Sri Lanka to exempt exports of IT, entrepôt trade, waste management from income tax

ECONOMYNEXT - Sri Lanka will exempt from income tax several activities including, agriculture, entrepôt trade, solid waste management, information technology and business process outsourcing, Finance Minister Ravi Karunanayake said.

A new inland revenue act (income tax law) is going to be presented to parliament shortly.

International logistics, multi-country consolidation will be included in the so-called hub-activities like entrepot trade that will be exempt from income tax.

Sri Lanka's locational advantage as a transport hub had been blocked by a few rent-seeking oligopolists who have blocked foreign investment in shipping.

Several tea firms have also blocked the country from becoming an international hub for tea, despite advantages in logistics.

Profits from solid waste management, organic fertilizer, agriculture, poultry, dairy, export of gold, gem and jewellery will be exempt from income tax.

Export of services by individuals will also be exempt.

Sri Lanka to tax unit trusts at 10-pct for individuals

ECONOMYNEXT - Sri Lanka will tax profits of unit trusts (mutual funds under a specific law) at 10 percent for individuals and a higher rate for corporates at the hands of beneficiaries, Finance Minister Ravi Karunanayake said.

There was some confusion that unit trusts, which were tax free, will be taxed twice, at the level of the fund and also at the hands of beneficiaries following proposals made in last year's budget.

Finance Minister Ravi Karunanayake said while the state wanted to give a benefit for individuals who were taking a greater risk and investing in stocks, it did not want to give a tax loophole for companies to use mutual funds as a device for escaping tax.

Companies will have to pay tax at their rate of corporate tax.

Sri Lanka is planning to introduce a new income tax law soon.

Sri Lanka drops capital gains on shares, real estate targeted

ECONOMYNEXT - Finance Minister Ravi Karunanayake Sunday confirmed that the government will exempt capital gains on share transactions, but it will apply to real estate transactions under the new inland revenue act.

Any capital gains on housing and property within a period of 10 years of acquiring the asset will attract a 10 per cent tax, the minister told reporters at his office.

The administration had argued that the property market has been giving huge returns in recent years thanks to the infrastructure added by the government and it was only right that the state took a slice of the capital gains on real estate.

The government had initially proposed slapping a 10 per cent tax on capital gains through equity trading, but that was dropped, the minister said.

PAYE and income tax

Under the new act which is being gazetted in line with efforts to streamline the complicated tax system, the minister said employees earning up to 100,000 rupees a month will be exempt from income tax.

However, the individual tax free income will remain at 500,000 rupees a year.

Those under the PAYE schemes will get a tax credit for 700,000 rupees above their 500,000 rupee tax free allowance for a year.

This means an employee earning a monthly salary of 100,000 (inclusive of all allowances) or an annual income of 1.2 million rupees will not have to pay tax. This concession is not available to self-employed who will have to pay taxes on their monthly income if it is more than 41,666.

Earlier a vehicle allowance of 50,000 rupees a month was exempt in addition to the 50,000 salary. But now all deductions have been limited to 700,000 a year. The highest tax rate has been raised from 15 percent to 24 percent.

The effective date of the new tax structure is not clear, but the bill is being gazetted.