Value-added tax (VAT)
VAT is payable on imported goods and on the supply of goods (including wholesale and retail trade where the turnover liable supplies per quarter is not less than LKR 3 million) and services in Sri Lanka. Provisions are made for filing returns monthly or quarterly, based on specified criteria. Even where returns can be filed quarterly, the tax payments are required to be made on a monthly basis by manufacturers and on a half-monthly basis by others. Certain specified imports and domestically supplied goods and/or services are exempt.
VAT is payable on the prescribed valuations of imports and domestic supplies at a standard rate of 15%. Exports and certain specified international services are zero-rated.
Registration for VAT arises only if the quarterly value of taxable supplies exceeds LKR 3 million or the annual value of taxable supplies exceeds LKR 12 million, except for supplies from wholesale and retail activities unless the total supplies (whether taxable, excluded, or exempted) exceed LKR 12.5 million per quarter.
The input tax paid on the imports and supplies of goods (including capital goods) and services in a month, and used in the business of making taxable supplies in that month, can be deducted from the tax payable (output tax) on such supplies, subject to a limitation of the lesser of 100% of output tax or the actual input tax paid.
Refunds of excess VAT paid are available to zero-rated supplies and to new businesses registered under Section 22 (7) of the VAT Act. A simplified VAT scheme is in place to relieve zero-rated suppliers and other qualified suppliers from the burden of paying input VAT, thereby obviating the need for the issue of refunds.
Customs duty is levied on the value for customs duty (i.e. transaction value). World Trade Organization (WTO) rules on customs valuations are implemented. Sri Lanka has a simplified three-tier tariff structure. The rates are published in the government gazettes. The current rates are 15%, 30%, and 0% (applies to few goods).
Special Commodity Levy
Special Commodity Levy is imposed on certain commodity items at the rate specified by the Minister by order published in the gazette at the point of importation of such commodities. The collection of Special Commodity Levy is undertaken by the Director General of Customs.
Special Commodity Levy is a composite levy, and no other tax, duty, levy, cess, or other charge is imposed in terms of any other laws specified as applicable in respect of the commodities specified in any such order.
Excise duties and special excise levies are charged on tobacco, cigarettes, liquor, motor vehicles, selected petroleum products, paints, air conditioners, dishwashers, household washing machines, and other products at various rates and at unit rates.
Stamp duty is payable on specified instruments and documents at rates prescribed in the Gazette.
Employees Provident Fund (EPF)
Employers and employees are required to contribute specified percentages (employer 12%, employee 8%) of each employee’s monthly emoluments/salary to the EPF established by the government. Alternatively, employers and employees can contribute to certain private provident funds approved by the labour authority.
Employees Trust Fund
Employers are also required to contribute a specified percentage (currently 3%) of each employee’s monthly emoluments/salary to the Employees Trust Fund established by the government.
Share transaction levy
Share transaction levy at the rate of 0.3% is chargeable from both the buyer and the seller on the sale value of listed shares transacted through the Colombo Stock Exchange (CSE).
Economic Service Charge (ESC)
ESC is payable quarterly by all businesses at 0.5% of the aggregate turnover of the trade, business, profession, or vocation if the total turnover exceeds LKR 12.5 million for that quarter. ESC so paid is deductible from the CIT payable for that tax year. ESC is not refundable but can be carried forward for two immediately succeeding tax years to be set off against CIT payable.
Nation Building Tax (NBT)
NBT is chargeable at 2% from every person (a person includes a company) who imports any article on the 'liable turnover' from such importation, who carries on the business of manufacture of any article, who provides a service of any description, or on the wholesale or retail sale of any article (other than such sale by the manufacturer of that article) on the liable turnover of the relevant quarter. Certain specified articles or services are exempt from NBT.
The threshold for NBT is LKR 3 million per quarter, or LKR 12 million per annum.
Liable turnover means:
- In the case of importers, the value of any article ascertained under Section 6 of the VAT Act for the purpose of importation.
- In the case of manufacturers, the proceeds receivable, whether received or not, from the manufacture and sale of goods in Sri Lanka.
- In the case of service providers, the proceeds receivable, whether received or not.
- In the case of wholesale or retail traders, the proceeds receivable, whether received or not, other than pharmaceuticals, gems and jewellery sold for payment in foreign currency, and any article subject to the Special Commodity Levy sold by an importer.
In case of wholesale and retail traders, 50% of the liable turnover will be taxed at a zero rate and the remaining 50% will be taxed at 2%. In the case of a distributor as defined in the ESC Act, 75% of the liable turnover will be taxed at a zero rate and the remaining 25% will be taxed at 2%.
Bad debts, VAT, excise duty (other than such excise duty paid on importation) rebate under export development, or services in relation to an international event should not be included in the liable turnover.
Tourism development levy
Tourism development levy is payable by tourist hotels and institutions licensed under the Tourist Development Act on the turnover of such institutions at the rate of 1%.
Taxes (more usually called rates) are currently assessed and collected annually from the owners of land and premises by the local authorities of the areas in which the properties are located. These authorities also charge and collect annual licence fees from certain businesses.