NATIONAL DIPLOMA IN ACCOUNTING

NVQ 6 SEMESTER -II

TAXATION OF OTHER INSTITUTION OR ORGANAIZATION

Tax on NGO

An NGO means any organization or association formed on a voluntary basis which is non-governmental
in nature and constituted for the provision of relief and service of humanitarian nature to the poor and
destitute, the sick, orphan, widows, youth, children, or generally for the provision of relief to the needy. As
per section 195 “ Non – government organization” means any organization or association, whether
incorporated or unincorporated, formed by a person or a group of person on a voluntary basis and which is
nongovernmental in nature, and established and constituted

a) For the provision or relief and services of a humanitarian nature to the poor and destitute, the sick orphan,
widows, youth children; or
b) Generally, for the provision of relief to the needy, unless such organization or association is determined
by the Commissioner-General not to be a non-governmental organization, but in all case does not include
an approved charity.
Chargeability of Income Tax
 A non-governmental organization would be “a person” for the purposes of income tax. In the generality
of cases, non-governmental organizations are not profit oriented entities and, therefore, they are not
engaged in carrying on trading or business activities
 However, such organizations may have income from investments, such as interest and dividends, which
would normally be liable to tax.
 Chargeability would also arise on receipt of on any money in the form of a grant, donation, contribution
or in any other manner
Rate of tax
Where a non-government organization (NGO) receives in any year of assessment amounts by way of grant,
donation or contribution or in any other manner, an amount equal to 3% of such aggregated amounts
received shall be deemed to be the income of the NGO and shall pay tax at 28% on such income as set out
in the First Schedule.
 On any other taxable income (apart from grants and donations) tax is payable at 14% if such non-
governmental organization has a charitable purpose; if not, the rate is 28%.
 Any interest received by the non-governmental organization is treated as final withholding payments
if withholding tax has been deducted at the rate of 5%.
 Where a non-governmental organization’s taxable income includes gains from the realization of
investment assets, then those gains shall be taxed on the non-governmental organization at the rate of
10%.
Reduction or removal of tax by the Commissioner General

Where the Commissioner-General is satisfied that any non-governmental organization is engaged, in any
year of assessment, in -
(a) Rehabilitation and the provision of infrastructure facilities and livelihood support to displaced persons
in any area identified by the Government for the purposes of such rehabilitation and provision; or

(b) Any other activity approved by the Minister as being of humanitarian in nature, taking into
consideration the nature and gravity of any disaster and the magnitude of relief required to be provided
consequently, the Commissioner-General may reduce or remove the tax payable by such nongovernmental
organization for that year of assessment if it appears that such reduction is just and equitable in all the
circumstance of the case.

Tax on Charitable Institution

Charitable Institution means the trustee or trustees of a trust or corporation or an unincorporated body of
persons established for a charitable purpose only or engaged solely in carrying out a charitable purpose.
Charitable purposes mean a purpose for the benefit of the public or any section of the public in or outside
Sri Lanka, of any of the following categories:
The relief of poverty; for business purposes or by any institution established under the Companies Act;
Activities for the protection of the environment or eco-friendly activities; The advancement of religion or
the maintenance of religious rites and practices or the administration of a place of public worship;
categories.

Charitable Institution tax liability

Tax on any gains, profits or income, unless such gains, profits or income are exempt from income tax.
Though a body corporate could also be a charitable institution, in terms of the definition of charitable
institution given in section 195 of the Act, the rules applicable to a company shall not apply to such
charitable institution. Generally speaking, since charitable institutions are defined as “persons”, they are
subject to the same tax rules as applicable to other types of persons.
 The First Schedule, the tax rate of a charitable institution is 14%;
 however, gains from the realization of investment assets are taxed at 10%.

Assessable Income of a charitable institution

assessable income of a charitable institution is arrived after excluding the following:
a). Final withholding payments
When the Interest is received by the charitable institution and withholding tax has been deducted on such
interest at the rate of 5%, such interest paid to, or treated as being derived by a charitable institution, shall
be a final withholding payment, as provided in section 88 (1)(b)(ii) of the Act.
b). Exemptions
i. Interest derived by a charitable institution that is applied for the purpose of providing care to children,
the elderly or the disabled in a home maintained by that charitable institution may be exempt if approved
by the Commissioner-General (Third Schedule, (i)).
ii. Profits and income from any property donated royal proclamation or other grant before March 2, 1815
to any place of workshop if it is used for the original purposes may be exempt (Third Schedule, (q)).

Taxable Income of a charitable institution

able institution are not liable to tax, if it is an approved charity or is not considered as non-governmental
organization.
-free allowance of Rs.500,000 from the assessable income in computing the taxable income.
the charitable institution has made any donation to an approved charity or to the government, the rules
with regard to deductibility of qualifying payments are applicable to the charitable institution since it is
also deemed a “person”.