TAX PROPOSALS ANNOUNCED IN THE BUDGET 2021 - PWC
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Tax Proposals Announced in the Budget 2021
1
Web notice (PN/IT/2021 - 13th January 2021) on the implementation of tax proposals mentioned
in the National Budget of 2021 presented in Parliament on 17 November 2020. The proposals
will be implemented through formal legislation.
Exemption Eligible Persons Qualifying Criteria Period of exemption
14% remittance tax on Non-resident companies • Total profits earned after Effective 1 April 2021 on
profits remitted outside carrying on a business in 1 April 2021 and where total profits remitted after
Sri Lanka Sri Lanka through a such profits are retained in Y/A 2023/24
Permanent establishment Sri Lanka for a minimum
in Sri Lanka period of 3 yrs by investing
in Sri Lanka by way of
- 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
Income tax on gains and Any person engaged in an Produce should not be Five years of assessment
profits from the sale of undertaking for agro farming subject to any process of commencing on
produce of an undertaking production or manufacture April 1, 2019
for agro farming
“Agro farming” means the
tillage of the soil and
cultivation of land with
plants of any description,
rearing of fish or animal
husbandry, including poultry
farms, veterinary and
artificial insemination
services”
Income tax on gains from Any person Lands sold, exchanged or w.e.f April 1, 2021
the realization of land transferred to a Sri Lanka
Real Estate Investment Trust
(SLREIT) listed in Colombo
Stock Exchange and licensed
by the Security Exchange
Commission of Sri Lanka.
1Exemption Eligible Persons Qualifying Criteria Period of exemption
Income tax exemption on Any SLREIT unit holder Presumably from
dividends or gains on the 1 April 2021
realization of SLREIT units
(irrespective of whether it
is a source from business
or investment income)
Income tax on Interest Welfare society formed or setup by Sri Lanka Army, w.e f 1 April 2021
accruing to or derived by Sri Lanka Navy, Sri Lanka Air Force or Sri Lanka Police.
welfare society
Income tax on Interest on Any multi-national company Foreign currency deposit w.e.f 1 April 2021
foreign currency deposits (MNE) should be opened by the
MNE by utilizing funds
derived from foreign sources
and maintain such deposit in
foreign currency in any
domestic bank and utilize
such deposit to cover its
import expenditure for that
year of assessment
Income tax on any Interest Samurdhi community- Samurdhi community-based w.e.f 1 April 2021
or discount derived by based banks banks established under the
Samurdhi community- Department of Samurdhi
based banks 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)
Income tax on gains from Commercial bank or Sri Lanka international w.e.f 1 April 2021
the realization of Sri Lanka authorized dealer sovereign bonds issued by or
international sovereign on behalf of the Government
bonds 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.
Income tax on gains and Vocational Education Such Vocational Education Period of five years
profits earned or derived Institution which is Institution should double their commencing on
by any Vocational standardized under TVET student intake for such year April 1, 2021
Education Institution concept (Technical and of assessment compared to
Vocational Education and the student intake in the year
Training) and regulated by of assessment immediately
the Tertiary and Vocational preceding that year of
Education Commission assessment.
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.
2Exemption Eligible Persons Qualifying Criteria Period of exemption
Income tax on gains and Any person An undertaking which sells 10 year tax exemption
profits1 received or derived construction materials period for any business
from a new business recycled in a selected commenced on or after
undertaking2 for the supply separate site established in April 1, 20213
recycle construction Sri Lanka to recycle the
materials which were already
material.
used in the construction
industry. (if recycled materials
are used by the same person
for construction services, the
said exemption can be
claimed by deeming such
materials as have been sold
to the construction service
business at market price)
Income tax on gains and Any individual Any business commenced by Five-year tax exemption
profits1 received or derived an individual after successful period for any business
from a new business completion of vocational commenced on or after
undertaking2 commenced education from any institution April 1, 20213
by an individual after which is standardized under
successful completion of TVET concept and regulated
vocational education from by the Tertiary and Vocational
any institution which is Education Commission
standardized under TVET
concept and regulated by
the Tertiary and Vocational
Education Commission
Income tax on gains and Resident person Manufacture in Sri Lanka and 7 years from the
profits1 received or derived supply of boats or ships commencement of the
from a new business undertaking3
undertaking2 for the
manufacture and supply of
boats and ships
Income tax on gains and Any person “Renewable energy project” 7 years from the
profits1 received or derived established with a capacity to commencement of the
from a new business generate not less than one undertaking3
undertaking2 for the hundred Mega Watts solar or
supply renewable energy wind power and supplies
such power to national grid
Income tax on gains and Any resident person Construction and installation Five-year tax exemption
profits1 received or derived of communication towers and period for any undertaking
from a new business related appliances using local commenced on or after
undertaking2 for labour and local raw materials January 1, 20213
construction and installation in Sri Lanka or the provision of
of communication towers required technical services for
and related appliances such construction or
using local labour and local installation
raw materials in Sri Lanka
or the provision of required
technical services for such
construction or installation
Income tax on gains and Any person Investment in such bonded w.e.f 1 April 2021
profits1 received or derived warehouses or warehouses
from a new business should be after 1 Aril 2021 &
undertaking2 for letting should relate to offshore
bonded warehouses or business in the Colombo or
warehouses related to Hambanthota ports
offshore businesses
1
..other than any gains from the realization of capital assets and liabilities of the business as calculated under Chapter IV of the IRA
2
not formed by splitting-up or re-construction of an existing undertaking
3
.Tax exemption period shall be reckoned form 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. 32 Tax Rate Changes
Entity Type Income Type Income Tax Rate Applicable period
Any company which lists its Income other than gains from
shares on or after January realization of investment Reduced by 50% Y/A 2021/2022
1, 2021 but prior to assets
December 31, 2021 in the
CSE 14% Y/A 2022/2023 to 2024/2025
Multinational companies
(MNE4) that achieve; Reduced by 25% Y/A 2021/2022
(a) increase in exports
(other than specified
undertakings) by 30% in
the Y/A 2021/2022
compared to the previous
Y/A or
(b) increase in exports
Reduced by 50% Ys/A 2022/2023 and 2023/2024
(other than specified
undertakings) by 50% in
the Y/A 2022/2023 and
maintains such status in
the subsequent Y/A
compared to the
previous Ys/A
MNE not defined. Clarity is needed on who qualifies as a MNE and what percentage of foreign shareholding required
4
45
Changes to tax computation,
deductions and qualifying
3 payments
Computing CGT
“Consideration received” for the purpose of calculation of gains from the realization of
investment assets will be based on the “amount received or receivable or the assessed value
at the time of realization of such asset, whichever is higher”.
As per current legal provisions “Consideration received” is computed as “amounts received or
receivable” on realization of the asset.
Deductions - Specific provisions for debt claims by banks
Instructions will be issued to ensure better and transparent management of specific provisions
for debt claims by the banks and financial institutions.
Deductions – Capital Allowances
Capital allowance will be granted within 2 years for Milking Machines with latest technology,
used to manufacture the local liquid milk related products.
Deductions – Double deduction for R&D expenses
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.
Deductions – Cost of funds of start - up businesses
Cost of funds of loans provided by banks and financial institutions for start-up capital of
business created post specified vocational training under TVET concept will be considered as
a tax deductible expenditure.
Qualifying payments
Contribution made by a resident individual in money or otherwise to establish a shop for a
female individual who is from a Samurdhi beneficiary family as instructed and confirmed by
the Department of Samurdhi Development.
Expenditure incurred by any financial institution by way of cost of acquisition or merger of any
other financial institution
• The deductible amount will be ascertained by considering all facts, on case-by-case basis and
as confirmed by the CBSL.
• The expenditure claim will be given over period of 3 Ys/A commencing from the Y/A in which
the expenditure is incurred and in equal installments.
• Any amount not deducted as above due to total assessable income of the entity not exceeding
the permitted deduction, could be deducted in the Y/A immediately succeeding the above
3 year period.4 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.
The Commissioner-General’s decision of the review on assessment or other decision and the reasons for
the decision will 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.
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).
Punitive provisions (including issuing a prohibition order to practice in same capacity) will be introduced
against auditors, tax practitioners, tax advisors or to approved accountants (other than full-time
employees of the taxpayer) who;
- Intentionally disregard or fail to take reasonable care in discharging the professional duty or
- Fraudulently prepare and certify documents and information or
- Deliberately misinterpret any provisions of any Act administered by the Commissioner General, or
regulation, rule or order made thereof.
65 Tax Amnesty
No assessment shall be made, no penalty shall be imposed or no action shall be initiated under
penal provisions of any Act administrated by the Commissioner General of Inland Revenue on or
after January 1, 2021 to a person who,
- Earned money from any source and such person has not declared or not paid the due taxes to
the Commissioner General as required by such enactments; and
- Utilizes such money hidden in Sri Lanka or outside Sri Lanka as investments on any undertaking
in Sri Lanka during the period from January 1, 2021 to December 31, 2021; but
- Subject to the payment of one percent of final tax to the Commissioner General on the gross
investment amount.
Such persons are required to make a declaration to the Commissioner General in an approved
form with their investment plan. One percent of tax shall be paid immediately as instructed by
the Commissioner General. (Separate guideline will be issued in this regard.)
Tax relief measures to facilitate
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5 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 and which is
outstanding as at June 24, 2020, in the records of the Commissioner General. However, this is
not applicable for tax assessments issued for tax payments as per the returns.
ii. 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 may grant a grace period to settle the taxes in default or tax arrears
which is outstanding and payable as at June 24, 2020 by any Small and Medium Enterprise
(as defined).
7Let’s 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
M: +94 77 0 208 016
E: charmaine.tillekeratne@pwc.com
Rishini Manatunga
Associate Director - Tax Services
T: +94 11 771 9700 ext. 4701 Disclaimer
M: +94 77 5 306 730
E: rishini.manatunga@pwc.com This content is for general information purposes only, and
should not be used as a substitute for consultation with
professional advisors.
Tharanga Amarasena
Associate Director - Tax Services © 2021 PricewaterhouseCoopers (Private) Limited, Liability
Company incorporated in Sri Lanka. All rights reserved. PwC
T: +94 11 771 9700 ext. 4401
refers to the Sri Lanka member firm, and may sometimes refer to
M: +94 77 2 890 634 the PwC network. Each member firm is a seperate legal entity.
E: tharanga.amarasena@pwc.com Please see www.pwc.com/struture for further details.You can also read
