Sri Lanka: Tax proposals in 2022 budget

Direct tax, indirect tax, and administrative proposals

Direct tax, indirect tax, and administrative proposals

The Minister of Finance on 12 November 2021 presented the budget proposals for 2022 that include tax measures. 

Tax proposals

Regarding direct taxes, the budget proposes:

  • A one-time surcharge tax at a rate of 25% on individuals or companies with a taxable income exceeding Rs. 2 billion (approximately U.S. $27 million) for the year of assessment 2020/2021
  • Tax relief or concessions for investments regarding the establishment of certain schools and hospitals

Indirect tax proposals include:

  • An increase in the rate of value added tax (VAT) on financial services rate payable by specified institutions—from 15% to 18%—for the period from 1 January 2022 through 31 December 2022
  • Repeal of the tax exemption on “surgical and dental instruments” regarding the import or supply of goods
  • Implementation of a special goods and services tax (GST) from 1 January 2022
  • Introduction of a 2.5% levy (social security contribution) on annual turnover exceeding Rs.120 million, effective 1 April 2022
  • Acceleration of a digital revenue collection system and measures to simplify the excise licensing process
  • An increase in the excise tax (duty) effective immediately
  • An increase the tax on cigarettes by Rs. 5, effective immediately
  • Measures to improve the efficiency and facilitate an efficient flow of imports and exports
  • Measures to impose a specific import restriction on the importation of rubber-related products

Tax administrative and procedures

Tax administrative provisions in the budget would:

  • Strengthen tax administration by consolidating different units of the Department of Inland Revenue managing files of large taxpayers
  • Integrate all bank and financial institutions to an online tax payment platform
  • Implement the use of digital identification numbers
  • Introduce a system to integrate within Sri Lanka Customs to facilitate the import and export process
  • Introduce a mechanism to examine the accuracy of tax documents filed through digital platforms and grant permission to accept digital invoices and documents as valid documents when possible
  • Amend the law to facilitate the simplification of the complex processes for registration of new businesses
  • Introduce legal provisions for the application of technological processes relating to tax assessment and collection procedures
  • Make technical amendments to the VAT law

Other proposals concern motor vehicle fees, non-tax income, new laws and amendments, and the simplification of existing systems and procedures.

Read a November 2021 report [PDF 3.8 MB] prepared by the KPMG member firm in Sri Lanka

 

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