Value-added tax (VAT)
VAT is payable on imported goods and on the supply of goods, including wholesale and retail trade, 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 a VAT-registered person. 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 8% (prior to 1 December 2019, the rate was 15%). Exports and certain specified international services are zero-rated. Apart from the above zero-rated supplies, the supply of services by a hotel guest house, restaurant, or other similar business providing similar services registered with the Sri Lanka tourist board authority with 60% of local inputs is made a zero-rated supply.
Registration for VAT arises only if the quarterly value of taxable supplies exceeds LKR 75 million or the annual value of taxable supplies exceeds LKR 300 million with effect from 1 January 2020. However, a voluntary registration scheme is available to those who have turnover value of supply less than LKR 75 million for a 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 abolished from any quarter commencing from 1 January 2020.
Nation Building Tax (NBT)
NBT is abolished with effect from 1 December 2019.
Port and Development Levy (PAL)
PAL is imposed on certain specified goods. The standard rate is increased from 7.5% to 10% with effect from 6 December 2019. Apart from the standard rate, three preferred rates were introduced. Such concessionary rate of PAL on articles that were subject to NBT is increased by 2.5%. However, the PAL rate on the articles that were excepted from NBT remained unchanged.
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%.
The effective rate of telecommunication levy on telecommunication services is 22.60%, and the effective rate on Internet service is 10.20%.
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.