Finance Act -
Tax amnesty and
The Finance Act passed in Parliament
on September 7, 2021 essentially
provides for the following;
► Amnesty for undeclared income
► Write off of unpaid GST, ESC,
NBT, optional VAT, Debit Tax and
SRL (amongst other duties and
levies)
► Write off of unpaid income tax of
individuals (including PAYE
deducted by employer and not
remitted)
► Write off of penalty and interest
in relation to the Inland Revenue
Act, VAT Act, Betting and
Gaming Act and Stamp Duty
Tax write-off
September 9, 2021
Tax Alert
This information has been
prepared for general
information purposes only
and is not intended to be
relied upon as tax or other
professional advice. If you
would like to know more
about these developments
and how they may affect
your business, please
contact one of the Ernst and
Young tax professionals
based in the locations listed
below:
Colombo +94 11 2463500
Kandy +94 81 2232056
Galle +94 91 2242487
 Tax
amnesty

The amnesty Amnesty is provided to any person who discloses

income and assets which were not disclosed in an
Income Tax Return or VAT Return in a year of
assessment/tax period prior to March 31, 2020

Benefits of the Full immunity from tax, penalty, interest or

amnesty investigation or prosecution under provisions of the
Inland Revenue Act (Inland Revenue Acts of years
1979, 2000, 2006 and 2017 are included) and under
the provisions of the VAT Act (unless the VAT has
been collected by the declarant)

Time limit to The amnesty must be claimed before March 31, 2022
claim the
amnesty

Eligible persons Any person including individuals, companies, Funds,

NGO’s, partnerships are eligible for the amnesty

2 Finance Act 2021

Qualifying The following conditions needs to be met prior to
conditions qualifying for the amnesty ;

1. Invest the undisclosed amount in any of the

following prior to March 31, 2022

▪ Shares issued by a resident company

▪ Treasury bills or bonds
▪ Quoted debt securities issued by a resident
company
▪ Movable or immovable property in Sri Lanka

If a person is unable to immediately make the

aforementioned investments, such amount should be
deposited in a bank account (opened in a bank
licensed under the Banking Act of Sri Lanka) prior to
March 31, 2022.

The above requirement will not apply if, a person,

prior to the commencement of this Act, has already
invested an amount equal to the undisclosed amount
in any of the above mentioned instruments, movable
or immovable property (either in or outside Sri Lanka)
or, has deposited same in a bank account.

2. Payment of “Tax on Voluntary Disclosure”

A person who intends to disclose an undisclosed

amount is liable to pay Tax at a rate of 1% of the
undisclosed amount, or on the cost of the asset
invested or deposited.

If the disclosure is in relation to movable or

immovable property, the Tax of 1% is on the market
value of such property at the date of the declaration.

3 Finance Act 2021

 Procedure Upon the investment or deposit of the undisclosed
amount and the payment of the tax on voluntary
disclosure, a declaration must be submitted to the
Commissioner General prior to March 31, 2022.
The format of this declaration is prescribed. in the
Act.
If the Declaration is in accordance with the Act, the
Commissioner General is to accept the declaration
within 30 days. If the Declaration is not in
accordance with the Act, the Commission General
has to reject it within 30 days giving reasons for
same. A fresh application can be made if a
declaration is rejected rectifying any defects
therein.

4 Finance Act 2021

 Tax
Write-off

Write off The Finance Act in addition to the above amnesty on

undeclared income provides for write off of taxes already in
arrears as follows;

1. The Commissioner General is required to write off taxes

in arrears, for periods prior to December 31, 2020, in
relation to the following taxes;

▪ Goods and Services Tax Act, No 34 of 1996

▪ Optional VAT imposed under section 25H of the VAT
Act, No 14 of 2002
▪ VAT advance payment deducted under section 26A
of the VAT Act, No 14 of 2002
▪ Economic Service Charge Act, No 13 of 2006 (and
ESC imposed under the Finance Act, No 11 of 2004)
▪ Nation Building Tax Act, No 9 of 2009
▪ Debit Tax Act, No 16 of 2002
▪ Social Responsibility Levy under Finance Act, No 5
of 2005
▪ Turnover Tax Act, No 69 of 1981
▪ Wealth Tax and Gift Tax imposed under the Inland
Revenue Act of 1979
▪ Surcharge on Wealth Tax and Income Tax (under the
respective Acts)
▪ National Security Levy Act, No 52 of 1991
▪ Save the Nation Contribution Act, No 5 of 1996

Tax in arrears includes any unpaid taxes after the due

date including any tax in default and penalties and
withholding tax that remain unpaid.
5 Finance Act 2021
write off 2. The Commissioner General is required to write
(contd.) off any unpaid income tax of an individual as
at December 31, 2020, whose assessable
income calculated in terms of the Inland
Revenue Act No 24 of 2017 does not exceed Rs.
3 million. The unpaid income tax can be in
relation to income tax imposed under the Inland
Revenue Acts of years 1979, 2000, 2006 or
2017.

Unpaid income tax includes tax in default and

penalties and tax deducted on employment
income by an employer that remain unpaid.

3. The Commissioner General is required to write

off penalty and interest on payments that
were due on or before December 31, 2020
under any of the following listed taxes, provided
the tax payer pays the full amount of the tax
outstanding before March 31, 2022.

▪ Inland Revenue Act (Inland Revenue Acts of

years 1979, 2000, 2006 and 2017 included)
▪ VAT Act
▪ Betting and Gaming Act
▪ Stamp Duty and Stamp Duty Special
Provisions Act
▪ Finance Act, No 11 of 2002

6 Finance Act 2021

 Conditions The following will apply in relation to the write offs in
relation to tax in arrears of the specified taxes, levies,
duties and in relation to tax in arrears of individuals;

▪ The write off will not apply if a decision is pending or

has been made by the Tax Appeal Commission or a
Court of Law prior the commencement of this Act

▪ The write off will be off set against tax refunds that
are due for any period prior to December 31, 2020

The Commissioner General will communicate in

writing the amount of refund to be set off against the
tax in arrears. If the person is dissatisfied with the
set off, a request can be made not to make such set
off and consequently the person should settle the
full amount prior to March 31, 2022. A request can
be made to settle the amount in accordance with a
payment plan.

Process The write off will be initiated by the Commissioner

General and there is no requirement for the tax payer to
initiate this process or to make a request for same.

For additional information Duminda Hulangamuwa Sulaiman Nishtar

Partner, Partner, TAX
with respect to this Alert Head of TAX Services Ernst & Young
please contact: Ernst & Young sulaiman.nishtar@lk.ey.com
duminda.hulangamuwa@lk.ey.com

Roshini Fernando Shehani Paranavitane

Partner, TAX Principal, TAX
Ernst & Young Ernst & Young
roshini.fernando@lk.ey.com Shehani.Paranavitane@lk.ey.com

7 Finance Act 2021

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purposes only and is not intended to be relied upon as
accounting, tax, legal or other professional advice. Please refer
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