. 1,000,000 Balance

2013/2014 (A) (1) First Rs. 5,000,000 Next Rs. 1,000,000 Balance

2013/2014 (A) (2) First Rs. 2,000,000 Next Rs. 1,000,000 Balance

2014/2015 (A) (1) First Rs. 5,000,000 Next Rs. 1,000,000 Balance

2014/2015 (A) (2) First Rs. 2,000,000 Next Rs. 1,000,000 Balance

2015/2016 (A) (1) First Rs. 5,000,000 Next Rs. 1,000,000 Balance

2015/2016 (A) (2) First Rs. 2,000,000 Next Rs. 1,000,000 Balance

(A) Government Sector – All retiring benefits are exempt from tax.(1) If the period of Provident Fund contribution is over 20 years.(2) If the period of Provident Fund contribution is below 20 years.

With effect from 01.04.2011, proceeds from Provident Fund do not form part of retiring benefits.

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ABOUT SJMS ASSOCIATES

SJMS Associates is a multi-disciplinary professional services firm providing audit, financial advisory, tax advisory, management solutions and corporate recovery services to a wide range of clients. SJMS Associates is an independent correspondent firm to Deloitte Touche Tohmatsu, a global leader in professional services with over 180,000 people in 150 countries / locations.

Our practice is one of the top accounting and auditing firms in Sri Lanka, with eleven partners and 350 staff. Our clients operate in diverse industries such as advertising, apparel, retail, financial services, manufacturing to hospitality and leisure. The firm has over 35 years presence in Sri Lanka and has been associated with Deloitte Touche Tohmatsu since 1997.

Services provided :

Audit & Assurance Tax Compliance & Planning

· Financial Assurance · Corporate Tax Compliance · Internal Audits · Indirect Taxation including VAT and

Excise Duty · Forensic Services · Expatriate Tax Consulting · Due Diligence · International Taxation · Outsourced Accounting Services · Tax Management Advisory · Information System Audits · Transfer Pricing · M & A Tax Management Consulting Restructure & Corporate Recovery

· General Management Consulting · Restructuring / Reorganization Services · Business Strategy Consulting · Corporate Closure Management · Foreign Investment Services · Liquidation Services · Privatization Services · Human Resources Consulting · Systems and Solutions

Corporate Finance · Mergers and Acquisitions · Corporate Finance & Private Capital · Transaction Execution · Valuations

B u d g e t H i g h l i g h t s 2 0 1 5

32

Contacts

SJMS Associates Tel. + 94 11 5444400 / 5444408/09 sjmsa@sjmsassociates.com02 Castle Lane Fax. + 94 11 2586068Colombo 04.

Ms. S. Y. Kodagoda Tel. +94 11 5444400 - (Ext. 208)/ 5444410 (D) sarala@sjmsassociates.com

Mr. P. Sivasubramaniam Tel. + 94 11 5444400 - (Ext. 205)/ 5444408/09

Mr. M. C. Ratnayake Tel. + 94 11 5444400 - (Ext. 207)/ 5444408/09 ratnayake@sjmassociates.com

Ms. L. Fernando Tel. + 94 11 5444400 - (Ext. 210)/ 5444408/09 laleena@sjmsassociates.com

Ms. D. Dahanayake Tel. + 94 11 5444400 - (Ext. 209) /5444408/09 nirmala@sjmsassociates.com

Mr. D. Wakishta Tel. + 94 11 5444400 - (Ext. 221)/ 5444408/09 damith@sjmsassociates.com

Ms. G. Perera Tel. + 94 11 5444400 - (Ext. 206)/ 5444408/09 gayani@sjmsassociates.com

BranchSJMS Associates Kandy Tel. + 94 081 2228684 or 562864925/1/1 George E. de Silva Fax. +94 081 2203071MawathaKandy

Mr. R. Rajendran ramiahco@hotmail.com

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