Inland Revenue

(Amendment)
Bill Issued on
18 March 2021
1. Business Income - Tax deductible expenditure

1.1 Retirement contributions by the employer to a gratuity fund, which is approved by the CGIR,
will be tax deductible to the employer. (Previously deductibility was limited to contributions to
an approved a pension, provident or savings fund or a savings society.)

1.2 Cost of funds of the financial institutions – Under Technical and Vocational Education and
Training concept (TVET concept).

Cost of funds incurred on the loans provided for new businesses commenced on or after
April 1, 2021 by any individual after successful completion of vocational education from any
Vocational Education Institution which is standardized under Technical and TVET concept and
regulated by the Tertiary and Vocational Education Commission, shall be deemed to be
incurred in the production of income of such financial institutions.

1.3 Effective 1 April 2021, repair expenditure incurred on depreciable asset can be claimed in full
in the Y/A incurred without any restrictions. Improvements expenditure incurred will be subject
to:
� 5% of TWDV for buildings, structures and similar works of a permanent nature

� 20% of TWDV for other assets

“improvement” has been defined to mean the expenditure incurred by a person to make
additions or alterations to a depreciable asset which enhances the value of such asset, but
excludes the expenditure incurred to maintain or repair a depreciable asset which temporarily
enhances the value of such asset.

1.4

1. Marketing & communication expenses including capital expenditure is tax deductible with
effect from April 1, 2021.

“marketing and communication expenses” means

(a) Carrying out a market research by such person or any institution in Sri Lanka on
his behalf;

(b) The development or production of marketing, advertising and communication

campaign to the extent that such development or production is carried out in
Sri Lanka;

(c) Advertising on mainstream media or social media including television, radio, print
or as outdoor advertising;

(d) Product launches or campaign activation carried out by such person or by any
local institution on his behalf;

(e) Development and printing of point of- sale material by such person or by any local
institution on his behalf.”
1.4

2. Additional 100% deduction Marketing & communication expenses including capital

expenditure is tax deductible

Additional deduction available for Y/A 2021/22, 2022/23 & 2023/24 subject to the following

(a) The payment shall be made to a person who is not an associated person of the
taxpayer;

(b) Internal marketing expenses, salaries of marketing staff, expenditure on

maintaining an internal marketing department, expenditure on corporate social
responsibility initiatives and foreign travel expenses shall not be considered for
the purpose of the additional deduction.

(c) Expenditure shall be attributable to goods and services with 65% of local value
addition, the mode of calculation of which shall be as specified by the
Commissioner-General;

(d) The total additional deduction shall not exceed Rs. 500,000,000 in any year of
assessment;

(e) The Commissioner-General shall specify the documentary records that should
be maintained

1.5 Finance cost - Thin cap rules

• Thin cap calculation rules revised effective 1 April 2021

• The deductibility of financial cost attributable to the financial instruments will be restricted to the
total of the issued share capital and reserves of the entity as at the end of the year x 4

• Disallowed /unutilized amount can be carried forward up to 6 years (subject to the above limitation)

• Additionally, only for the Y/A 2021/22 a full deduction on financial costs incurred will be permitted

• However, Y/A 2021/22 shall not be recognized as an unutilized period for the purpose of 6yr
carry forward
.
• Previous distinction of the thin cap rule between manufacturing and other entities abolished

1.6 Deductibility of losses – Small and Medium Enterprises (SME)

• Unrelieved losses of a SME (other than losses generated out of income tax exempt business) can
be set off against profits liable to same or lower rates subject to the 6yr restriction on carry
forward of unrelieved losses
1.7 Bad debt provisions of banking business

• Bad debt provisions will be deductible subject to directives made by the Central Bank and as
defined.

• SLAS provision not allowed

• ‘Debt claim’ definition excludes deposits, debentures, stocks, treasury bills, promissory notes,
bills of exchange and bonds on which there is a right to receive a payment.

• Bank has to prepare and retain records

• Gazette No 2064/57 dated April 01, 2018 still applicable

1.8 Any building, structure, or similar work of a permanent nature constructed or made in a
leasehold land by the person who made the investment shall not be deemed as an intangible
asset but deemed as a depreciable asset and eligible for enhanced capital allowances.

1.9 Entertainment expenditure

Entertainment expenditure is not a tax-deductible expense under the Inland Revenue Act
No 24 of 2017. The amending provisions seeks to revise the definition of “entertainment” so as
to permit the deduction of expenses incurred on account of food and beverages in so far as it
is incurred in the production of income.

1.10 Capital allowances

1.10.1 50% Capital allowance for Milking Machines with latest technology, used to
manufacture the local liquid milk related products. W.e.f 1 April 2021

1.10.2 A motor bicycle qualifies as a depreciable asset for claiming capital allowance

1.10.3 The validity period for enhanced capital allowances granted for investments up to
USD 3Mn has been extended for additional period of 3yrs i.e up to 1 April 2024) 

1.10.4 If enhance capital allowance is claimed on a depreciable asset, and thereafter, it is

sold, the computation of assessable charge or balancing allowance is not applicable.
Instead the entire consideration is treated as assessable charge (no balancing
allowance is deductible).

1.10.5 If a depreciable asset is used in common in a business taxed at different rates, then
cost and consideration of the common asset should be apportioned based on market
value in order to apply the relevant tax rate
 1.11 R&D expenses - Double deduction

Temporary concessions provided for R&D expenses under 6th schedule to the Inland Revenue
Act, (i.e. 100% additional deduction for actual expenses incurred in the relevant year) will be
extended for another 2 years, i.e. Y/A 2021/2022 and 2022/2023.

1.12 Taxation of a company

A company, which has business activities / sources of income liable to different tax rates,
shall be considered as carrying out distinct businesses. W.e.f 1 April 2021

2. Investment assets

Consideration received on relaisation of an investment asset will be the higher of

• The amount received or receivable by the person in respect of such asset ,or

• The assessed value at the time of realization

A tax official may determine the consideration received for an investment asset if such tax official
is of the opinion that the assessed value is not indicative of the market value of such asset “assessed
value” means the value at the time of the realisation, certified by a professionally qualified valuer in
a valuation report Effective 1 April 2021

3. Qualyfying Payments (QP)

3.1 QP Relief - Corporates

(a) Expenditure incurred by any financial institution by way of cost of acquisition or merger
of any other financial institution as confirmed by the Central Bank of Sri Lanka. Expenditure
deductible has to be apportioned in equal amounts over three years of assessment
commencing from the Y/A incurred:

Any unitlized deductible expenditure (due to insufficient assessable income) maybe

carried forward

(b) Any sum paid to the consolidated fund by a Public Corporation

3.2 QP Relief - Any person

Expenditure incurred on or after April 1, 2021, by any person-

(i) In the production of a film (including promotional expenditure of such film) of not less than
five million rupees incurred

(iI) In the construction and equipping of a new cinema at a cost of not exceeding twenty five
million rupees;

(iI) In the upgrading of a cinema at a cost of not exceeding ten million rupees:
 The deduction shall be restricted to one third of the taxable income of the year. Excess maybe
carried forward subject to the same restriction.

“film” means any audio-visual presentation of the moving image produced on any form or format
whatsoever and which is intended primarily to be exhibited by projection on a screen in a cinema;
and

The expenditure on construction and equipping or upgrading a cinema shall be certified by the
National Film Corporation of Sri Lanka established by the National Film Corporation of Sri Lanka
Act, No. 47 of 1971 as being equipped with digital technology, Digital Theatre Systems and Dolby
Sound Systems.

4. General tax administrative measures

• Single return to be submitted for all capital gain transactions in a calendar month and the payment
due to be paid within thirty days after the relevant calendar month.

As per current legal provisions, CGT Returns and payments have to be made within 30 days from
the date of realization

• With effect from April 1, 2021 all companies (other than body of persons) are required to file tax
returns only by electronic means.

• It will be mandatory to use the Tax Identification Number (TIN) in all tax related source documents
or underlying documents of the taxpayer.

• If any Trust or a company unable to submit the accounts for the period of 12 months commencing
from April 1 and ending on the March 31st of the following year, it may apply to the Commissioner
General for an alternative period of 12 months to compute the income tax liability

• Every installment taxpayer should pay installments on or before 15th of August, November,
February in that year of assessment and the 15th of May in the following year of assessment
irrespective of the accounting year.

• Banks and financial institutions are required to maintain documents as specified by the CGIR
with regard to doubtful debt.

• A company is required to maintain separate financial statements for activities and sources of
income taxed at different rates or exempted from taxation

• The Commissioner-General’s decision of the review on assessment or other decision and the
reasons for the decision would be served to the taxpayer within a period of 6 months from the
date of acknowledgment of request for review under Section 139 of the IRA.

• “Tax return” is defined to include an annual statement. If a request to the CGIR for administrative
review is an objection against an assessment which has been made in the absence of an annual
statement required to be furnished, such request is required to be sent together with a duly filled
annual statement.

• Based on the decision of the Commissioner General, amended or additional assessment can be
issued disregarding the time limit specified in section 135.
 • A taxpayer who is aggrieved by the decision of an administrative review of an assessment may
appeal to the Tax Appeals Commission within;

(a) 30 days from the date of receipt of the decision of the Commissioner General (previously
there are no time limit specified) or

(b) where there is no decision by the Commissioner General 30 days post lapse of 7 months
from the request for administrative review was made under Section 139 of the IRA
(Previously it was 90 days).

• When a refund is to be made by the Commissioner General , and if it is not made within six
months (earlier sixty days) from the date of the refund claimed(earlier from the due date) until the
date on which the refundable amount is paid, an interest is to be paid computed (earlier
compounded) monthly .

• Where a return or part of a return is prepared for a payment, (earlier reward) by any person
including by an approved accountant, such person shall certify separately to what extent he was
involved in the preparation of such return and specify the documents examined by him and the
information relied upon by him. Such certification should be submitted along with the return and
said certification is deemed part and partial of the said return.

• Where any person who fraudulently prepares any document or certifies a document to be
furnished to the Commissioner General commits and offence under the IR Act, and on conviction
after summary trial before a Magistrate , be liable to a fine not exceeding one million rupees or
to imprisonment of either description for a term not exceeding six months.

• Commissioner General has the power to issue guidelines in respect of calculating the income
for the year of assessment 2019/20 specifying the computation of assessable income(or losses)
from each source, qualifying payments and reliefs , computation of taxable income , applicable
tax rates, tax credits in which to apply the pro-rata basis or actual basis as for the first period
from April 1, 2019 to December 31, 2019 and for the second period from January 1, 2020 to
March 31st 2020.

5. Tax relief measures to facilitate post Covid-19 economic recovery

(i) Income tax arrears payable by any Small and Medium Enterprise (as defined) will be written/
waived off (provided there is no fraud or willful neglect in disclosing the income, in claiming
deductions or relief in the return) if such arrears has arisen due to any amended /additional/
default assessments issued up to the year of assessment ending March 31, 2019 under the IR
Act No.28 of 1979, 38 of 2000, 10 of 2000 and act No 24 of 2017 and which is outstanding as at
June 26, 2020, in the records of the Commissioner General subject to the deduction of any refund
duly claimed under any of the Acts administered by the Commissioner General. However, this is
not applicable for tax assessments issued for tax payments as per the returns.

(ii) No amended or additional income tax assessment will be issued on any Small and Medium
Enterprise (as defined) which has paid the tax declared in its return (unless an application has
been made to amend the self-assessment) for the year of assessment ending on March 31, 2020
(2019/2020) provided that there is no fraud or willful neglect in disclosing the income, in claiming
deductions or relief in the return).
(iii) The Commissioner General will not impose any penalty or initiate criminal proceedings against
a person.

- if he files the return of income for the y/a 2019/20 before June 30th of 2021, and

- makes the final payment which is required to be made on or before September 30th, 2019,
on or before June 30th of 2021

6. Exemptions

Income tax exemptions not provided in the Inland Revenue Act No 24 of 2017 but granted in terms of
the Strategic Development Act No 14 of 2008 will be valid in law.

A list of exemptions of relevance is given in annexure A

7. Tax Rates

Changes in tax rates including deductions as tax credits have been provided in Annexure B
Withholding tax (WHT)
regime, personal
income tax and partnerships
1. Withholding tax (WHT) - payments to resident persons

WHT on payments to resident persons was abolished w.e.f . January 01, 2020. However w.e.f from
April 01,2020 a recipient of a periodic payment falling into any of the categories given below and if
such category has a source in Sri Lanka, may request (by declaration) a withholding agent (WHA) to
deduct an “Advance Income Tax” (AIT) as specified by the CGIR;

> dividend
> interest
> discount
> charge
> natural resource payment
> rent
> royalty
> premium or similar payment

(Guideline has already been published in IRD website).

WHT applicable on amounts paid to a resident partner in respect of such partner’s share of profit
allocated by the partnership, was removed w.e.f. January 2020. However, the Advance Income Tax
option referred to above, does not apply in this scenario.

Furthermore, WHT will continue as it is on the following payments, and the recipient is not required
to make a request on the deduction.

• Amounts as winning from lottery, reward, betting or gambling – 14%.

• Sale price payable to the seller of any gem sold at an auction conducted by the National
Gem & Jewellery Authority - 2.5%

2. WHT on Payments to Non- Residents w.e.f January 1, 2020

• Following WHT rates prescribed previously for payments to non-residents which has a source in
Sri Lanka, subject to provisions of Double Tax Avoidance Agreement (DTAA), will continue to
apply except for dividends;

> Dividend - Exempt

> Interest (Excluding exempt Interest) - 5%

> Payment with respect to land, sea, air transport or telecommunication - 2%

Payments made to a non-resident person who is not a citizen of Sri Lanka or to a

nonresident entity that is subject to withholding, other than payments derived through a
Sri Lankan Permanent Establishment will be final withholding payments.
 Interest paid to or treated as being derived by a non-resident individual who is a citizen of
Sri Lanka other than the following will also constitute final withholding payments:

(i) such amount of interest paid and falling within the relief threshold (i.e. where interest is
less than LKR 3Mn p.a); or

(ii) such amount calculated by deducting the total of other sources of assessable income
(total assessable income other than interest) from the relief threshold if the total of
assessable income from other sources does not exceed the relief threshold. (i.e. where
interest income and other sources of income is less than 3Mn p.a)

3. Personal income Tax – Employment income

• Regular profits from employment

Withholding tax on employment income other than terminal benefits (PAYE deduction) was
abolished w.e.f. January 01, 2020. However, w.e.f from April 01,2020, an employee whose
gross remuneration exceeds Rs. 250,000 per month or Rs. 3,000,000 for a year of assessment,
may request the employer to deduct an “Advance Personal Income Tax” (APIT).. However,
APIT deduction is mandatory in respect of employees who are nonresident or non-citizen
of Sri Lanka as specified by the Commissioner General. (Guidelines have already been
published in IRD website).

• Exclusions from Employment Income – w.e.f 1 April 2018

Following will not be considered as profits from employment

A discharge or reimbursement of the person’s dental, medical or health insurance expenses

where the benefit is available to all full-time employees in the same grade of the service, on
equal terms. (Previously exclusion was available only where the discharge was available on
equal terms across all grades)

Contributions made by an employer on behalf of an employee to an approved gratuity fund

to an employee’s account. (Previously, the exclusions was restricted to approved pension,
provident savings fund or savings society)

4. Personal Income Tax – w.e.f. 01 January 2020

• Tax free allowance - Rs 3Mn for each Year of assessment (Y/A) for resident or citizen of
Sri Lanka

• Tax rates - Taxable income from all sources including compensation for loss of office which
has not been approved by the Commissioner General of Inland Revenue (CGIR), payment
from provident fund (which is not a regulated fund or not an approved fund by the CGIR),
other termination payments or any retirement non-cash benefit in excess of Rs 3mn are
taxed at following rates;
 Taxable Income Qualifying Criteria

1st – Rs. 3 Mn 6%

2nd – Rs. 3 Mn 12%

On the balance 18%

• Tax rates - Approved terminal benefits from employment

Total terminal benefits from employment Tax Payable

(Commuted pension, retiring gratuity, ETF or Approved compensation)

1st – Rs. 10,000,000 0%

2nd – Rs. 10,000,000 6%

On the balance 12%

(In the application of the threshold, payments made by a provident fund and the regulated provident
fund approved by the CGIR are required to be excluded) .

• Tax rates - Business consisting of betting and gaming, manufacture and sale or import and
sale of any liquor or tobacco products – 40%

(As per the existing provision, 40% tax rate was applicable even for local buying and selling
of liquor to tobacco

• Tax rates - Gains and profits from the consideration received from gem and Jewllery is
taxed at the maximum rate of 14% with effect from April 1, 2021

• Tax rates - Gains and profits from the amounts supply of electricity to the National Grid
generated by using renewable energy resources is taxed at the maximum rate of 14% with
effect from April 1, 2021.

• Deductible Qualifying Payment (QP) w.e.f 1 April 2021

Any contribution made by resident individual in money or otherwise to establish a shop for
a female individual who is from a Samurdhi beneficiary family as recommended and confirmed
by the Depart of Samurdhi Development.

• Deduction of Relief w.e.f 1 Jan 2020-

Resident individual may deduct up to LKR.1.2 Mn per Y/A of the following expenditure in
arriving at the Taxable Income;
 (a) Health expenditure including contributions to medical insurance;

(b) Vocational education or other educational expenditure incurred locally, for such individual
or on behalf of his children;

(c) Interest paid on housing loans;

(d) Contributions made to any local pension scheme, other than for a scheme under the
employer or on behalf of the employer, by an employee;

(e) Expenditure incurred for the purchase of equity or any other financial listed in the CSE or
treasury bonds or treasury bills.

(f) Expenditure incurred (including amounts paid to banks on loan) of upto 600,000 for
acquisition of solar panels to fix on his premises and connected to the national grid

(g) With effect from April 1, 2021, contribution made in money or otherwise to establish a shop
for a female individual who is from a Samurdhi beneficiary family as recommended and
confirmed by the Department of Samurdhi Development

5. Payment of taxes and return filing obligations

• Employees who have not given the consent to deduct tax under APIT are required to make
tax payments on installment basis.

• In calculating the estimated tax payable, employees who have given their consent to deduct
the tax under APIT scheme may deduct APIT prior to applying the formula for calculating
installment tax payable

• Employees are required to file their income tax return irrespective of the deduction of APIT
or not

• The AIT paid at source will not be a final withholding payment and taxpayers are required
to declare the income from above sources in their income tax return, and claim the tax credit.

• The capital gain tax return filed by any person who has a taxable income consisting of a gain
from the realization of an investment asset will not be a self assessment return.
6. Partnerships – w.e.f. 01 January 2020

WHT of 8% on any partner’s share of partnership income is replaced with a tax on partnership with
effect from January 01,2020, applied as follows;

Taxable Income Tax Rate

If taxable income consists of Gains Gains on realization of investment 10%

on realization of investment assets assets

Balance Taxable Income Not exceeding Rs. 1,000,000 0%

Exceeding Rs. 1,000,000 6% on the excess

of Rs. 1,000,000

Tax paid by the partnership including, foreign tax credit paid by the partnership will be proportionality
allocated amongst the partners (as per partners’ share) and considered as paid by the each partner.
No refunds would be available to such partners. Excess may be carried forward and set off in the
following year
 Exemptions
Income tax exemptions not provided in the Inland Revenue Act No 24
of 2017 but granted in terms of the Strategic Development Act No 14
of 2008 will be valid in law. The following are some specific
exemptions of relevance
 Exemption Eligible Persons Qualifying Criteria Period of exemption

Remittances of retained
income invested in
Sri Lanka by a non-resident
person
Non-resident companies Total income earned in any
carrying on a business in year of assessment
Sri Lanka through a commencing on or after April
Sri Lankan permanent 1, 2021 in Sri Lanka by such
establishment non-resident person should
be retained for a minimum
period of 3 years commencing
from the first day of the
immediately succeeding year
of assessment in which the
income is earned and invested
in Sri Lanka by way of
The provision is effective
1 April 2021.
E.g The profits of 2021/22
should be remitted in 2026/27
in order for the exemption to
apply.
3 year period will commence
from 2022/23 to 2025/26

� utilizing such retained profits

to expand the business in
Sri Lanka or

� to acquire shares or any

securities from Colombo
Stock Exchange or

� to acquire treasury bills,

treasury bonds or Sri Lanka
International sovereign
bonds issued on behalf of
the Government of Sri Lanka

Gains and profits from the
sale of produce from agro
farming1
Any person engaged in agro Sale of produce from agro 5 years of assessment
farming farming. commencing from
1 April 2019
Where the person utilizes the
agro farming produce in agro
processing / manufacturing,
such produce shall be deemed
to have been sold for the agro
processor or manufacturer at
the market price prevailing at
the time of such deemed sale,
and the gains and profits so
computed will be exempt.

Gains and profits from Any person To be prescribed 1 Jan 2020

providing information
technology and enabled
services

Gains and profits from any
service rendered in or
outside Sri Lanka
Any person � Service so rendered must 1 Jan 2020
be utilized outside SL
� The payment for such
services should be received
in foreign currency and
remitted through a bank
to Sri Lanka

Gains and profits (other than Any person Gains and profits should be 1 Jan 2020
gains and profits referred to earned or derived in foreign
in item 4 above) from any currency and remitted through
foreign source a bank to Sri Lanka

1
“Agro farming” means the tillage of the soil and cultivation of land with plants of any description, cultivation in green house, bee-keeping, rearing of fish, shrimp
farming or animal husbandry, poultry farms, hatchery, veterinary or artificial insemination services;
the cleaning, sizing, sorting, grading, cutting or chilling of any produce produced out of any activity referred to in paragraph (a) by any person who is engaged in
any such activity, in preparation of such produce for the market but excludes the agro or food processing
 Exemption
Any amount derived from
laboratory services or
standards certification
services
Dividends and gains on the
realization of SLREIT units
or gains from the realization
of capital assets of a
business or investment by a
unit holder
Gain from the realization of
land or building
Interest accruing to a person
outside Sri Lanka on any
loan granted to any person
in Sri Lanka or to the
Government of Sri Lanka
Interest on Special Deposit
Account (SDA)
Interest accruing to or
derived by any welfare
society (other than by way of
a company or a partnership)
Interest on foreign currency
deposits in any domestic
bank
Interest or discount accrued
or derived by Samurdhi
community-based banks
Interest income accruing to
or derived by any person on
moneys lying to his credit in
foreign currency in a foreign
currency account
2
“Welfare society” means a fund or a society which has been set up or formed for the welfare of its members or their respective families and contributions are made
by its members, including benevolent fund which promotes the savings of members, but other than any company which is incorporated or registered under any law
in force in Sri Lanka or elsewhere and a partnership.
3
“Multi-national company” means a company that is part of a group of associated companies, with business establishments in two or more countries
Eligible Persons Qualifying Criteria Period of exemption
Any non-resident person N/A 1 Jan 2020
Investment in units should be
Any unit holder of SLREIT 1 April 2021
in a Sri Lanka Real Estate
Investment Trust (SLREIT)
listed in the Colombo Stock
Exchange and licensed by the
Securities and Exchange
Commission of Sri Lanka
Any person Land or building sold, 1 April 2021
exchanged or transferred to
a SLREIT
Any person outside Sri Lanka Loan should be granted by a 1 April 2018
person outside Sri Lanka
Any person SDA opened and maintained 8 April 2020
with an authorized dealer in
Sri Lanka as prescribed by
regulations under the Foreign
Exchange Act, No. 12 of 2017.

Any welfare society2 Any welfare society formed or 1 April 2021
setup for the welfare of the
members or their respective
families and contributions are
made by its members
Any multi-national company Deposit should be opened and 1 April 2021
(MNE3) maintained in foreign currency
in any domestic bank and
such deposit is maintained to
cover its import expenditure
for that year of assessment.

Samurdhi community-based Samurdhi community-based 1 April 2021
banks banks established under the
Department of Samurdhi
Development, from
investments made in security
or Treasury bonds under the
Registered Stocks and
Securities Ordinance
(Chapter 420) or Treasury bills
under the Local Treasury Bills
Ordinance (Chapter 417).
Any person The foreign currency account
1 Jan 2020
should be opened by him or on
his behalf, in any commercial
bank or in any specialized
bank, with the approval of the
Central Bank of Sri Lanka.

 Exemption
Interest, discount or
realization of any gain on
any Sovereign bond
Interest or discount paid or
allowed on sovereign bond
including Sri Lanka
Development Bond (SLDB)
Gains from the realization of
Sri Lanka international
sovereign bonds
Gains and profits earned or
derived by any Vocational
Education Institution
Gains and profits4 received
or derived from a new
business undertaking5
which is involved in the sale
of recycled construction
materials
4
other than any gains from the realization of capital assets and liabilities of the business as calculated under Chapter IV of the IRA
5
not formed by splitting-up or re-construction of an existing undertaking
6
Tax exemption period shall be reckoned from the year of assessment in which the undertaking commences to make profits from transactions entered into in that
year of assessment or from the commencement of the year of assessment immediately succeeding the year of assessment in which the undertaking completes a
periods of two years reckoned from the date on which the undertaking commences to carry on commercial operations, whichever occurs earlier
Eligible Persons
Any non-resident person
other than a Sri Lankan
permanent establishment
Any person
Commercial bank or
authorized dealer
Vocational Education
Institution which is
standardized under TVET
concept (Technical and
Vocational Education and
Training) and regulated by
the Tertiary and Vocational
Education Commission
Any person
Qualifying Criteria Period of exemption
Any sovereign bond 1 April 2018
denominated in local or foreign
currency
Any sovereign bond 1 April 2018
denominated in foreign
currency, including SLDB
Sri Lanka international 1 April 2021
sovereign bonds issued by or
on behalf of the Government
of Sri Lanka and received or
derived by a commercial bank
or authorized dealer who has
made an aggregate
investment of not less than
USD 100 million in such bonds
on or after April 1, 2021.
Such Vocational Education For a period of five years
Institution should double their commencing from 1 April 2021
student intake for such year of
assessment compared to the
student intake in the year of
assessment immediately
preceding that year of
assessment for a period of five
years commencing on
April 1, 2021.
For the above purpose, if any
such institution, which
doubled the student intake as,
provided in for first year and
maintained the same student
intake of the first year for the
period of next four years shall
be deemed as an institution
which fulfilled the requirement
of exemption in each year of
such period of four years.
Any new undertaking, which 10 year tax exemption period
sells construction materials, for any new undertaking
recycled in a selected separate commenced on or after
site established in Sri Lanka to 1 April 20216
recycle the materials, which
were already used in the
construction industry.
(if recycled materials are used
by the same person in the
provision of construction
services, the said exemption
can be claimed by deeming
such materials as having been
sold for the construction
service at market price)
 Exemption
Gains and profits7 received
or derived from a new
business undertaking8
commenced by an individual
after successful completion
of vocational education from
any Vocational education
institution
Gains and profits10 received
or derived from a new
business undertaking11 for
the manufacture and supply
of boats and ships
Gains and profits13 received
or derived from a new
business undertaking14 for
the supply renewable
energy
Gains and profits from
business of export of gold,
gem & jewelry
Gains and profits16 received
or derived from a new
business undertaking17 for
construction and installation
of communication towers
and related appliances
using local labour and local
raw materials in Sri Lanka
or the provision of required
technical services for such
construction or installation
Amounts derived as
payment for air craft,
software licenses or other
realted services provided to
Sri Lankan Airlines Limited
7
refer note 4
8
refer note 5
9
refer note 6
10
refer note 4
11
refer note 5
12
refer note 6
13
refer note 4
14
refer note 5
15
refer note 6
16
refer note 4
17
refer note 5
18
refer note 6
Eligible Persons Qualifying Criteria Period of exemption
Any individual Any business commenced by Five-year tax exemption
an individual after successful period for any new
completion of vocational undertaking commenced on
education from any institution or after 1 April 20219
which is standardized under
TVET concept and regulated
by the Tertiary and Vocational
Education Commission
Resident person Supply of boats or ships Seven-year tax exemption
manufactured in Sri Lanka period for any new
undertaking commenced on
or after 1 April 202112
Any person “Renewable energy project” Seven-year tax exemption
established with a capacity to period for any new
generate not less than one undertaking commenced on
hundred Mega Watts solar or or after 1 April 202115
wind power and supplies
such power to national grid
Any person Any business of export of 1 April 2021
gold, gems or jewelry or from
the business of cutting and
polishing of gems which are
brought to Sri Lanka and
exported after such cutting
and polishing, where such
gains and profits earned in
foreign currency are remitted
through a bank to Sri Lanka.
Any resident person Construction and installation Five-year tax exemption
of communication towers and period for any new
related appliances using local undertaking commenced
labour and local raw materials on or after 1 January 202118
in Sri Lanka or the provision
of required technical services
for such construction or
installation
Non-resident person Amounts derived as payment 1 April 2018
from any payment for air craft,
software licenses or as for
other related services from
the Sri Lankan Airlines
Limited
 Exemption Eligible Persons Qualifying Criteria Period of exemption

Dividends from and gains on
realization of shares in a
non-resident company
Any person in Sri Lanka
(previously applicable only
for a company)
There should be a substantial 1 April 2018
participation in the non-
resident company by the
person in Sri Lanka.
“substantial participation”
means holding 10 percent or
more of the value of shares in
the company, excluding
redeemable shares; together
with control, either directly or
indirectly, of 10 percent or
more of the voting power in
the company.

Gains and profits19 received
or derived from a new
business undertaking20 for
letting bonded warehouses
or warehouses related to
offshore businesses
Any person Investment in such bonded 1 April 2021
warehouses or warehouses
should be after 1 April 2021
and should relate to offshore
business in the Colombo or
Hambanthota ports.

Dividends paid by a resident company- 1 Jan 2020

� to a member to the extent that such dividend payment is attributable to, or derived from,
gains and profits from dividend21 received by that resident company;
� to a member who is a non-resident person;
� engaged in any one or more of the following businesses in accordance with the Finance
Act, No. 12 of 2012

- entrepot trade involving import, minor processing and re-export;

- offshore business where goods can be procured from one country or
manufactured in one country and shipped to another country without bringing
the same into Sri Lanka;
- providing front-end services to clients abroad;
- headquarters operations of leading buyers for management of financial supply
chain and billing operations;
- logistics services including bonded warehouse or multi-country consolidation
in Sri Lanka

19
refer note 4
20
refer note 5
21
“gains and profits from dividend” means the dividend received by that company after the deduction of expenses or losses, if any, subject to the provisions of this
Act and income tax paid or payable on such dividend received by that company.
Tax Rate Changes
 Applicable person Income Type Income Tax Rate Applicable period

Company Taxable income excluding 24% (previously 28%) 1 Jan 2020

gains from the realisation
of investment assets

Trusts Gains other than from 18% (previously 24%) 1 Jan 2020
investment assets

Unit Trust or Mutual Funds Taxable income excluding 24% (previously 28%) 1 Jan 2020
gains from the realisation of
investment assets

Non-Governmental Taxable Income other than 24% (previously 28%) 1 Jan 2020
Organization (NGO) from investment assets,
including the tax payable on
3% of the amounts received
by way of donations or
grants etc.

Company Gains and profits from agro 14% (previously 28%, 1 Jan 2020
processing1 however, if it was from
exports, based on the
predominant concept, 14%)

Any person Tax payable on agro 25% reduction on tax payable 5 years from Y/A 2021/22
processing or manufacturing, which corresponds to the
if carried on together with proportion of the farming
agro farming produce produced by him to
the total farming produce
utilized in agro processing
or manufacturing

Company Manufacture2 18% (previously 28%) 1 Jan 2020

Any company which lists its
shares on or after January
1, 2021 but prior to
December 31, 2021 in the
CSE
Income other than gains Any income tax rate (including 1 April 2021
from realization of rate provided by a BOI
investment assets Agreement) to be reduced
by 50% for the Y/A 2021/22
Y/A 2022/2023 to 2024/
2025 @14%

Company Gains and profits from; 14% (previously 28%) 1 Jan 2020

- Providing construction
services
- Health care services

Company Gains and profits by export 14% (previously 14% only 1 Jan 2020
oriented BOI company from under predominantly concept)
the consideration received in
respect of health protective
equipment and similar
products supplied to
specified Govt. Inst.

Company + Individuals Gains and profits in respect 14% (previously 28%) 1 Jan 2020
of gems and jewellery

1
“agro processing” means the processing of any locally produced agricultural, fishing, or animal product and includes an undertaking for the dehydrating, milling,
packaging, canning for the purpose of changing the form, contour or physical appearance of such product in preparation for the market but excludes an undertaking
of deep-sea fishing or manufacturing;
2 “
manufacture” means a change in a non-living physical object, article or thing-
(a) resulting in transformation of such object, article or thing into a new and distinct object, article or thing having a different name, character or use; or
(b) bringing into existence of a new and distinct object, article or thing with a different chemical composition or integral structure;
 Applicable person Income Type Income Tax Rate Applicable period

Company and individuals From the supply of electricity Company at 24%, individuals 1 April 2021
to national grid generated at progressive rates up to 18%
using renewable energy


Company and individuals Gains and profits from the Previously 40% was 1 Jan 2020
manufacture and sale or applicable even for local
import and sale of any liquor buying and selling
or tobacco product

Multinational companies Dividends Received by Reduced by 25% Y/A 2021/2022

(MNE3) that achieve; MNE

Multinational companies Dividends Received by Reduced by 25% Y/A 2021/2022

(MNE3) that achieve; MNE

(a) increase in exports

(other than specified
undertakings) by 30% in the
Y/A 2021/2022 (first year)
compared to the previous
Y/A or Reduced by 50% YY/A 2022/2023 and
2023/2024
(b) increase in exports
(other than specified
undertakings) by 50% in the
Y/A 2022/2023 and
maintains such status in the
subsequent Y/A compared
to the first year.

Small and Medium Gains and profits excluding 14% (definition of SME has 1 Jan 2020
Enterprise (SME)4 business of betting and changed)
gaming or from the sale of
liquor (in the case of liquor,
other than those gains and
profits from a business
which is merely incidental
to another business)

Any person � Sale of goods or services
including for export where
payment is received in
foreign currency and
remitted through a bank
14% (previously 14% was 1 Jan 2020
applicable only where
predominancy concept was
established)

� Gains and profits from

educational services

� Gains & profits for

promotion of tourism
(as defined)

Gains and profits of a specified undertaking will continue at 14%

3
MNE not defined. Clarity is needed on who qualifies as a MNE and what percentage of foreign shareholding required
Small and Medium Enterprise” means a person who satisfies the following conditions:—
4 “

(a) the person who conducts business solely in Sri Lanka other than an individual who is engaged in providing professional services individually or in partnership
being an individual who is professionally qualified;
(b) the person does not have an associate that is an entity unless such person’s and associate’s aggregate annual gross turnover is less than Rs. 500,000,000; and
(c) the person’s annual gross turnover is less than Rs. 500,000,000;
 Lets Talk
Sujeewa Mudalige
Chief Executive Officer/ Managing Partner
T: +94 11 7719838 ext: 5001
E: sujeewa.mudalige@pwc.com

Charmaine Tillekeratne
Director - Tax Services
T: +94 11 771 9700 ext. 4201
E: charmaine.tillekeratne@pwc.com

Rishini Manatunga
Associate Director - Tax Services
T: +94 11 771 9700 ext. 4701
E: rishini.manatunga@pwc.com

Tharanga Amarasena
Associate Director - Tax Services
T: +94 11 771 9700 ext. 4401
E: tharanga.amarasena@pwc.com

Disclaimer
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advisors.

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