PARLIAMENT OF THE DEMOCRATIC SOCIALIST …

1 2-2d2- PARLIAMENT OF THE DEMOCRATICSOCIALIST REPUBLIC OFSRI LANKAINLAND REVENUE ACT, No. 24 OF 2017 Printed on the Order of Government[Certified on 24th of October, 2017]PRINTED AT THE DEPARTMENT OF GOVERNMENT PRINTING, SRI LANKATO BE PURCHASED AT THE GOVERNMENT PUBLICATIONS BUREAU, COLOMBO 5 Price : Rs. : Rs. as a Supplement to Part II of the Gazette of the DemocraticSocialist Republic of Sri Lanka of October 27, 2017 This Act can be downloaded from OF title and the effective date of the ICHAPTER IIMPOSITION OF INCOME IIINCOME TAX BASED ivision I: Taxable II: Assessable III: Exempt IV: for trading and and development expenses and agriculturalstart up allowances and balancing on realisation of business assets and (i)(ii) amount of financial or investment IIICALCULATION OF THE INCOME TAXD ivision I: Method of in the year of of basis basis of amounts including bad II: Long Term currency and financial a payment or owned and recovery , instalment sales and finance financial s length standard and arrangements avoidance IVASSETS AND LIABILITIESD ivision I.

2 Calculation of Gains and gains and of an , quantification and compensation of II: Realization of of trading stock and other fungible with retention of of asset to spouse or former of asset on of asset to an associate or for no realisation of asset with by by way of security, finance lease or of Tax on gains from realisation of an of costs and consideration VTYPES OF PERSONSD ivision I: Individuals and payments and II: income or of of and consideration received for III: Trusts and Unit of of of unit IV: of of (iii)SectionTitlePageDivision V: dealings between entities and in VISPECIAL INDUSTRIESD ivision I: Petroleum II: Financial Institutions and Insurance III: Non-Governmental Organizations andCharitable organizations and VIIINTERNATIONALD ivision I: Residence and of of income and quarantining of foreign directly to be included and amounts to of II: Double Taxation Agreements and MutualAdministrative Assistance taxation agreements and mutual administrativeassistance (iv)SectionTitlePageDivision III: Transfer and income or loss from internationaltransactions between and income or loss from transactions resolution office IV: Relief From Double tax of Foreign tax VIIITAX PAYMENT PROCEDURED ivision I: Methods and Time for and time for II: Tax Payable by by from investment from service fees and contract and payments of tax withheld or treatedas withholding for non-final withholding III: Tax Payable by of tax by quarterly of estimated tax of estimated tax payable not (v)SectionTitlePageDivision IV.

3 Tax Payable on of income and capital of income not of tax on realisation of investment assetsby partnerships and IICHAPTER IXADMINISTRATION PROVISIONSD ivision I: Administration of this of Revenue Incentive II:Taxpayer Registration and TaxpayerIdentification identification III: Public Public a Public of a Public IV: Private an Application for a Private a Private of a Private of Private (vi)SectionTitlePageDivision V: Communications, Forms and with taxpayers and other of electronic tax and does not affect of s right to XRECORD KEEPING AND INFORMATION and of Financial to information, assets and to obtain and seizure with of a search and seizure with warrant andsearch without XITAX to require deemed to be furnished by due of time to file return duly or additional for making an amendment to (vii)SectionTitlePageCHAPTER XIIIOBJECTIONS AND Act to from Administrative of do not suspend collection of of from a decision of the Tax XIVLIABILITY FOR AND PAYMENT OF of taxpayer and due and obligations of of unincorporated for tax following of of time for in of of payment of tax on on refundable XVIRECOVERY OF (viii)

4 Of limitations for of uncollectible against taxpayer s of seized Prohibition in against party with of s length tax to register or notify of changes in filing of tax or fraudulent or misleading to maintain documents or provide to comply with third party pricing to comply with notice to give XVIIICRIMINAL and of tax (ix) to preserve by tax of XXISPECIAL of Mutual Administrative text to prevails in case of inconsistency196 CHAPTER XXIITEMPORARY Concessions AND TRANSITIONAL and SCHEDULESFIRST SCHEDULETax Rates200 SECOND SCHEDULEI nvestment Incentives207(x)TitlePageTHIRD SCHEDULEE xempt Amounts210 FOURTH SCHEDULEC apital Allowances, Balancing Allowancesand Assessable Charges214 FIFTH SCHEDULEQ ualifying Payments and Reliefs217 SIXTH SCHEDULET emporary Concessions219(xi)1 Inland Revenue Act, No. 24 of 20172 PL 005318 2,962 (07/2017)Short title andthe effective dateof the Act.

5 [Certified on 24th of October, 2017] O. 23/2017AN ACT TO PROVIDE FOR THE IMPOSITION OF INCOME TAXBE it enacted by the PARLIAMENT of the DEMOCRATIC SocialistRepublic of Sri Lanka as Act may be cited as the Inland Revenue Act,No. 24 of 2017 and comes into operaton on April 1, ICHAPTER IIMPOSITION OF INCOME TAX2. (1) Income tax shall be payable for each year ofassessment by (a) a person who has taxable income for that year; or(b) a person who receives a final withholding paymentduring that year.(2) The amount of income tax payable by a person forany year of assessment shall be the total of the amountspayable under subsection (1).(3) The income tax payable by a person under paragraph(a) of subsection (1) shall be calculated by (a) applying the relevant rates of income tax set out inthe First Schedule to this Act to that person staxable income;(b) deducting any foreign tax credit claimed by andallowed to the person for the year under section 80of this Act; Revenue Act, No.

6 24 of 2017(c) deducting any other tax credit granted or allowedto the person for the year under this Act.(4) The income tax payable by a person under paragraph(b) of subsection (1) shall be calculated by applying therelevant rate set out in the First Schedule to this Act to eachfinal withholding IIINCOME TAX BASED ivision I: Taxable Income3.(1) Subject to subsection (2), the taxable income of aperson for a year of assessment shall be equal to the total ofthe person s assessable income for the year from eachemployment, business, investment and other sources.(2) In arriving at taxable income of a year of assessmentqualifying payments and reliefs for that year under section52 shall be deducted.(3) The taxable income of each person and the assessableincome from each source shall be determined II: Assessable assessable income of a person for a year ofassessment from employment, business, investment or othersource shall be equal to (a) in the case of a resident person, the person s incomefrom employment, business, investment or othersource for that year, wherever the source arises; and(b) in the case of a non-resident person, the person sincome from the employment, business, investmentTaxable Revenue Act, No.

7 24 of 2017or other source for that year, to the extent thatthe income arises in or is derived from a source inSri (1) An individual s income from an employment fora year of assessment shall be the individual s gains andprofits from the employment for that year of assessment.(2) In calculating an individual s gains and profits froman employment for a year of assessment the followingamounts received or derived by the individual during theyear of assessment from the employment shall be included:-(a) payments of salary, wages, leave pay, overtime pay,fees, pensions, commissions, gratuities, bonuses andother similar payments;(b) payments of personal allowance, including any costof living, subsistence, rent, entertainment or travelallowance;(c) payments providing discharge or reimbursementof expenses incurred by the individual or anassociate of the individual;(d) payments for the individual s agreement toconditions of employment;(e) payments for redundancy or loss or termination ofemployment.

8 (f) subject to paragraph (f) of subsection (3), retirementcontributions made to a retirement fund on behalfof the employee and retirement payments receivedin respect of the employment;(g) payments or transfers to another person for thebenefit of the individual or an associate person ofthe individual; Revenue Act, No. 24 of 2017(h) the fair market value of benefits received or derivedby virtue of the employment by an individual or anassociate person of the individual;(i) other payments, including gifts received in respectof the employment; and(j) the market value of shares at the time allotted underan employee share scheme, including shares allottedas a result of the exercise of an option or right toacquire the shares, reduced by the employee scontribution for the shares.(3) In calculating an individual s gains and profits froman employment for a year of assessment the following shallbe excluded:-(a) exempt amounts and final withholding payments;(b) a discharge or reimbursement of expenses incurredby the individual on behalf of the employer;(c) a discharge or reimbursement of the person s dental,medical or health insurance expenses where thebenefit is available to all full-time employees onequal terms;(d) payments made to or benefits accruing to employeeson a non-discriminatory basis that, by reason oftheir size, type and frequency, are unreasonable oradministratively impracticable for the employer toaccount for or to allocate to the individual;(e) the value of a right or option to acquire shares atthe time granted to an employee under an employeeshare scheme (referred to in paragraph (j) ofsubsection (2)); and5 Inland Revenue Act, No.

9 24 of 2017(f) subject to conditions as may be specified by theCommissioner-General, contributions made by anemployer to an employee s account with a pension,provident or savings fund or savings societyapproved by the Commissioner - (1) A person s income from a business for a year ofassessment shall be the person s gains and profits fromconducting the business for the year.(2) In calculating a person s gains and profits fromconducting a business for a year of assessment the followingamounts derived by the person during the year of assessmentfrom the business shall be included (a) service fees;(b) consideration received in respect of trading stock;(c) gains from the realisation of capital assets andliabilities of the business as calculated underChapter IV;(d) amounts required to be included by the Second orFourth Schedule to this Act on the realisation ofthe person s depreciable assets of the business;(e) amounts derived as consideration for accepting arestriction on the capacity to conduct the business;(f) gifts received by the person in respect of thebusiness.

10 (g) amounts derived that are effectively connected withthe business and that would otherwise be includedin calculating the person s income from aninvestment; Revenue Act, No. 24 of 2017(h) other amounts required to be included under thisAct.(3) In calculating a person s gains and profits fromconducting a business for a year of assessment the followingshall be excluded:-(a) exempt amounts and final withholding payments;and(b) amounts that are included in calculating theperson s income from an (1) A person s income from an investment for a yearof assessment shall be the person s gains and profits fromthat investment for the year.(2) In calculating a person s gains and profits from aninvestment derived or received during a year of assessmentthe following amounts received or derived by the personduring the year of assessment from the investment shall beincluded:-(a) dividends, interest, discounts, charges, annuities,natural resource payments, rents, premiums androyalties;(b) gains from the realisation of investment assets ascalculated under Chapter IV;(c) amounts derived as consideration for accepting arestriction on the capacity to conduct theinvestment;(d) gifts received by the person in respect of theinvestment;(e) winnings from lotteries, betting or gambling; and(f) other amounts required to be included under Revenue Act, No.