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BUDGET PROPOSALS

2024
OVERVIEW
13th November 2023

Dear Client,

BUDGET PROPOSALS 2024

We have pleasure in forwarding herewith a Summary of the Budget Proposals presented in Parliament
on 13th November 2023, by the President and Minister of Finance Hon Ranil Wickremesinghe.

If you require any further information or clarifications relating to the above, you may contact us.

Yours faithfully,
CONTENTS

01-05 05-07 08-10 11-12

Income Tax Value Added Tax Excise Sri Lanka
Department Customs

12 13
Technical Rectifications Effective Date
and clarification of Amendments
of Administrative
Provisions

Member of Kreston Global UK Correspondent firm within Grant Thornton International Ltd (Grant Thornton International). Grant Thornton International and the member and correspondent firms
are not a worldwide partnership.
MEASURES TO IMPROVE TAX ADMINISTRATION
AND TAX POLICY REVISIONS
1. Income Tax (Amendments to the Inland Revenue Act, No. 24 of 2017)
1.1. Tax Payable by Withholding

a A special tax return requirement will be

introduced for the deduction of 2.5% KRESTON COMMENTS
withholding tax levied on the sale price of
As per third schedule item (s) of Inland Revenue Act No.24 of 2017
any gem sold at an auction conducted by
(IR Act) any amount derived by a person from the sale of any gem
the National Gem and Jewellery Authority.
on which withholding tax @ 2.5% has been deducted is exempt. The
Exemption under Inland Revenue Act will be
special withholding tax return would be applicable only to National
allowed subject to such return information.
Gem & Jewellery Authority. This will prevent fraudulent claims of tax
exemptions by certain tax payers.

b The withholding tax certificate issued by the

withholding agent pursuant to section 87 shall
be issued without charge or payment from the
withholdee.
KRESTON COMMENTS
At present some withholding agents (specially banks) charge a fee for
issue of withholding certificates and proposed amendment will prevent
this practice.

BUDGET PROPOSALS 2024 OVERVIEW 01

MEASURES TO IMPROVE TAX ADMINISTRATION AND TAX POLICY
REVISIONS
1.2. Income tax on Unit Trusts and Unit Holders
The current tax treatment of Unit Trusts shall continue
to apply subject to the mandatory requirements of
furnishing information specified by the Commissioner
General such as details of income, exempt amounts
and withholding tax details to every unit holder before
30th August following the year of assessment. Any
Unit Trust who has not complied prior to that date will
be deemed as a Unit Trust that does not conduct an
eligible business.
BUDGET PROPOSALS 2024 OVERVIEW
KRESTON COMMENTS
As per Section 57(2) of IR Act if the beneficiaries are presently entitled
for the income of the Unit Trust, beneficiaries (Unit holders) are liable
to pay income tax on such income instead of the Unit Trust. In such
situation Unit Trust is only a pass through vehicle. Through this
amendment income earned by unit holders will be readily available to
Department of Inland Revenue (DIR) increasing the effectiveness of tax
net. Further unit holders will be able to claim withholding tax credits
without any administrative burden as experienced by now.
Non compliance in furnishing information by a Unit Trust before 30th
August will result in loosing pass through vehicle status of the Unit
Trust and it will become liable to pay income tax as a Company under
Section 59(1) of the IR Act.
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MEASURES TO IMPROVE TAX ADMINISTRATION AND TAX POLICY
REVISIONS
1.3. Prosecution actions against failures to file tax returns

A special penal provision will be introduced to

prosecute persons who have not submitted tax KRESTON COMMENTS
returns and information required by the tax officials.
Tax returns include not only income tax returns but also other
returns such as Withholding Tax Returns, Advance Personal Income
Tax (APIT) Returns, Statement of Estimated Tax (SET) payable etc.
Further proposed special penal provisions would cover information
required by tax officials. While it improves the tax compliance it may
be burdensome to certain tax payers specially who need to submit
additional information requested by tax officials.

1.4. Clarity of certain provisions will be improved

Section 18, 67, 163 will be amended to improve the

clarity of the application of such sections. KRESTON COMMENTS
Clarity of Section 18 would be most welcome. Gazette notice 2064/55
dated 1st April 2018 issued under Section 18(4) of IR Act, together
with Public Ruling No.PR/IT/2023/01 dated 6th July 2023 has created
confusion among the tax payers on the tax treatment in respect of
foreign exchange gains and losses. Hopefully proposed amendment to
Section 18 would bring much needed clarity and simplicity.

BUDGET PROPOSALS 2024 OVERVIEW 03

MEASURES TO IMPROVE TAX ADMINISTRATION AND TAX POLICY
REVISIONS

1.5. Submission of Documentary Evidence

The documentary evidence called by tax officials

during tax audits or administrative reviews but not KRESTON COMMENTS
submitted within a reasonable period of time (6
Hopefully restriction would be strictly limited to the documentary
months from the original date of call for evidence
evidence called by tax officials during tax audits or administrative
available in Sri Lanka and 9 months for others), will
reviews. It is presumed that tax payer will not be prevented from
not be allowed to submit during the hearing at Tax
submitting additional documentary evidence at the Tax Appeal
Appeals Commission. Relevant provisions in the Tax
Commission (TAC) which were not previously called by tax officials.
Appeals Commission Act, No. 23 of 2011, will be
amended as well.

1.6. Tax Identification Number

Submission of a copy of the Certificate of the Taxpayer
Identification Number (TIN) will be made KRESTON COMMENTS
a mandatory requirement to:
The mandatory requirement to submit a copy of the certificate of TIN
for prescribed four categories of transactions would improve general
a Open bank current account at any bank;
tax compliance in the country.
b Obtain approval for a building plan, by the applicant
c Register a motor vehicle or renew license, by the owner
d Register a land or title to a land, by the buyer

The required guidelines will be issued by the

Commissioner General.

BUDGET PROPOSALS 2024 OVERVIEW 04

MEASURES TO IMPROVE TAX ADMINISTRATION AND TAX POLICY
REVISIONS

1.7. Income Tax Treatment on Salary Arrears

Present tax treatment on salary arrears will be

changed to remove the excessive tax liabilities of the KRESTON COMMENTS
employees, with effect from January 1, 2024.
Removal of excessive tax liabilities on salary arrears would be most
welcome.

2. Value Added Tax

a Amendment will be introduced enabling the

Commissioner General to specify the format of the KRESTON COMMENTS
tax invoice.
A VAT registered person who makes a taxable supply to another VAT
registered person, shall issue a tax invoice within 28 days of the time of
such supply. The Section 20(2) of the VAT Act specifies the format of
the tax invoice.
It is proposed to amend the VAT law by enabling Commissioner General
to specify the format of the tax invoice.

BUDGET PROPOSALS 2024 OVERVIEW 05

MEASURES TO IMPROVE TAX ADMINISTRATION AND TAX POLICY
REVISIONS

b The expression “taxable Period” in section 83 of

the VAT Act, will be defined to have same return KRESTON COMMENTS
filing frequency for all taxpayers
Presently, the “taxable period” defined to include;

a One month
for any person who registered with the simplified Value Added
Tax Scheme and accorded registered identified purchaser
status;
where any person has commenced a business or started a
project and undertakes to comply with the requirements of
Section 22(7) of the VAT law.

b Quarterly
For any other person other than the persons mentioned in (a)
above.

c Twelve months
For every registered specified institution or other person in
relation to supply of financial services in terms of the Section
25B (1).

It is proposed to amend the Section 83 of the VAT law to have same

return filing frequency.

BUDGET PROPOSALS 2024 OVERVIEW 06

MEASURES TO IMPROVE TAX ADMINISTRATION AND TAX POLICY
REVISIONS

c A gazette notification will be issued to

implement the increase of VAT rate with KRESTON COMMENTS
effect from January 1, 2024.
The present VAT rate applicable (other than VAT on FS) is 15%. This
will be increased to 18% with effect from 1st January 2024.

d The registered persons will be encouraged

to use Point of Sale (POS) machines which KRESTON COMMENTS
automates invoicing and sales recording,
Presently, invoicing is done both manually and through POS machines
to support VAT collection in supplying
by some tax payers. Enhanced usage of POS machines will improve
goods or services.
tax compliance.

BUDGET PROPOSALS 2024 OVERVIEW 07

MEASURES TO IMPROVE TAX ADMINISTRATION AND TAX POLICY
REVISIONS

3. Excise Department
3.1. Tax administration measures for the Excise Department of Sri Lanka

Introduction of an online license-issuing system to provide customer friendly and efficient regulatory environment expeditiously
Appoint a committee to evaluate the security features and security features management system to address the issues including fake or
counterfeit stickers.
A new excise licensing system will be introduced to:

a Streamline the guidelines/rules for various types of licenses

b revise the maximum limit for certain licenses with a view to address the irrational distribution of liquor outlets creating ‘Dry Areas’
c introduce flexible opening hours to discourage illicit selling of liquor and to maintain industry discipline
d revise related regulations for the tourism promotional activities
e introduce an appropriate policy for soft liquor licenses
f maintain the industry discipline at the highest possible level
g Establish Design and Monitoring Unit and Risk Management Unit at the Excise Department
h Introduce Key performance Indicators (KPIs) related to core administration functions

The toddy tender system will be revised to gain more revenue to the government while discouraging illicit toddy industry
Administrative fees on the services provided by the Excise Department will be introduced
Networking and sharing intelligence and information with stakeholder institutions will be done

BUDGET PROPOSALS 2024 OVERVIEW 08

MEASURES TO IMPROVE TAX ADMINISTRATION AND TAX POLICY
REVISIONS

3.2. Policy Proposals of the Excise Department of Sri Lanka

Introduction of Sri Lanka Standards (SLS) for toddy and all types of locally manufactured liquor to maintain the quality of products
targeting local as well as foreign markets
Increase the Excise License fees with a rationale that is corresponding to the present demand for those licenses
Encourage investments for new types of liquor products targeting foreign markets
Make selected locally produced liquor to be available in duty free shops
Introduce ‘Revenue Administration System for Excise Department’ (RASED) by end October, 2024 to increase the efficiency and
productivity of excise revenue management and minimize the risk for wastages and corruption
Encourage R&D, product innovation, product diversification, quality enhancement, export orientation, and import substitution in the
liquor industry
Strengthen the tax collection and enforcement in Beedi Industry

BUDGET PROPOSALS 2024 OVERVIEW 09

MEASURES TO IMPROVE TAX ADMINISTRATION AND TAX POLICY
REVISIONS

KRESTON COMMENTS
The performance of the Excise Department of Sri Lanka is far behind the expected revenue for the year 2023
This was highlighted at the Sectoral Oversight Committee (SOC) on National Economic and Physical Plans meeting held on
June 22, 2023.
At this meeting, the SOC instructed the Excise Department to appraise the pending laws and regulations necessary to increase
the efficiency of the Department.
In this background, the Government has proposed Tax administration measures and Policies to increase the efficiency of the
Excise Department.
93% of total excise revenue is generated from six leading liquor companies.
Currently, the department issues more than 20 different types of licenses, which require multiple supporting documents. The
manual system takes more time to issue and renew licenses. As a result, collection of renewal and issuing fees are getting
delayed.
With the introduction of the online system, the process would be accelerated and reduce human involvement, which may
reduce corruption to a certain extent.
The newly introduced paper-based and digital sticker system has boosted alcohol excise revenue. However, the department
has lost millions of rupees due to fake revenue stickers.
The proposed establishment of a committee to evaluate and monitor the security features and proposed security features
management system would undoubtedly lead to an increased excise revenue by minimizing tax fraud.

BUDGET PROPOSALS 2024 OVERVIEW 10

MEASURES TO IMPROVE TAX ADMINISTRATION AND TAX POLICY
REVISIONS
4. Department of Sri Lanka Customs
a Development of risk management
capabilities of Sri Lanka Customs by
developing a sophisticated software
solution. The project goals include
enhancing risk assessment for revenue
risks, improving operational efficiency in
customs clearance, ensuring compliance
with regulations, and creating a
sustainable, adaptable software system for
future needs.
b Establishment of a mechanism to prevent
mis-invoicing and upgrade ASYCUDA
system.
BUDGET PROPOSALS 2024 OVERVIEW
KRESTON COMMENTS
Government revenue targets can be tracked more effectively by
implementing sophisticated software solutions. Furthermore, it will assist
in analyzing the areas and items that require closer control, speed up
information processing, ensure accurate interpretation and application of
customs duties, and encourage compliance by importers and exporters.
Allowing the importers and exporters to view their import-export details
will ensure accurate declaration and rectification of errors on a timely
basis.
Linking of customs with relevant Government Departments such as Inland
Revenue, RMV and BOI will enhance efficiency and minimize revenue
leakages.
KRESTON COMMENTS
This will minimize revenue losses from mis-invoicing and create a level
playing field among importers. Further, this helps to improve customs
clearance efficiency as more attention can be given on items identified
as high risk of mis-invoicing. In contrast, low-risk items can be quickly
cleared, saving time and administrative effort.
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MEASURES TO IMPROVE TAX ADMINISTRATION AND TAX POLICY
REVISIONS

c Introduction of Key Performance Indicators

(KPIs) related to core administration KRESTON COMMENTS
functions of the Customs.
This is useful in determining compliance with customs regulations and
evaluating the efficiency of customs clearance operations. If KPIs
are introduced to assess the performance of customs officers, it will
enhance the efficiency of their services.

5. Technical Rectifications and clarification of administrative provisions

Necessary amendments will be made to the
respective provisions of the, Inland Revenue Act, KRESTON COMMENTS
No.24 of 2017, Value Added Tax Act No.14 of
Specific comments can be given only when proposed amendments are
2002, Finance Acts and Finance (Amendment)
made available.
Acts, Social Security Contribution Levy Act, No.25
of 2022, Telecommunication Levy Act No 21 of
2011, Tax Appeals Commission Act No 23 of 2011,
in order to streamline the revenue administration
and to rectify certain ambiguities and unintended
effects (including differences in translations) and
for the avoidance of doubts.

BUDGET PROPOSALS 2024 OVERVIEW 12

EFFECTIVE DATE OF AMENDMENTS

Income Tax – 1st April 2024 unless specifically mentioned otherwise.

Value Added Tax – 1st January 2024 unless specifically mentioned otherwise.

BUDGET PROPOSALS 2024 OVERVIEW 13

OUR SERVICES

Kreston MNS & Co is one of the reputed firms of Chartered Accountants in Sri Lanka; with the brand name
‘Kreston Sri Lanka’, a member firm of Kreston Global and a correspondent firm of Grant Thornton International Limited.
Our aim is to continuously deliver Assurance, Tax, Corporate Secretarial Services, Outsourcing Services, Financial Advisory,
and IT Advisory in accordance with local and international standards.

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IT ADVISORY
CONTACT US

Kapila Rodney
Atukorala Balasingham
Partner – Head of Tax & Advisory Partner – Tax & Head of Business Process Solutions

kapila@kreston.lk rodney@kreston.lk

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