The significant development in the Sri Lanka tax scene is the enactment of the New Inland Revenue Act, No. 24 of 2017, which took effect from 1 April 2018. The New Inland Revenue Act is aimed at simplifying the tax system, make the tax system more equitable and efficient, and help generate more revenue for social and economic development purposes. The New Act deports from the hitherto practice of granting liberal tax exemptions and concessions, provides tax relief for a limited category of investment incentives, eliminates multiplicity of corporate tax rates by introducing a three tier corporate rate structure (consisting of a lower rate of 14%, standard rate of 28%, and a higher rate of 40%), and simplifies the expense deductibility rule. It seeks to enhance revenue generation by broadening the tax base, in particular by eliminating the vast range of tax holidays, partial tax holidays, reliefs, and other concessions; introducing taxation of capital gains; and expanding the coverage of withholding taxes (WHTs).
The rules and procedures in relation to corporate income tax (CIT), which are set out in sections that follow, are based on the provisions of the New Inland Revenue Act, No. 24 of 2017.