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New corporate tax rates in sl
- 1. ANALYSIS OF NEW CORPORATE INCOME TAX RATES Under the Inland Revenue Act, No. 24 of 2017 -W.E.F. April 01, 2018- 1
- 2. According to the new Inland Revenue Act, revised Income Tax rates applicable for companies have three tiers as, i. Lower Rate - 14% ii. Higher Rate - 40% iii. Standard Rate - 28% However, under the transitional provisions of the new Act, following rates are also provided. i. Lower rates granted under BOI agreements. ii. Continuation of concessionary rates granted under the previous Inland Revenue Act. 2
- 3. Small and Medium Enterprises “Small and Medium Enterprise” means a person who satisfies the following conditions:— (a) the person who conducts business solely in Sri Lanka. (b) the person who does not have an “associate” that is an entity; and (c) Annual gross turnover is less than Rs. 500,000,000 Issue: there is no concession to the companies whose turnover exceeds Rs. 500Mn marginally. 3
- 4. Companies which are “predominantly” conducting following business taxable @ 14% Exporting goods and services. Agricultural business. Educational services. Promotion of tourism. Information technology services. “Predominantly” means 80% or more, calculated based on gross income. Issue : If a company is engaged in both producing agriculture produce and the manufacture of products from the said agriculture produce, the company may not satisfy the 80% rule. 4
- 5. Higher rate of 40% is applicable in the case of a company with income from a business consisting of betting and gaming, liquor and tobacco (excluding such income which is merely incidental to another business) Issue 1 : the Act is not cleat on the tax rate applicable to a company predominantly conducts the business of exporting liquor and tobacco. Issue 2 : It appears that even there is a small division which conducts any of the above business, the entire taxable income of the company is taxable at the rate of 40% 5
- 6. If a company has entered in to an agreement with BOI u.s. 17 of the BOI Law prior to April 01, 2018, the company is chargeable with Income Tax at the rate provided in the BOI agreement. Issue: Even if the BOI rare is more burdensome than the rate provided under the Inland Revenue Act, BOI rate has to be applied. 6
- 7. Concessionary rate under provisions 59D, 59I, 59J, 59K, 59L, 59M of the Inland Revenue Act, No. 10 of 2006 can continue to be applied, if there is any unexpired period as at March 31, 2018. 59D - Rate of income tax applicable to companies listing its shares in the Colombo Stock Exchange and issuing its shares to the general public before April 01, 2017 – 50% reduction in the rate for 3 years. 59I - Rate of income tax applicable to profits and income of any manufacturing company which carries on an expansion of such business to any Province other than the Western Province prior to April 01, 2017 with an investment of Rs. 300Mn - 50% reduction in the rate for 5 years. 59J - Rate of income tax applicable to the profits and income of a new manufacturing company registered with IRD before December 31, 2015 with a committed investment of 500Mn with in the specified period shall be reduced by 50% for 7 years. (not specified) 59M - Income tax payable by a person on an manufacturing or service undertaking located in any lagging region with an investment of Rs. 250 Mn made after February 01, 2015 but prior to March 31, 2017 shall be reduced by 50% for 5 years. Issue : Even though the new Act provides for the continuation of rates under section 59K and 59L, there is no any unexpired part as at March 31, 2018 under 59K or 59L. 7
- 8. Except for the rates discussed in the previous slides, the Income Tax rate applicable to a company is 28% 8
- 9. 9