The existing tax framework in Sri Lanka is set to be overhauled soon. Accordingly, a bill to amend the Inland Revenue Act No. 24 of 2017 has been published in an Extraordinary Gazette by the Minister of Finance, Planning and Economic Development, President Anura Kumara Dissanayake on February 24.
This new bill will come into force once it is passed by Parliament and becomes law, and the government hopes to broaden the tax base and strengthen tax collection through it.
The new amendment proposes to increase the capital gains tax levied on profits from the sale of land, buildings or shares from 10% to 15% with the implementation of the new amendments.
The new amendments also propose to include a number of new professions under the Withholding Tax system, whereby a 5% tax is deducted at the time of payment for services rendered and credited to the Inland Revenue Department.
The income earned by professionals and freelancers in a number of fields, including auditors, valuers, personal trainers, sports consultants, artists, photographers, therapists, beauticians, social media experts, brand ambassadors and debt collectors, will also be subject to tax under the new amendments.
The new amendment empowers the Commissioner General of Inland Revenue to exempt interest accrued on unpaid taxes before March 31, 2023. However, this relief will be available only to those who pay the entire tax amount and penalties in full within the first 6 months of the implementation of the new tax law.
The requirement to submit an ‘estimated tax return’ will be removed from April 1, 2026, and instead, a system of paying tax in installments based on the taxable income of the previous year will be introduced.
Also, with effect from April 1, 2025, private taxpayers who declare and pay a tax amount of at least 120% more than the tax paid in the previous year will be entitled to a special concession. Accordingly, their tax returns are to be accepted directly by the Inland Revenue Department. It has also been proposed not to conduct additional tax investigations on the income of such taxpayers.
It is reported that these amendments are also to update the rules and regulations related to capital allowances for businesses approved by the Board of Investment, the insurance sector and investment funds.