We are pleased to provide this summary of Budget 2016 for your easy reference.
1.0 Only 02 bands of corporate income tax rates - a higher rate of 30 percent and a standard rate of 15 percent
1.1 Higher rate will be applicable for the profit and income of betting and gaming, liquor, tobacco and banking and financial services, including insurance and leasing industry and the trading activities. All the other sectors will be subject to the standard rate of 15 percent. The identified long term concessions such as institutional, miscellaneous and other exemptions granted without having any policy rationale will be revisited. In order to ensure that shareholders get a reasonable dividend for their investment, the minimum amount of dividend to be distributed by quoted companies will be increased to 15 percent of the distributable profits.
1.2 Personal Income Tax At present, employees whose annual income is over Rs.750,000/- are liable for PAYE tax which is a progressive tax. The maximum tax rate is 16 per cent. With a view to further simplifying the PAYE tax system and to ensure better compliance, the tax free annual threshold is proposed to be increased to Rs.2.4 million and the PAYE tax over and above this limit to be charged at a uniform 15 percent and the taxable income will be inclusive of all the earnings by the employee with no exemptions. This method and rate will also be applied for individual income earners instead of the present progressive rate of up to 24 percent.
1.3 Withholding Tax on Interest Income The 2.5 percent withholding tax on deposits is abolished with effect from 01 January, 2016.
1.4 Surtax on Tobacco, Liquor and Casinos Surtax at the rate of 25 percent of income tax liability is proposed on Tobacco, Liquor and Casinos industries.
2 Economic Service Charge (ESC) Presently, ESC is imposed only for loss making businesses or exempt businesses. The present exclusion of profit making businesses and the minimum threshold of payment of Rs 120 million per year will be removed and the applicable rate will be increased to 0.5 per cent. In addition, the period of carried forward balances will be limited to 3 years.
3 Value Added Tax (VAT) The present single rate will be revised to 3 bands 0%, standard rate of 8% and 12.5% higher rate for service sector and the minimum threshold for the liability for VAT will be Rs.12 million per annum. Certain VAT exemptions will also be removed.
The wholesale and retail trade will be excluded from VAT.
4 Nation Building Tax (NBT)
NBT liable threshold will be the same as VAT and the rate will be increased to 4% and certain exemptions will also be removed.
5 Removal of Certain Taxes & Levies At present, tax revenue is collected from around 35 types of different taxes and levies which has complicated the tax system. Therefore, with a view to simplify the tax system, following taxes are proposed to be removed.
- Share Transaction Levy
- Construction Industry Guarantee Fund Levy
- Luxury & Semi-Luxury Motor Vehicle Tax
- Tourism Development Levy (TDL)
6 Stamp Duty Reduction on Credit Cards Presently stamp duty is levied at 1.5 percent for purchases using a credit card. Stamp duty on credit cards for local purchases will be removed and stamp duty for foreign purchases will be increased to 2.5 percent.
7 Other Tax Increases for Liquor & Casino Industries A single fee of Rs.150 million for liquor manufacturers as an annual license fee is to be imposed instead of the present complicated per bottle license fee system.
Tax on all types of foreign liquor and imported ethanol will also be increased on par with locally produced liquor-price increase.
Necessary amendments to the Excise Ordinance will be introduced to make provisions to collect a minimum Excise Duty of Rs.250 million per month from liquor manufacturers who are having distilleries and Rs.50 million per month from persons engaged only in liquor manufacturing based on the minimum quantity of liquor required to be manufactured.
The casino entrance fee imposed in the last budget will be removed and the annual levy imposed on the business of gaming other than casino, will be increased to Rs.400 million.
8 Revisions to Motor Vehicle Taxes
8.1 Unit Rate on Excise for Vehicles The new valuation system was introduced recently taking full option manufactures price as the tax base. To further strengthen this process of collecting the duly payable taxes, a simple unit rate of excise duty for the vehicles on the basis of cubic centimetres is proposed. Duties on the percentage basis on certain vehicles will also be revised.
8.2 Tax Incentives for Environment Friendly Vehicles Excise duty is reduced to 2.5 percent for the vehicles which are run entirely on Solar, Hydrogen or Helium.
8.3 Motor Vehicle Entitlement Certificate The present motor vehicles import registration license fee for importers who import motor vehicles for business purposes is to be replaced by a vehicle import fee to obtain a Vehicle Entitlement Certificate for each vehicle at Rs. 2,000 per Motor Cycle and Three Wheeler, Rs.15,000/- for a Motor Car and Rs.10,000/- per vehicle for all other vehicles.
8.4 Revenue License and Emission Test The fee charged on the certificate of emission test will be increased to Rs. 5,000.
8 Motor Vehicle Taxes
8.5 Concessionary Permit Schemes All the vehicle permits granted under different schemes, including to Parliamentarians will be discontinued.
9 Rationalization of Customs Duty Structure Presently 4 tariff bands are applied for customs duty i.e. exempt, 7.5 percent, 15 percent, 25 percent and a fixed higher rate.
The 7.5 percent band will be removed and the 25 percent band will be increased to 30 percent. Accordingly, Sri Lanka will have a 3-band structure of exempt, 15 percent and 30 percent.
9.1 Ports and Airports Development Levy (PAL) PAL will be increased from 5 percent to 7.5 percent, other than plant and machineries used for construction, dairy and agricultural industries which will be exempted.
ITOL is proposed to be increased from USD Cents 9 to USD Cents 12 and total increase to be credited to the Consolidated Fund
11 Sale in the Domestic Market by Export Oriented Companies Export oriented BOI companies will be permitted to supply to the local market only 5 percent of its products.
12 Introduction of an Annual Registration Fee on Companies An annual fee on all the registered companies collectible by the Registrar of Companies will be imposed. Further, a fee of Rs. 500,000/- will be imposed on voluntary liquidation of companies.
With effect from January 01, 2016, all business entities will be required to be registered with their respective local councils at a nominal fee of Rs. 100 per year. For new business entities, this registration would be a pre requisite to obtain the electricity and water connections, and loan facilities from Banks.
13 Miscellaneous Taxes & Levies
13.1 Charges for Road Accidents It is proposed to impose a fine of Rs. 10,000/- in addition to the damages to the public property, in case of a road accident.
13.2 Incentives for Thrust Industries Sri Lanka would be free of Asbestos by 2018. In this background, to encourage the manufacturing of red clay tiles, the red clay industry will be granted a half tax holiday on income tax for a period of 3 years.
13.3 Import Taxes on Garments and Footwear In order to achieve a balance between the accesses to branded products and to protect the local industries, a uniform rate will be applicable for garments and footwear imported or manufactured and supplied to local market by export oriented companies.
14.4 Special Commodity Levy In order to protect the local confectionery industry the Special Commodity Levy applicable on vegetable fat will be reduced.
14.5 Tele drama Levy Levies currently exempted on Tamil tele dramas, films and advertisements will also be extended to English tele-dramas, films and advertisements as well.