Sri Lanka budget 2017: tax and revenue proposals

Nov 11, 2016 (LBO) – Finance Minister Ravi Karunanayake in his Budget 2017 speech in parliament Thursday proposed several measures to improve government revenue.

“To increase the direct tax component to 40 percent from around 20 percent at present and gradually reduce the indirect taxes to 60 percent from around 80 percent in the medium term,” he said.

The government will gradually phase out para-tariffs that are applicable in the tax system with the view of making Sri Lanka a haven for investments going forward, he said.

“The Government has also taken steps to introduce anti-dumping and countervailing measures, which will facilitate a level playing field for domestic companies.”

The main revenue proposals follows: 

Personal Income Tax

Income tax rate structure of individuals, including PAYE is proposed to be revised and the maximum rate will be 24 percent. Earnings in excess of 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. 453. 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. Corporate income tax

Corporate Income Tax

The 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.

Remove the exemptions applicable on the income from the investment on listed securities, Dividends, Unit Trusts and other instruments. Notional Tax Credit applicable on the secondary market transaction of securities also will be removed. Exporters will be granted a rebate of an amount equal to the 75 percent of the tax attributable to the excess earnings that arises as a result of an increase of 15 percent or more foreign currency earnings for the year of assessment 2016/17 compared to 2015/16.

Tax incentives which are already given to encourage listings will be continued. The new firms that will list on the stock exchange in the year 2017/18 will be entitled to a grant of an amount equal to 25 percent of the total income tax paid by that firm for the last year prior to listing.

PAYE

PAYE 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.

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.

Economic Service Charge (ESC)

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.

Value Added Tax

VAT-  In the backdrop of the government policy for promoting clean energy, plant, machineries and accessories for renewable energy will be exempted from VAT. Plant and Machineries imported by CEB for generation, transmission and distribution will be exempted from VAT.

Nation Building Tax

NBT- I propose to rationalize the NBT exemptions applicable on certain articles and services.

Financial Transactions Levy

FTL- I propose 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 86 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.In support of the country‟s digitalization process, all mobile telephone operators will be given a 6 months period to convert their infrastructure to provide at least 3G coverage. Any operator who failed to implement within this period will be liable for a surcharge of Rs.100 million per District. All metro areas are required to be converted to 4G by 30th June 2018.

Motor Vehicles

In the last budget we introduced the engine capacity based unit rate method for Excise Duty calculation for motor cars. Therefore, I propose to extend the engine capacity based Excise Duty to Motor Cycles as well. Honorable Speaker, government is committed to encourage green energy consumption; I propose to reduce Excise Duty on electric cars with motor power less than 100 KW.

Embarkation Levy

I propose to increase the Embarkation Levy (EL) to USD 50 per passenger from which USD 35 will be remitted to the Consolidated Fund.

Capital Gain Tax

CGT will be introduced with effect from 1st April 2017 at a rate of 10 percent. We consider this tax to be equitable as it bridges the income gap and assists the government initiatives in poverty alleviation.

Customs Duty

CD on the importation of powdered milk will be reduced to Rs.100 per kilogram and will be increased from Rs.500/- to Rs.800/- per liter on the importation of potable alcohol.

Cess

I propose to gradually moving out of the import Cess Levy. As a first step I suggest to remove Cess on 100 items. Encouraging the export of locally value added product the Cess on export of rubber will be increased to Rs. 15 per kilogramme.

Carbon tax

I propose to introduce a Carbon Tax 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 provider by the Department. The vehicle owners need not to pay an additional fee for the emission test.