Key Budget Proposals on Corporate Bodies

Corporate Income taxes

Tax rates applicable to companies (excluding businesses  related to liquor and tobacco products) will be reduced to 28.0%.

The tax rate of businesses engaged in manufacturing or import of liquor and tobacco products will be increased from 35.0% to 40.0%.

Concessionary tax rate of 15.0% will be reduced to 12.0%
Tax on profits from agricultural undertaking will not exceed 10.0%

Other Business related taxes

VAT: The present 20.0% rate will be reduced to 12.0%

Deemed  Dividend  Tax:  Reduce  distributable  profits  for  deemed  dividend  tax  from  25.0%  to  10.0%  to  promote
investment

NBT: Reduce from 3.0% to 2.0% and the threshold will be reduced from Rs.650,000 to Rs.500,000 (per quarter)

Social Responsibility Levy, Regional Infrastructure Development Levy and Debit Tax, Turnover Tax (by municipal
councils) are discontinued

ESC:  The present threshold of Rs. 7. 5mn per quarter will be increased to Rs 25.0mn

Exports and Imports Industry

Impose CESS on all exports in raw and semi processed form : To encourage value added exports

Income tax rate of all export companies to be reduced from 15.0% to 12.0%

Reduction in income tax from 15.0% to 10.0% in companies which have domestic value addition (above 65.0%)
and brand names with patent rights

Tourism & related business

Levy of $20 per bed on all 05 star hotels that has a room rate less than $125 per night

Lowered income tax rate from 15.0% to 12.0%

NBT: threshold increased from Rs.500,000 to Rs.12,500,000 (per quarter)

NBT: removal of exemption ‐ services of star hotels above the rank of three Star
 

Banking and Financial institutions

Abolish the bank debit tax

Reduce VAT on financial services from 20.0% to 12.0%

Reduce tax on profits of banking and financial institutions from 35.0% to 28.0%

Transfer  tax  savings  to  investment  fund  account  with  CBSL.  Regulations  requiring  banks  to  adopt  low  market
rates and long term maturity for lending these funds will be introduced.


Stock market related taxes

To encourage listing in CSE: recognize expenditure in relation to such activities as a deductible expenditure for
tax purposes subject to a 1.0% of the value of the IPO

Increase share transaction levy from 0.2% to 0.3%

WHT on corporate debt securities will be treated on par with government securities

Insurance sector

Exempt re‐insurance commissions and claims from VAT to reduce the transaction cost of insurance

Unit trusts

Exempt from the Economic Service Charge

Tax exemptions: Unit Trusts or Mutual Funds from investment in listed debentures and equity

Telecommunication Industry

Combine  all  taxes  on  the  industry  (VAT,  NBT  ,Cellular  Mobile  Subscriber’s  Levy,  ECL)  and  impose  a
Telecommunications Levy of 20.0%

In place of license fees and CESS, a 2.0% percent license fee on gross revenue will be imposed

Exempt high‐tech equipment and machinery  from duties and VAT

Reduce the minimum floor rate for local calls from Rs. 2 per minute to Rs. 1.50 per minute from July 2011

Impose a levy of Rs. 2.0 per minute for outgoing International calls

Customs duty will be removed for goods relating to telecommunication

Gem & Jewellery Industry

Increase the foreign exchange allowances granted to import raw gem stone from US$ 10,000 to US$ 50,000 per
person

Remove all taxes on raw gem stones at the point of import
 
Garments and Textile industry

Machinery  and  equipment  to  manufacture  textile,  leather,  footwear  and  bags  will  be  exempted  from  import
duties and VAT
 
Liquor and Tobacco

Increase  tax  on  profits  of  businesses  engaged  in  the  manufacture  and  distribution  of  liquor,  cigarettes from 35.0% to 40.0%

Construction industry

Reduce income tax on the construction industry from 15.0% to 12.0%

Plantation Sector

Increase  the  subsidy  by  Rs.  50,000  per  hectare  to  small  holder  tea  growers  to  encourage  replanting  and  new
planting

To encourage valued added exports

 Increase export CESS on bulk tea to Rs.10.0 per kg
 Increase CESS on export of raw rubber from Rs.4.0 to Rs.8.0

Other Agri related proposals

05 year tax exemption for investment in seed farming and other planting material

Tax on profits from agricultural undertaking will not exceed 10.0%

Fisheries

Grant  credit  facilities  at  a  concessionary  interest  rate  of  8.0%  to  promote  inland  fishery  and  aquatic  resources
activities

Exempt the fisheries industry from income tax for period of 5 years

Livestock

Increase the farm gate price for liquid milk to Rs.50.00 per liter

Electricity

8.0%  increase  in  tariff  except  for  the  first  90  units  (excluding  religious  places,  government,  hospitals,  schools,
vocational training institute, universities, small business and SME)

Motor vehicles

Use  of  electrically  operated  vehicles  and  hybrid  electric  vehicles  will  be  encouraged  by  reducing  prevailing
Customs duty to a lower duty, i.e. 30% to 15%, 15% to 5% and 5% to zero

Imports by vehicle assembly business will see a new rate of duty of 15% from 30%

The rates applicable for vehicle registration and transfer will be revised

Reduced duties and taxes on passenger transportation vehicles by 25.0%


Shopping for Branded Products: 
To  promote  Sri  Lanka  as  an  attractive  destination  for  international  shopping  for  branded  items,  internationally  branded
items are exempted from VAT and Import duty.

Exchange control facilitation: to promote exports and develop local capital markets

Foreigners are allowed to invest in rupee denominated debentures by local companies

Sri Lankan companies are allowed to borrow from foreign sources

Permission is granted for foreign companies to open places of business in Sri Lanka

foreigners on tour or businesses in Sri Lanka are allowed to open accounts in foreign currency

Sri Lankan residents are allowed to invest in equity of overseas companies

Tax exemptions:

Tax holiday: A five year tax holiday will be offered for any company, which carries on a new undertaking, with a
minimum  investment  of  not  less  than  US$  5000  (but  not  more  than  US$  10  mn)  or  an  amount  equal  to  such
amount in rupees in such activities as specified by the Minister from time to time.

Personal income taxes

Reduce the current tax rates on personal income ranging from 5.0% ‐ 35.0% to 4.0% ‐ 24.0%

Increase the tax free threshold income from Rs. 300,000 to Rs. 500,000 and the tax slabs from Rs.400,000 to Rs
500,000

Source :  Lanka Securities (Pvt) Ltd (www.lsl.lk)

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