Purpose of this ppt is to give an fair understanding on some of the applicable areas in the tax laws relating to December 18 case study.

1. MECHANICAL AND ELECTRICAL
INSTALLATION BUSINESS
CA Case Study – Dec 2018
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2. 2
Mrs. Tax
Mr. Strategy

3. CHALLENGES IN THE TAXATION
SYSTEM IN SL
• Continues changes in tax policies.
• Less consistency.
• Poor tax policy implementations.
• Sudden tax changes.
• Surprising one off taxes.
• Uncertainty over the given tax concessions.
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4. CORPORATE TAX RATES
Revised income tax rates applicable for
companies have three tiers as given below.
i. Lower Rate - 14%
ii.Standard Rate - 28%
iii.Higher Rate - 40%
In general Income Tax rate applicable to the
business of electrical installation - 28%
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5. CORPORATE TAX RATES CONT..
Lower Rates
• Small and Medium Enterprises – 14%;
• Companies which are “predominantly” conducting
following business taxable @ 14%
a. Exporting goods and services.
b. Agricultural business.
c. Educational services.
d. Promotion of tourism.
e. Information technology services.
“Predominantly” means 80% or more, calculated
based on gross income.
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6. TAX ON DIVIDEND DISTRIBUTION
• WHT rate applicable to dividends has been increased
from 10% to 14%
• Dividends distributed out of dividends received (local) is
exempt, if it has already been subjected to WHT under
new Act.
• Deemed dividend tax has been withdrawn. Therefore,
there is no requirement to distribute minimum amount of
dividend.
• Dividends and gains from an investment in shares of a
non-resident company is exempted if the resident
company hold at least 10% stake.
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7. RESEARCH AND DEVELOPMENT EXPENSES.
A person is entitled to an additional deduction equal to 100% of the
total amount of research and development expenses.
• This is allowed only for three years of assessments starting
from 2018/19.
• Shall exclude expenses that are included in PPE.
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8. CAPITAL ALLOWANCES
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Asset category Rate
20%
20%
20%
5%
Intangible assets, excluding
goodwill
The actual useful life of the
intangible asset, or where the
intangible asset has an indefinite
useful life – 5%
Computers and data handling equipment together with peripheral devices.
Buses and minibuses, goods vehicles; construction and earth-moving
equipment, heavy general purpose or specialised trucks, trailers and trailer-
mounted containers; plant and machinery used in manufacturing
Railroad cars, locomotives, and equipment; vessels, barges, tugs, and similar
water transportation equipment; aircraft; specialised public utilityplant,
equipment, and machinery; office furniture, fixtures, and equipment; any
depreciable asset not included in another class
Buildings, structures and similar works of a permanent nature

9. ENHANCED CAPITAL ALLOWANCES
2ND SCHEDULE
A person who invests in Sri Lanka on depreciable asset
(other than the expansion of an existing business) during a
year of assessment shall be granted additional capital
allowances in addition to the normal capital allowances.
• Investment in other than Northern province
• USD 3Mn - USD 100Mn - A capital allowance of 100%
• Exceeds USD 100Mn - A capital allowance of 150%
• Investment in Northern province
• Exceeds USD 3Mn -A capital allowance of 200%
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10. ENHANCED CAPITAL ALLOWANCES
6TH SCHEDULE
6TH SCHEDULE
Temporary concessions are granted for investment in
New business other than expansion of Existing
Business only for 3 years from April 01, 2018.
• Investment in other than Northern province
Up to USD 3Mn -A capital allowance of 100%
• Investment in Northern province
Up to USD 3Mn -A capital allowance of 200%
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11. MAXIMUM ALLOWABLE FINANCE COST
[THIN CAPITALIZATION RULE]
Amount of financial cost on financial instruments attributable to the
borrowings over the maximum borrowing limit is not deductible.
Maximum borrowing limit is as follows;
• In the case of a ‘’manufacturing entity’’.
Maximum borrowing limit = [Issued Share Capital + Reserves] x 3
• In the case of an ‘’entity other than a manufacturer’’.
Maximum borrowing limit = [Issued Share Capital + Reserves] x 4
Amount disallowed as a result of above restriction, may be carried
forward and treat as incurred during any of the following six years of
assessment, subject to above restriction.
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12. PROFIT ON SALE OF ASSETS
• Listed shares - Exempted
• Unlisted shares[held as
Business asset - Liable at 28%.
Investment asset - Liable at 10%
• Lands
Business asset - Liable at 28%.
Investment asset - Liable at 10%
For investment assets acquired prior to 30.09.2017,
the cost of the asset is deemed to be the market
value of such asset as at 30.09.2017.
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13. TAX LOSSES
• Losses can be deducted in full against business
profit and investment income (35% restriction is
not applicable);
• Remaining loss (unrelieved loss), if any, can be
carried forward up to 6 years of assessment.
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14. CHANGE IN CONTROL AND
UNRELIEVED LOSSES
If the underlying ownership of an entity changes by
more than 50%, the entity, after the change, shall not be
permitted to –
• deduct a business loss that was incurred prior to the
change;
• This section shall not apply to a company that conducts
the same business after a change as it conducted before
the change for a period of two years after the change.
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15. TURNOVER BASED TAXES
APPLICABLE TO THE BUSINESS
• Value Added Tax – Local projects 15%
– Foreign projects EX
- Exports 0%
• Nation Building Tax 2%
• Economic Service Charge 0.5%
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16. IMPACT FROM
CONSTRUCTION INDUSTRY
• Income tax rate of construction industry
increased from 12% to 28%.
• NBT was introduced on main contractor.
• Supply(sale) of residential accommodation
would be liable for VAT w.e.f 01.04.2019.
• Construction services provided outside SL are
also liable for Income Tax.
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17. INVESTMENT PREFERENCE
Description Interest Dividend
Individuals SH
• WHT 5% (final) 14% (final)
Corporate SH
WHT 5% 14% (final)
Tax deductibility YES NO
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18. FOR CLARIFICATIONS
prasaddls83@gmail.com
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19. BY : D.L.S. PRASAD (ACA)
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