2. Introduction
• In Sri Lanka taxes are levied by various regulatory authorities by virtue of the powers vested in
them.
• Simply Tax is an involuntary fee charged on individuals, cooperation, or institutions on their
sales, income, revenue, and profits by the government in order to raise funds for government
activities.
• Many purposes of imposing taxes
• Basically three tax authorities who can collect taxes
• Characteristics of Good Tax Policy
1. Certainty
2. Flexibility
3. Equity
4. Economy in collecting and administrating cost
5. Convenience
6. Neutrality
3. Direct Tax is a tax paid by a person on whom it
is legally imposed.
Direct tax is charged on income, profit and
property.
Ex: Income tax, property tax, custom duties,
Remittance tax, economic service charge,
company tax, withholding tax, tax on interests,
tax on vehicles
Indirect Taxes is imposed mainly on
consumptions or expenditures
Ex: VAT, NBT, Excise duty, Betting &
Gemming tax, Hotel tax, Import & Export
duty, Turnover Tax
4. Income Tax
Under direct tax lets analyze the Income tax.
Income tax is charged on every person (residents and non-residents) on profits and income.
Income tax is charged for a year of assessment which is a period of 12 months commencing on April 1 in
any year to March 31 of the following year
Individual Income Tax Rates
Tax free allowance for residents/non - resident citizens of Sri Lanka is Rs. 500,000/-
First Rs. 500,000/- 4%
Next Rs. 500,000/- 8%
Next Rs. 500,000/- 12%
Next Rs. 500,000/- 16%
Next Rs. 1, 000,000/-20%
On Balance - 24%
5. Value Added Tax (VAT)
Value Added Tax (VAT) is introduced by the Act No.14 of 2002
and is in force from 1st August, 2002. VAT Act replaced the
Goods and Services Tax which was almost similar tax on the
consumption of goods and services.
It is a tax on domestic consumption of goods and services. The
goods imported into Sri Lanka and goods and services supplied
within the territorial limits of Sri Lanka are the subject matter of
this tax.
Under indirect tax lets analyze VAT
6. Chargeability for Value Added Tax excluding chargeability on Financial Services
• Manufactures
• Importers
• Services providers
• Suppliers who supply goods under tender agreement
• Wholesale and Retail Trade
Who are liable for Registration?
• Every person who carries on a taxable activity
• If his taxable supply of goods or services or supply of goods and services,
• Has exceeded Rs.3, 000,000 per quarter, or
• Has exceeded Rs.12, 000,000 per annum, or
• Likely to exceed Rs.3, 000,000 in the succeeding quarter or Rs 12 Million in the succeeding
twelvemonths period
