Nov 17, 2020 (LBO) – Budget 2021 has proposed to have a consistent tax policy for the next 5 years. It is also proposed to establish a special tax appeals court to resolve tax appeals.
Accordingly, it proposes to maintain the VAT unchanged at 8 percent, for businesses with a turnover of more than Rs. 25 million per month engaged in the import and manufacture of goods or provision of services, except in the case of banking, financial and insurance sectors.
Reflecting the reduction of VAT rate to 8 percent from 15 percent in the latter part of 2019 together with the deceleration of both domestic and import related activities due to the COVID-19 pandemic, revenue generated from VAT declined considerably in the first eight months of 2020.
Finance Minister proposes to improve the efficiency of tax collection through the introduction of an online – managed single Special Goods and Service Tax in place of the various goods and service taxes and levies, imposed under multiple laws and institutions on alcohol, cigarettes, Telecommunication, betting and gaming and vehicles, which accounts for 50 percent of the income from taxes and levies.
Outstanding dues on the taxes such as the Economic Service Charge and the Nation Building Tax administered by the Inland Revenue Department are proposed to be settled through a mechanism which includes a concessionary payment plan based on the payment capacity leading to a full and final settlement resulting in the closure of the those files.
Further, tax law will be amended where it will be mandatory for all Companies to file their taxes only on an “E-Filing” system with effect from 01 April 2021, and the use of the Tax Identification Number (TIN) in all tax and tax related transactions.
Personal Income Tax will apply on earnings from employment, rent, interest, dividends or any other source only if it exceeds Rs.250, 000 per month. Withholding tax on rent, interest or dividends and the PAYE tax (Pay As You Earn) and taxes on interest have been abolished.
Those with earnings exceeding Rs.250,000 per month, from income sources such as salaries, rent, interest and if they wish to pay taxes on a monthly basis, such individuals could advise their respective work places or banks to remit the due amounts and will introduce a simple system to reconcile the tax liabilities through a final income statement at the year end.
Individuals and companies engaged in farming, including agriculture, fisheries and livestock farming will be exempted from taxes in the next 5 years. Earnings from both domestic and foreign sources by those engaged in businesses in Information Technology and enabling services and also their earnings when made while being resident or non-resident will also be exempted from income taxes.