ECONOMYNEXT – Sri Lanka’s government increased several taxes to raise revenue in its budget proposals for 2017 presented by Finance Minister Ravi Karunanayake in parliament Thursday.
The following are the highlights of the tax proposals:
Corporate Income Tax – Corporate income tax rate is proposed to be revised to create a three tier structure of 14 percent, 28 percent and 40 percent. Income tax rate applicable on liquor, tobacco, betting and gaming, etc. will be continued at the rate of 40 percent. SMEs, exporters of goods and services, agricultural sector and education sector will be subjected to the lower rate of 14 percent. All others including banking, finance, manufacturing and trading will be subjected to income tax at 28 percent.
Income tax rate of 10 percent currently applicable on funds, dividends, treasury bills and bonds will be increased to 14 percent.
Personal Income Tax: Income tax rate structure of individuals, including PAYE is proposed to be revised with the maximum rate being 24 percent. Earnings in excess of the tax free threshold will be taxed at the progressive rate structure which will be 4 percent to 24 percent having equal slabs of Rs. 600,000 per annum at each level.
With Holding Tax (WHT) on interest income will be increased to 5 percent from the present level and the exemption applicable on savings account with less than Rs. 60,000 per annum will be removed. WHT will be re-introduced on specified fees where the payment exceeds Rs. 50,000 per month. Interest income of senior citizens up to Rs. 1.5 million per annum, which is Rs. 125,000 per month will be exempted from income tax.
PAYE: Pay As You Earn tax rate schedule will be revised in line with the personal income tax rates and all the exemptions applicable on various categories will be removed. Instead, the tax free threshold of Rs. 100,000 per month will be available for every employee on their employment income. The income from the secondary employment up to Rs. 50,000 per month will be liable for PAYE at 10 percent and if it is more than Rs. 50,000, the tax will be at the rate of 20 percent
Capital Gain Tax: Capital Gain Tax will be introduced with effect from 1st April 2017 at a rate of 10 percent.
Economic Service Charge: The ESC threshold will be reduced to Rs.12.5 million per quarter and the ESC will be charged at the point of customs on the importation of motor vehicles.
Financial Transactions Levy (FTL): the budget proposed to introduce a new levy called FTL as a contribution for social development at the rate of Rs. 5 per Rs.10,000 on the total cash transactions including easy cash by banks and other financial institutions. FTL will be treated as expenditure for income tax purpose.
Telecommunication Levy: Telecommunication Levy on internet services will be increased to 25 percent par with the other telecommunication services.
The budget proposed to introduce Excise Duty on the quantum of raw materials used for producing ethanol.
Duty on imported ethanol will be increased and an Excise Duty of Rs. 25 per liter will be introduced on imported non-potable liquor.
Excise (Special Provisions) Duty will be introduced on the importation of beer cans at the rate of Rs.10 per can of not more than 325 millilitres and Rs. 15 per can of more than 325 millilitres.
The budget proposed to extend the engine capacity based Excise Duty on cars to Motor Cycles.
A Carbon Tax will be introduced for all carbon fuel run motor vehicles. The emission test fee also will be included in the Carbon Tax. The Department of Motor Traffic will be the collecting authority of the Carbon Tax. The cost of emission test of a vehicle will be reimbursed to service providers by the Department. The vehicle owners need not to pay an additional fee for the emission test.
The budget proposed to introduce a common technology platform to collect tax revenue from online bookings in the hospitality trade, such as reserving hotel rooms and transport services. It envisages revenue collection of about Rs. 25 billion.
The budget proposed to impose a 0.5 percent Tourism Development Levy on businesses with revenues of less than Rs. 12 million per annum.
Embarkation Levy: The Embarkation Levy (EL) will be increased to USD 50 per passenger from which USD 35 will be remitted to the Consolidated Fund.
The Cess on export of rubber will be increased to Rs. 15 per kilogramme to encourage the export of locally value added products.
(COLOMBO, Nov 10, 2016)