Sri Lanka budget 2022: key tax changes

ECONOMYNEXT – Sri Lanka’s budget for 2022 has proposed new taxes after a value added tax cut in 2019 for ‘fiscal stimulus’ devastated state revenues, triggering money printing which has resulted in a balance of payments crisis.

The budget proposed to raise revenues from a revised 1,556 billion rupees in 2021 (9.4 percent of GDP) to 2,284 billion rupees (12.3 percent of GDP) in 2022.

Authorities hope to bring the deficit down from 1,826 billion rupees (11.1 percent of GDP) to 1,628 billion rupees (8.8 percent of GDP).

About 140 billion rupees will come from a 2.5 percent turnover tax on companies with revenues more than 120 million rupees a year and 100 billion will come from large companies with more than 2.0 billion rupees in profits.

The tax changes are as follows:

Technical   Note Budget 2022- Taxation

Tax revenue proposals

Surcharge Tax levied on income on one-off basis

Imposition of a Surcharge Tax at the rate of 25 percent on individuals or companies  who have earned a taxable income over Rs. 2,000 million for the year of assessment 2020/2021

Social Security Contribution

Charging “Social Security Contribution” on the liable turnover over Rs. 120 million per annum at the rate of 3 percent. This contribution is charged with effect from April 1, 2022.

Amendments to the Value Added Tax Act, No. 14 of 2002

Increase of Value Added Tax charged on supply  of  financial  services  by  financial institutions from 15 percent to 18 percent. The levy  is  to  be  paid  every  month  from January 1, 2022 to December 31, 2022.

Amending the item (xxxi) in paragraph (a) of Part (II) of the First Schedule of the Value Added Tax Act No. 14 of 2002 to allow Value Added Tax exemptions on importation or supply of medical equipment, machinery, apparatus, accessories and parts thereof and hospital furniture, drugs and chemicals donated to a government  hospital or the Ministry of Health for the provision of health services to address any pandemic or public health emergency, approved by the Minister of Finance on the recommendation  of  the Secretary to the Ministry of the Minister assigned with the subject of Health with effect from January 1, 2022.

Excise Duty (Special Provisions) of Cigarettes Revision of Excise Duty on Cigarettes

Excise Duty on Liquor under Excise Ordinance Revision of Excise Duty on Liquor

Proposals in relation to non-tax income

Levying a fee in respect of vehicles which undergo motor traffic accidents  and allowing  the insurer to reimburse the fee from the insurance.

Levying a fee for modernization, modification or upgrading of vehicles.

Legalizing all unauthorized roadworthy motor vehicles and motor cycles by paying a penalty during a period of amnesty.

Release all vehicles stationed at Sri Lanka Customs because of non-payment of tax or other reasons for release after charging relevant taxes and a fine.

Issuing a licence for conducting leisure related activities for special premises  which  are developed as special zones.

Issue licences issued by Telecommunication Regulatory Commission of Sri Lanka through an auction. These licences are issued in relation to telecommunication including for fixed telephone operators, mobile operators, internet service providers and satellite broadcasting operators.

Tax Administration

Further strengthening the Large Taxpayers’ Unit (LTU) and Upper Corporate Unit (UCU) established at the Inland Revenue Department to  further increase the revenue generated from large taxpayers.

Addressing deficiencies within the digitized platforms of revenue agencies: RAMIS at Inland Revenue Department and Single Window at Sri Lanka Customs.

Expediting the implementation of the digital revenue platform of Excise Department

Simplifying the obtaining of liquor license.

Allowing the submission of digital invoices and documents as valid documents in tax filing wherever possible through the above digital platforms with the proper verification system in place.

Other proposals

Monetary Gains made by Perpetual Treasuries Ltd.

Transferring  to  the  Treasury  monetary  gains made by Perpetual Treasuries  Ltd. by violating the Code of Conduct  of the  Central  Bank  of  Sri Lanka, in  a  way  that would not hinder the legal action taken by the Honourable Attorney General.

Technical Rectifications

Relevant Amendments will be made to Value Added Tax Act, No. 14 of 2002 and other relevant acts to rectify certain ambiguities (including differences in translations).

 

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