PRACTICE & REVISION KIT

CA SRI LANKA CURRICULUM 2020

BL 7 Business Taxation

(English)
 Fifth Edition 2020

www.casrilanka.com

2020

ii
Contents

Page
Chapter
Questions Answers

Chapter 1 3 5
Chapter 2 6 15
Chapter 3 16 21
Chapter 4 22 25
Chapter 5 26 32
Chapter 6 33 36
Chapter 7 37 46
Chapter 8 47 53

iii
Contents
How to use this Practice & Revision Kit

This Practice & Revision Kit comprises banks of practice questions of the style that
you will encounter in your exam. It is the ideal tool to use during the revision phase of
your studies.
Questions in your exam may test any part of the syllabus so you must revise the
whole syllabus. Selective revision will limit the number of questions you can answer
and hence reduce your chances of passing. It is better to go into the exam knowing a
reasonable amount about most of the syllabus rather than concentrating on a few
topics to the exclusion of the rest. You should at all costs avoid falling into the trap of
question spotting, that is trying to predict what are likely to be popular areas for
questions, and restricting your revision and question practice to those.
Practising as many exam-style questions as possible will be the key to passing this
exam. You must do questions under timed conditions and ensure you write full
answers to the discussion parts as well as doing the calculations.
Planning your revision
When you begin your course, you should make a plan of how you will manage your
studies, taking into account the volume of work that you need to do and your other
commitments, both work and domestic.
In this time, you should go through your notes to ensure that you are happy with all
areas of the syllabus and practise as many questions as you can. You can do this in
different ways, for example:
 Revise the subject matter a module at a time and then attempt the questions
relating to that module; or
 Revise all the modules and then build an exam out of the questions in this
Practice & Revision Kit. Review the exam structure and then group together the
relevant number of MCQs and longer questions from different syllabus areas to
create a practice exam.
Using the practice questions
The best approach is to select a question and then allocate to it the time that you
would have in the real exam. All the practice written response questions in this
Practice & Revision Kit have mark allocations, so you can calculate the amount of time
that you should spend on the question.
However, this is an approximate guide: for example, some MCQs are very short and
just require a factual response, which you either know or you don’t, while others are
more complex, requiring calculations, which will inevitably take more time.

iv
Using the suggested solutions
Avoid looking at the answer until you have finished a question. It can be very
tempting to do so, but unless you give the question a proper attempt under exam
conditions you will not know how you would have coped with it in the real exam
scenario.
When you do look at the answer, compare it with your own and give some thought to
why your answer was different, if it was.
In multiple choice questions if you did not reach the correct answer make sure that
you work through the explanation or workings provided, to see where you went
wrong. If you think that you do not understand the principle involved, go back to your
own notes or your study materials and work through and revise the point again, to
ensure that you will understand it if it occurs in the exam.
Passing the [Business Level [I or II] – Business Environment and Economics
If you have honestly done your revision then you can pass this exam. What you must
do is remain calm and tackle it in a professional manner. There are a number of
points which you should bear in mind.
 You must read the question properly. Students often fail to read the question
properly and miss some of the information. Time spent reading the question a
second time would be time well spent. Make yourself do this, don't just rush into
it in a panic.
 Stick to the timings and answer all questions. Do not spend too long on one
question at the expense of others. The number of extra marks you will gain on
that question will be minimal, and you could have at least obtained the easy
marks on the next question.

v
Format of the exam

Mode: Computer based examination

Time: 2 hours
Pass Mark: 50%

The exam comprises of fifty (50) multiple choice, drag & drop, fill in the blanks,
matching questions, etc. of two marks each (including mini scenario based/functional
scenario-based questions).

vi
Exam techniques

Using the right techniques in the real exam can make all the difference between
success and failure.
Here are a few pointers:
1. Allocate the time available to the questions. You have 120 minutes to answer
50 questions which is an average 2.4 minutes per question, however this should
only be taken as a rough guide as some questions may require less time to
answer than others.
2. Make sure that you attempt every objective test question. Do not leave any
blank. If you run out of time or are not sure of an answer you should select the
option you think is most suitable. You can come back to the question later if
time permits.
3. Read the question. Read it carefully once, and then read it again to ensure that
you have picked everything up. Make sure that you understand what the
question wants you to do, rather than what you might like the question to be
asking you.
4. If you finish the exam with time to spare, use the rest of the time to review your
answers and to make sure that you answered every objective test question.

vii
 Action verbs checklist

Knowledge Process Verb List Verb Definitions

Tier - 1 Remember Define Describe exactly the nature, scope or meaning

Recall important
information Draw Produce (a picture or diagram)

Identify Recognise, establish or select after consideration

List Write the connected items one below

the other
Relate To establish logical or causal connections

State Express something definitely or clearly

Tier - 2 Calculate/Compute Make a mathematical computation

Comprehension
Explain important Discuss Examine in detail by argument showing
information different aspects, for the purpose of arriving at a
conclusion
Explain Make a clear description in detail
revealing relevant facts
Interpret Present in understandable terms or to translate

Recognise To show validity or otherwise, using knowledge

or contextual experience
Record Enter relevant entries in detail

Summarise Give a brief statement of the main points

(in facts or figures)

Classify Allocate into categories

Describe Communicate the key features

Provide Give illustrations to support or illuminate

a point or assertion

Tier - 3 Application Apply Put to practical use

Use knowledge in a
Assess Determine the value, nature, ability
setting other than the or quality
one in which it was
learned/solve close- Demonstrate Prove, especially with examples
ended problems
Graph Represent by means of a graph
Prepare Make ready for a particular purpose

Prioritise Arrange or do in order of importance

Reconcile Make consistent with another

Solve To find a solution through calculations and/
or explanations

viii
Knowledge Process Verb List Verb Definitions

Conduct Organize and carry out a task

Communicate Transmit thoughts or knowledge

Display Make evident or noticeable

Perform Do or execute, usually in the sense of

a complex procedure

Reconcile Make or prove consistent or compatible

or show differences

Set Fix or establish

Select Choose from a range of options

or possibilities
Support Assist to make decisions by providing
appropriate information about
respective concepts
Use Apply in a practical way
Undertake Commit to do or perform
Tier - 4 Analysis Analyse Examine in detail in order to determine
the solution or outcome
Draw relations among
Compare Examine for the purpose of
ideas and to compare
discovering similarities
and
Contrast Examine in order to show
contrast/solve open- unlikeness or differences
ended problems
Construct Build or make a diagram, model
or formula

Differentiate Constitute a difference that

distinguishes something
Outline Make a summary of significant features

Write Provide word descriptions to express an opinion

or idea
Tier - 5 Evaluate Advise Offer suggestions about the best course of
Formation of action in a manner suited to the recipient
judgments and Convince To persuade others to believe something
decisions about the using evidence and/or argument
value of methods, ideas, Criticise Form and express a judgment
people or products
Comment Provide written remarks expressing an opinion
in both positive and negative perspectives
Evaluate To determine the significance by careful appraisal

Conclude Form a judgment about, or determine or resolve

the outcome of, an issue through a process
involving reasoning
Determine Ascertain or conclude after analysis and
consideration; judge

ix
Knowledge Process Verb List Verb Definitions
Justify Give valid reasons or evidence for

Review Study critically with a view

to correction or improvement
Recommend A suggestion or proposal as to the
best course of action
Resolve Settle or find a solution to a
problem or contentious matter
Validate Check or prove the accuracy

Tier - 6 Synthesis Compile Produce by assembling information

Solve unfamiliar problems by
combining different aspects Design
to form a unique or novel
solution Develop
collected from various sources
Devise the form or structure according to
a plan
To disclose, discover, perfect or unfold a
plan or idea

Propose To form or declare a plan or intention

for consideration or adoption

Anticipate Foresee, or experience or realise

beforehand

Draft Write original material for the scrutiny

of others

Formulate Devise and put into words

Plan Devise the plan for an assurance

engagement

Report Give the formal final conclusion for an

assurance engagement

Submit Send a completed document to a

particular party

Suggest Put forward an idea or give reasons

Synthesize Make or propose a new concepts or ideas

by combining existing knowledge in
different aspects

x
QUESTIONS

3
2 CA Sri Lanka
Chapter 1
INTRODUCTION TO TAXATION

1) Select the correct category that represent the direct taxes.

A. Income Tax, Value Added Tax, Nation Building Tax

B. Income Tax, Value Added Tax, Stamp Duty
C. Value Added Tax, Nation Building Tax, Stamp Duty
D. Stamp Duty, Income Tax, Economic Service Charge

2) Mr.Perera and Mr.Fernando are resident individuals and have same taxable income of Rs.
2,000,000/= for the Year of Assessment 2019/2020 and have to pay tax amounting to
Rs.200,000/= each. Under the different principals of taxation, which of the following tax
principle is applicable for the above situation?

A. Equity
B. Progressivity
C. Efficiency
D. Certainty

3) Identify the correct order of the revenue authority i.e. Commissioner General of Inland
Revenue (CGIR) and/ or Provincial Revenue Commissioner (PRC) handling following
taxes
Corporate Income Tax
Stamp Duty on Land Transfers
Nation Building Tax
Betting and Gaming Levy

A. CGIR, CGIR/PRC, CGIR, PRC

B. CGIR, PRC, CGIR, PRC
C. CGIR, CGIR/PRC, CGIR, CGIR
D. CGIR, CGIR, CGIR, CGIR

4) What are the Government Authorities which function as tax collection authorities for
various taxes in the present tax system of Sri Lanka?
Department of Inland Revenue (DIR)
Sri Lanka Customs (SLC)
Board of Investment of Sri Lanka (BOI)
Department of Exercise (DE)
A. DIR only
B. DIR, BOI and DE only
C. DIR, SLC and BOI only
D. DIR, DE and SLC only

CA Sri Lanka 3
 5) Select the correct category which represent the turnover based taxes.

A. Value Added Tax, Nation Building Tax, Economic Service Charge

B. Income Tax, Value Added Tax, Economic Service Charge
C. Income Tax, Value Added Tax, Nation Building Tax,
D. Value Added Tax, Nation Building Tax, Stamp Duty

6) What is the wrong statement about Value Added Tax (VAT)?

A. VAT is not a direct tax
B. VAT does not avoid the cascading effect
C. VAT levied on final customer of goods and services
D. VAT collects at the point of import

7) What statement is correct in relation to indirect taxes?

A. Tax burden cannot be shifted
B. Generally, taxes are progressive
C. It has a low collection cost
D. Collected by the revenue authority

8) In which category the tax principals are not correctly reflected?

A. Economy and uncertainty
B. Equity and simplicity
C. Progressivity and efficiency
D. Convenience and voluntary compliance

4 CA Sri Lanka
 ANSWERS

1) D - Stamp Duty, Income Tax, Economic Service Charges

2) A - Equity
3) B - CGIR, PRC, CGIR, PRC
4) D- DIR, DE and SLC only
5) A- Value Added Tax, Nation Building Tax, Economic Service Charge
6) B- VAT does not avoid the cascading effect
7) C-It has a low collection cost
8) A-Economy and uncertainty

CA Sri Lanka 5
Chapter 2
INCOME TAX LIABILITY OF A RESIDENT INDIVIDUAL

1. Which of the following statements are correct in respect of residency?

a. Ravi is employed on a Sri Lanka ship, within the meaning of the Merchant Shipping Act, during
the period of employment, he shall be a resident in Sri Lanka.
b. Sunil, an Indian citizen arrived Sri Lanka on 01 May 2018 for a two years employment agreement,
he shall be a resident in Sri Lanka.

A. Both a and b are correct

B. Only a is correct
C. only b is correct
D. both a and b are incorrect

2. Sahan, a resident individual is working as head of production of a leading biscuit manufacturer.

During the year of assessment 2018/19, he has received following receipts/benefits from the employer.
- Gross salary of Rs. 350,000 per month
- Production incentive of Rs. 200,000 in December 2018.
- Telephone bills amounting to Rs. 64,000 were reimbursed by the employer.
- As per the policy of the company all executives are entitled to reimburse their medical bills. During
the year of assessment, Sahan was hospitalized due to dengue fever, and the total bill of Rs. 276,000
was reimbursed by the company.
- The company contributes 12% and 3% of gross salary to the EPF and ETF.

Employment income for the year of assessment 2018/19 would be:

A. Rs. 4,432,000
B. Rs. 4,708,000
C. Rs. 4,740,000
D. Rs. 5,370,000

3. Ranil, is an attorney at law attached to a commercial bank as a legal officer. The company has provided
him following benefits during the year of assessment 2018/19.
- a fuel allowance of Rs. 50,000 per month
- Company owned motor car having engine capacity of 2000cc along with a driver.
What would be the monthly benefit/s to be considered for employment income?
A. Rs. 60,000
B. Rs. 80,000
C. Rs. 95,000
D. Rs. 75,000

6 CA Sri Lanka
4. Rani, is a chartered accountant working as Chief Financial Officer of a company in Sri Lanka. Her
monthly salary is Rs. 350,000. She lives in an apartment provided by employer.

Rs. 60,000 per month is paid by the employer to the owner of the apartment complex. Rating assessment
of the apartment is Rs. 200,000.

What would be the employment income per month?

A. Rs. 410,000
B. Rs. 525,000
C. Rs. 480,000
D. Rs. 240,000

5. Mr Samaraweera retired from his employment on 31st December 2018. He received following amounts
at the retirement.
- Retiring Gratuity of Rs. 2,500,000
- From Employees Trust Fund - Contributions Rs. 1,800,000
- Investment income up to 31.03.1987, Rs. 46,000
- Investment income from 01.04.1987, Rs. 340,000
6. From Employees Provident Fund - Employer's Contributions, Rs. 6,850,000
- Employee's Contributions, Rs. 4,567,000
- Investment income upto 31.03.1987, Rs. 306,000
- Investment income from 01.04.1987, Rs. 2,265,000
What would be the amount to be considered as tax liable employment income?
A. Rs. 11,842,000
B. Rs. 11,536,000
C. Rs. 4,686,000
D. Rs. 4,346,000

6. Rasa Piyasa is a sole proprietorship business. Select the statements that are correct about allowable
expenses.

I. payment of Tourism Development Levy is a disallowable expense

II. Cost of uniforms provided to the staff is an allowable expense
III. Cost of calypso band used to entertain guests is an allowable expense

A. All are correct

B. Only ii and iii are correct
C. Only i and ii are correct
D. Only i and iii are correct
CA Sri Lanka 7
7. Following Assets were purchased by SUN Enterprises, a sole proprietorship during the year 2018/19.
Cost
Computers 254,000
Motor car for the use of owner 2,560,000
Equipment 345,000
What would be the amount of capital allowance claimable for the year of assessment 2018/19.
A. Rs. 631,800
B. Rs. 178,500
C. Rs. 119,800
D. Rs. 132,500

8. Which of the following statements is correct in respect of capital allowances

A. Capital allowance can be deferred to a later year of assessment.

B. Capital allowances will be granted in respect of depreciable asset owned and used by a person at
the end of a year of assessment in the production of the income from a business.
C. Capital allowance is granted in respect of road vehicles other than a commercial vehicle.
D. Capital Allowances should be calculated on the purchasing cost of the asset.

Read the Mini case study given below together with information given in each question and answer
the questions from 9 to 13.
Vin Vin Enterprises is a sole proprietorship owned by Mr. Gamlath. The main business activity is renting
out Juki Machines to factories. The gross income derived for the Y/A 2018/2019 was Rs. 8,240,000.
Following expenses were incurred during the year of assessment 2018/19.
Depreciation on juki machines Rs. 2,439,000 (This includes machines purchased for Rs.9, 000,000 in Y/A
2016/17 and machines purchased for Rs.12, 000,000 in Y/A 2018/19.)
Depreciation on Buddy van used for travelling Rs. 212,000 (This vehicle is having four seats and is
purchased for Rs.2, 500,000 on 01.06.2018 to travel to factories for inspections)
Maintenance of machines Rs. 650,000
Office Maintenance Rs. 265,000
Salaries to staff- Rs.1,200,000
Entertainment expenses incurred on potential customers Rs. 124,000
Cost of juki machine donated to a poor family Rs. 254,000

8 CA Sri Lanka
9. When computing business income of "Vin Vin Enterprises” for Y/A 2018/2019 what are the deductible
expenses for tax purposes other than capital allowance.

i. Maintenance of machines Rs. 650,000

ii. Office Maintenance Rs. 265,000
iii. Salaries to staff- Rs.1,200,000
iv. Entertainment expenses incurred on potential customers Rs. 124,000
v. Cost of juki machine donated to a poor family Rs. 254,000

A. (i), (ii) and (iii) only

B. (i), (ii), (iii) and (iv) only
C. (ii) and (iii) only
D. All of above expenses

10. When computing business income of “"Vin Vin Enterprises” for Y/A 2018/2019 what are the amounts
can be deducted as Capital Allowances for tax purposes according to the provisions of Inland Revenue
Act.

i. Capital Allowance on Juki Machines Rs. 5,400,000

ii. Capital Allowance on Juki Machines Rs. 4,200,000
iii. Capital Allowance on Buddy Van of Rs.500,000

A. (i) and (iii)

B. (ii) and (iii)
C. (i) only
D. (ii) only

11. According to given information calculate the business income of “Vin Vin Enterprises” for Y/A
2018/2019.

A. Business income of Rs. 7,069,000

B. Business income of Rs. 3,474,000
C. Business income of Rs. 725,000
D. Business income of Rs. 1,547,000

In addition to above Mr.Gamlath a received following income during the Y/A 2018/2019.
The interest accrued on money lying in his RFC account in a commercial bank was US$ 232 (US$1 =
Rs.170). No withholding tax has been deducted by the bank.
Interest on fixed deposits was paid after deducting withholding tax at 5%. Such withholding tax was
Rs.20,000.
He has invested in shares in public listed companies. During the year he has earned a gain of Rs.165,000
from disposal of shares.

CA Sri Lanka 9
12. According to given information calculate the investment income of Mr. Gamlath for Y/A
2018/2019.

A. Rs. 0
B. Rs. 39,440
C. Rs. 204,440
D. Rs. 604,440

Mr. Gamlath has made following donations during the Y/A 2018/2019.
- Cash Donation of Rs.500,000 to the Sevana Fund to build houses for poor people.
- Donation of Rs. 100,000 worth of dry rations to the people affected by drought.
- Donation of Rs. 125,000 to "HelpAge Sri Lanka", an approved Charity.

13. Qualifying payments and reliefs entitled for Mr. Gamplath for Y/A 2018/2019.
i. Donation to the Sevana Fund of Rs.500,000.
ii. Donation of Rs. 100,000 worth of dry rations
iii. Donation of Rs. 125,000 to "HelpAge Sri Lanka", an approved Charity.
iv. Donation of Juki Machine worth of Rs. 254,000
v. Individual relief Rs.500,000.
vi. Relief of 25% of total rental income for repair and maintenance Rs.2,060,000
A. (i),(iii), (V) and (vi) only.
B. (i),(iii), (iv), (V) and (vi) only.
C. (i), (iii) and (v) only.
D. (iii), (v) and (vi) only.

Read the Mini case study given below together with information given in each question and answer
for the questions from 14 to 18.
Mr. Yatawara, retired from Government service on 30th June 2017. On 1 January 2018, he joined RDB
Apparels Plc, a listed company in Sri Lanka. He has given primary employment declaration to RDB
Apparels Plc. During the year of assessment 2018/2019, he received the following remuneration and
benefits.
- Government Pension per month Rs. 76,000
- Salary from RDB Apparels Plc - Rs. 150,000 (gross) per month
(Deduction from salary to an approved Provident Fund is 10% of the gross salary and Employer’s
contribution to the Fund is 12.5% and for Employee Trust Fund is at 3%)

10 CA Sri Lanka
 - He owned a motor car (1500 cc) and it is used for official purposes as well as private purposes. He was
paid Rs. 60,000 as vehicle allowance per month. Maintenance expenses of Rs. 140,000 were paid by his
employer during this year of assessment.
- As the employer does not provide a house, he lives in a rented house near the factory.
He pays Rs.40,000 per month and the total amount is reimbursed by his employer.
Rating assessment of this house is Rs. 500,000 and the rates payable is 25% of the rating assessment.
- In December 2018, Mr Yatwara visited Singapore with his family, and out of tour cost Rs. 350,000 was
reimbursed by his employer.
- Under the Employment Share Option Plan, an option has been given to purchase 1000 shares at Rs. 50
per share whereas the market value of a share is Rs. 80. He has not yet exercised this option.

14. For Y/A 2018/2019, Employment Income from RDB Apparels Plc is,

A. Rs.3,520,000
B. Rs. 3,682,000
C. Rs. 4,402,000
D. Rs. 3,490,000

15. Mr. Yatawara was appointed as a non-executive director of a subsidiary company of RDB Apperals
Plc with effect from 01 March 2019. He is paid Rs. 10,000 for each meeting he attended. During the
month he attended 7 meetings. The amount of tax to be deducted by the subsidiary company is,

A. Rs. 3,500
B. Rs. 7,000
C. Rs.9,000
D. Rs. 14,000

His own house, contrusted in 2015 is given on rent and income of Rs. 240,000 received as rent for the
period from April 2018 to March 2019. Rates of Rs. 12,500 were paid by the tenant and Mr Yatawara
incurred a repair expense of Rs.26,000 during the year.

He has obtained a housing loan in respect of construction of this house from National Savings Bank bank
where he has paid Rs. 132,000 and Rs. 48,000 as interest and capital respectively during the above year of
assessment.

16. Rent Income of Mr. Yatawara for Y/A 2018/2019 is …………………...

A. Rs.240,000
B. Rs.180,000
C. Rs. 201,500
D. Rs. 108,000

CA Sri Lanka 11
17.Calculate the Taxable income of Mr. Yatawara for Y/A 2018/2019.

A. Rs. 3,668,000
B. Rs.2,408,000
C. Rs.2,420,000
D. Rs.3,979,500

18. State the tax credits available for Mr. Yatawara for year of assessment
2018/19
i. PAYE deducted by RDB Apperals Plc
ii. PAYE deducted by subsidiary of RDB Apperals Plc
iii. WHT deducted at 5% on rent
iv. WHT deducted at 10% on rent
A. (i) and (iii)
B. (i), (ii) and (iii)
C. (i), (ii) and (iv)
D. (i) and (iv)

19. Mrs Ranawaka, a Sri Lankan citizen worked in a company in UK for last 10 years. She retired in May 2018
by attaining age of 60 years. In June 2018 she returned to Sri Lanka.
She has received following income from investments during the year of assessment 2018/19
i. Mrs Ranawaka has made deposits in banks in Sri Lanka as well as in UK. Interest paid by Sri Lankan
banks during the year of assessment was Rs. 1,654,000.
ii. Interest on deposits made in UK for the above year of assessment has been credited to her savings account
in UK. The amount of such interest after converting into Sri Lankan rupees is Rs. 246,000.
No withholding tax deducted on any interest.
What would be the correct statement.
(a) Mrs Ranawaka is entitled to claim the relief of Rs.1,500,000 on interest income earned from deposit
in Sri Lanka
(b) Income earned from deposits in UK is not taxable in Sri Lanka

A. Both a and b are correct

B. Only a is correct
C. only b is correct
D. both a and b are incorrect

12 CA Sri Lanka
 20. Following statements are given for review.
i. Martin, was appointed as an official of the Embassy of Canada in Sri Lanka with effect from 01 January
2018. During his tenure he did not leave from Sri Lanka.
ii. Sunil, a Sri Lankan had been sent to India as the Country Manager of Indian branch of a multinational
company with effect from 1 June 2018. He did not visit Sri Lanka during the year of assessment 2018/19.
Which of the following statements are correct in respect of their residency for Sri Lanka tax purposes?
A. Both Martin and Sunil are residents
B. Both Martin and Sunil are non-residents
C. Martin is a resident and Sunil is a non-resident
D. Martin is a nonresident and Sunil is a resident

Read the Mini case study given below together with information given in each question and answer
for the questions from 21 to 24
Mr. Chin Chang is a Chinese National who came to Sri Lanka in January 2017 for employment. He has
signed a contract for two years with Saga Constructions (Pvt) Ltd, a Sri Lankan company. Thereafter the
contract has been extended for another two years.
The following payments were made in Sri Lankan rupees and benefits were provided by his employer
during the year of assessment 2018/19.
Gross salary - Rs. 350,000 per month.
Bonus – Rs.150,000. This payment was made out of the profits for the year 2017/18.
A company owned electrical car with a 160 Kw motor has been provided with a driver.
As per the service contract, he was provided an air ticket in August 2018 to visit his home country. The
cost of the air ticket was Rs. 154,000.

21. Employment income of Mr. Chin Chang for Y/A 2018/2019 from Saga Construction (Pvt) Ltd is.
……………………………

A. Rs. 4,864,000
B. Rs. 5,044,000
C. Rs. 4,714,000
D. Rs. 4,620,000

CA Sri Lanka 13
22. He is staying in a furnished apartment in Colombo. This apartment is owned by the company. Mr. Chin
pays Rs. 15,000 per month to the employer as rent. Rating assessment of the apartment is Rs. 500,000 and
rates are paid at 20% of the rating assessment.
The company has provided a servant for his house work. Salary of Rs.10,000 was borne by the company.
Benefit to be considered from the residence provided by employer for Y/A 2018/19 is ……………..
A. Rs. 480,000
B. Rs.300,000
C. Rs.420,000
D. Rs. 600,000

23. "JK Builders" , a competitor of Saga Construction (Pvt) Ltd wishes to recruit Mr. Chin and approached him
with a good package. JK Builders paid him Rs. 100,000 in March 2019.

Which of the following is correct in respect of above payment.

A. Rs. 100,000 payment is a gift received and not taxable.
B. Rs. 100,000 payment is a business income and taxable in Y/A 2018/19
C. Rs. 100,000 is an employment income and taxable in Y/A 2018/19
D. Rs. 100,000 is an employment income and taxable in the year he joins JK Builders

24. Before joining Saga Construction (Pvt) Ltd, Mr. Chin worked in a company in China as an engineer. He
continues to refer engineering matters related to China to that Company. In appreciation for his work,
Chinese company paid him Yuan 50,000 during the Y/A 2018/19.
Which of the following is/are correct in respect of above payment.
a. income received from Chinese company is part of employment income of Mr. Chin.
b. income received from Chinese company is not liable for tax in Sri Lanka.

A. Both a and b are correct

B. Only a is correct
C. only b is correct
D. both a and b are incorrect

14 CA Sri Lanka
 ANSWERS

1. A.Both a and b are correct

2. A.Rs.4,432,000
3. C.Rs.95,000
4. A. Rs.410,000
5. D. Rs.4,346,000
6. B. Only ii and iii are correct
7. C.Rs.119,800
8. B.Capital allowances will be granted in respect of depreciable asset owned and
used by a person at the end of a year of assessment in the production of the income
from a business.

9. A.(i),(ii) and (iii) only

10. C. (i) only
11. C.Business income of Rs.725,000
12. B.Rs.39,440
13. C.(i),(iii) and (v) only
14. D. Rs.3,490,000
15. C.Rs.9,000
16. D. Rs.108,000
17. B.Rs.2,408,000
18. C. (i) , (ii) and (iv)
19. A. Both a and b are correct
20. C.Martin is a resident and Sunil is a non - resident
21. A. Rs.4,864,000
22. B.Rs.300,000
23. C.Rs.100,000 is an employment income and taxable Y/A 2018/19
24. B.Only a is correct

CA Sri Lanka 15
 Chapter 3

INCOME TAX - RESIDENT COMPANY

1) Three Rose (Pvt) Ltd is engaged in the business of manufacturing and sale of cigarettes in the
local market. The turnover of the company for the year ended
31st March 2019 is Rs. 425,000,000/= and taxable income for the Year of Assessment
2018/2019 is Rs. 42,986,000/=. Select the correct income tax rate applicable for Three Rose (Pvt)
Ltd for Y/A 2018/2019.

A. 10%
B. 12%
C. 28%
D. 40%

2) ( Continuation of Question – 01 above)The Accountant of the Three Rose (Pvt) Ltd, wanted to
know what the due date is to file Income tax return for the year of Assessment 2018/2019 under
the New Inland Revenue Act No. 24 of 2017,

A. 30th September 2019

B. 30th October 2019
C. 30th November 2019
D. 30th December 2019

3) Coir Products (Pvt) Ltd is a company manufacture coir products mainly for the export market.
There was a major machinery breakdown during the year of assessment 2018/2019 and most of
the products manufactured during this period not up to the export quality and sold to the local
market at a lower price. The local sales were 22% of the total sales during the year of assessment
2018/2019. As an exporter, what is the income tax rate applicable to Coir Products (Pvt) Ltd for
the year of assessment 2018/2019?

A. 10%
B. 12%
C. 28%
D. 40%

16 CA Sri Lanka
 4) (continuation of question 3 above) The following details were extracted from the
Audited Financial Statements of Coir Products (Pvt) Ltd for the year ended 31st March
2019.
Issued Share Capital Rs. 7,500,000
Revaluation Reserves Rs. 5,000,000
Revenue Reserves Rs. 2,000,000
Outstanding bank loan Rs.45,000,000
Interest paid to banks for term loans Rs. 9,000,000
What is the disallowable interest cost according to the thin-capitalization rules?

A. Rs. 3,300,000/=
B. Rs. 300,000/=
C. Rs. 1,400,000/=
D. Nothing to disallow

5) Malaysian College (Pvt) Ltd is a company incorporated in Sri Lanka to

conduct Malaysian degree programs for students in Sri Lanka. The lectures are
conducted in Sri Lanka. In addition, the Company facilitates students who wants
to study in Malaysia for which the company receive referral fees. The revenue
breakup of the Malaysian College (Pvt) Ltd for the year ended 31 March 2019 is
as follows:
Student Enrolment fees Rs. 3,000,000
Lecture Fees Rs. 42,000,000
Exam Fees Rs. 8,000,000
Referral fees received from Malaysian Universities Rs. 18,000,000
As a provider of educational services, what is the income tax rate applicable to
Malaysian College (Pvt) Ltd for the year of assessment 2018/2019?

A. 10%
B. 12%
C. 28%
D. 40%

CA Sri Lanka 17
 6) (continuation of question 5 above) The following details extracted from the Audited
Financial Statements of Malaysian College (Pvt) Ltd for the year ended 31st March
2019.
Issued Share Capital Rs. 10,000,000
Revenue Reserves Rs. (31,000,000)
Outstanding bank loan Rs.15,000,000
Outstanding related part loans Rs. 10,000,000
Interest paid to banks for term loans Rs. 3,100,000
Interest paid to related part loan Rs. 1,200,000
What is the disallowable interest according to the thin-cap rules.
A. Rs. 3,100,000/=
B. Nothing to disallow
C. Rs. 4,300,000/=
D. Rs. 1,200,000/=

7) (continuation of question 5 above) Malaysian College (Pvt) has acquired

following assets during the year of assessment 2018/2019. What is the total
amount of capital allowance claimed for the year of assessment 2018/2019 in
respect of these assets?
Type of machine Cost - Rs
Computer software 3,600,000
Computers Building 1,500,000
Goodwill 5,600,000
2,500,000
A. Rs. 1,300,000/=
B. Rs. 2,640,000/=
C. Rs. 2,140,000/=
D. Rs. 535,000/=

8) Royal Cement (Pvt) Ltd is a company which imports bulk cement and packed
into 50 kgs bags for whole sale and retail sales. The Company has acquired
following assets during the year of assessment 2018/2019. What is the value of
capital allowance claimed for the year of assessment 2018/2019?

Type of machine Cost - Rs

Packing machine Lorries to 4,500,000
transport goods Car to CEO 8,600,000
Factory Building 7,500,000
5,800,000
A. Rs. 4,410,000/=
B. Rs. 3,780,000/=
C. Rs. 5,280,000/=
D. Rs. 2,910,000/=

18 CA Sri Lanka
 9) (continuation of question 8 above) Royal Cement (Pvt) Ltd which is a subsidiary
of Royal Holdings PLC has a brought forward tax loss (calculated as per the
provisions of the Inland Revenue Act No. 10 of 2006) from the year of
assessment 2017/2018 amounts to Rs. 10,250,000. The assessable income of the
Royal Cement (Pvt) Ltd for the year of assessment 2018/2019 is as follows: Total
income from business Rs. 10,750,000/=

Total income from investment Rs. 500,000/=

Calculate the income tax liability for the year of assessment 2018/2019.

A. Rs. 190,000/=
B. Rs. 280,000/=
C. Rs. 2,005,500/=
D. Rs. 1,915,500/=

10) Quality Exports (Pvt) Ltd, is an exports company. The details relating to the year of
assessment 2018/2019 is as follows.
Assessable income from business Rs. 21,500,000/=
Donation of Rs. 1,000,000 to Api Wenuwen Api Fund
Export sales Rs. 215,000,000
Local sales Rs. 2,500,000
ESC paid during the year Rs. 1,087,500
What is the balance income tax payable for the year of assessment 2018/2019?

A. Rs. 1,782,500/=
B. Rs. 2,870,000/=
C. Rs. 5,740,000/=
D. Rs. 4,652,500/=

11) What were the due dates to pay income tax for the year of assessment
2018/2019?
A. 15th July 2018, 15th November 2018, 15th February 2018, 15th May
2018 and 30th September 2019
B. 15th August 2018, 15th November 2018, 15th February 2018, 15th May
2018 and 30th September 2019
C. 15th August 2018, 15th November 2018, 15th February 2018, 15th May
2018 and 30th November 2019
D. 30th August 2018, 30th November 2018, 30th February 2018, 30th May
2018 and 30th November 2019

CA Sri Lanka 19
 12) Dedunu Salu (Pvt) Ltd is a BOI company and was enjoying a BOI tax holiday period from the
incorporation up to the year of assessment 2017/2018. During this period the Company has incurred a
tax loss of RS. 123,000,000. The details relating to the year of assessment 2018/2019 are as follows.
The taxable income Rs. 47,000,000/=
Export sales Rs. 115,000,000
Local sales Rs. 39,000,000
What is the balance income tax payable for the year of assessment 2018/2019?

A. No tax liability
B. Rs. 6,580,000/=
C. Rs. 13,160,000/=
D. Rs. 11,652,500/=

13) Under the provisions of the Inland Revenue Act No. 24 of 2017, which of the
wrong statement with regards to interest income?
A. In the hands of resident company interest income is treated as final if
withholding tax deducted
B. Interest is subject to 5% withholding tax
C. Interest paid to financial institutions for ordinary loans are not subject to
withholding tax
D. Interest paid to a senior citizen in relation to a bank deposit, up to Rs.1.5
million is not subject withholding tax

14) Royal Cement (Pvt) Ltd sold a machinery at Rs. 2,500,000 during the year of assessment
2018/2019. The asset was purchased at Rs. 9,000,000 on 1st December 2016 and capital
allowances clamed at the rate of 33 1/3%. Select the correct statement in relation to the year of
assessment 2018/2019 out of following.
A. Assessible charge is Rs. 2,500,000/=
B. Assessible charge is Rs. 500,000/=
C. Balancing allowance is Rs. 1,500,000/=
D. Balancing allowance is Rs. 500,000/=

15) ( Continuation of question 14) Royal Cement (Pvt) Ltd has sold a Van at 11,800,000
during the year of assessment 2018/2019. The asset was purchased at Rs. 52,000,000 on 21st
October 2014 and capital allowances clamed at the rate of 20%. Select the correct statement in
relation to the year of assessment 2018/2019 out of following.

A. Assessible charge is Rs. 1,400,000/=

B. Assessible charge is Rs. 11,800,000/=
C. Balancing allowance is Rs. 1,400,000/=
D. Balancing allowance is Rs. 2,800,000/=

20 CA Sri Lanka
 ANSWERS

1.D 40%
2.C. 30th November 2019
3.C.28%
4.A.Rs.3,300,000
5.C.28%
6.C.Rs.4300,000
7.A.Rs.1,300,000
8.D.Rs.2910,000
9.B.Rs.280,000
10.A.Rs.1,782,500
11.B.15th August 2018, 15th November 2018, 15th February 2018, 15th May 2018 and
30th September 2019
12.C.Rs.13,160,000
13.A. In the hands of resident company interest income is treated as final
if withholding tax deducted
14.D.Balancing allowance is Rs. 500,000/=
15.A.Assessible charge is Rs. 1,400,000/=

CA Sri Lanka 21
 Chapter 4

GAINS FROM REALIZATION OF INVESTMENT ASSETS

1. Which of the following identifiable as investment assets?
i. Shares of a subsidiary owned by parent company
ii. Trading Stock of a manufacturing company
iii. Principal place of residence of an individual lived for five years
iv. The Building, used as head office of a company

A. I , iii and iv
B. ii and iv
C. i and iii
D. i only

2. Following expenses were incurred in respect of a land.

i. Rs. 10,000,000 was paid to the seller as purchasing price.
ii. Stamp duty of Rs. 39,000 was paid to the provincial council
iii. Rs. 250,000 was incurred for paving stone blocks to avoid soil erosion
iv. A fee of Rs. 100,000 was paid to a lawyer to preserve the title of land

Which of the above are incidental Expenditure?

A. I, ii, iii and iv
B. I and ii
C. ii and iv
D. ii, iii and iv

3. Mr. Seram purchased a bare land on 20. 03.2010 at a cost of Rs. 6,500,000. He constructed a parapet
wall around the land by incurring Rs. 320,000 in June 2011.

As per the valuation done by a professional valuer, market value as at 30.09.2017 was Rs. 10,000,000.

On 15.06.2018 he sold this land to Mr Silva for Rs. 11,250,000. Mr Seram paid Rs. 50,000 to a broker
for helping him.

What would be the gain on sale of this land?

A. Rs. 4,430,000
B. Rs. 4,380,000
C. Rs. 1,200,000
D. Rs. 1,250,000

22 CA Sri Lanka
4. Mr. Dalpadadu is a resident individual. During the year of assessment 2018/19 he has sold following
properties since he plans to migrate Australia.
Market value as
Cost Selling Price
at 30.09.2017
House purchased on 15.05.2014, used as
Rs. 12,500,000 16,000,000 14,000,000
residence from 01.07.2015
Building used for his business , construction
Rs. 18,000,000 24,000,000 20,000,000
completed on 31.03.2010
House constructed in 2010, rented out Rs. 7,500,000 13,400,000 12,000,000

What would be the Capital gain earned on sale of above properties?

A. Rs. 1,400,000
B. Rs. 3,400,000
C. Rs.4,000,000
D. Rs. 7,400,000

5. Raaji Plc is a company engaged in manufacturing garments. The company has invested in shares of
some companies and during the year of assessment 2018/19 share disposals are as follows.

Market value Date of

Selling
Cost as at purchase
Price
30.09.2017
5000 quoted shares of a company listed in
120 144 122 01.06.2016
Colombo Stock Exchange
100 shares of a private limited company
2,300 4,200 3,500 01.04.2010
which is a subsidiary
2000 quoted shares of a company listed in
160 210 180 30.01.2018
Colombo Stock Exchange

What would be the Capital gain earned on sale of above properties?

A. Rs.190,000
B. Rs. 70,000
C. Rs.240,000
D. Rs. 410,000

CA Sri Lanka 23
6. Shra (Pvt) Ltd sold a land which is held as an investment asset on 20.06.2020 and has earned a capital
gain of Rs. 450,000. What would be the tax payable on that gain?

A. Rs. 45,000
B. Rs. 63,000
C. Rs. 126,000
D. Rs. 0

7. Taxable income of Mr. Athukorala for year of assessment 2018/19 is Rs. 1,120,000 and this taxable
income includes a capital gain of Rs. 340,000 earned from sale of a land.

What would be the tax payable on taxable income?

A. Rs. 34,000
B. Rs. 65,600
C. Rs. 72,400
D. Rs. 86,000

8. Following statements are given for your review.

Capital Gain Tax Return is to be filed not later than one month after the date of realization of
a
the investment Asset.
A separate Capital Gain Tax return must be filed in respect of each transaction. b
Individuals must account for gains on accrual basis, unless otherwise approved by the
c
Commissioner General of Inland Revenue.

Which of the above is/are correct in respect of Capital Gains.

A. All are correct
B. Only a and b are correct
C. Only a is correct
D. Only b and c are correct

24 CA Sri Lanka
 ANSWER

1. D. i only
2.C.ii and iv
3.C.Rs. 1,200,000
4.A.Rs. 1,400,000
5.B.Rs. 70,000
6.A.Rs. 45,000
7.C.Rs. 72,400
8.B.Only a and b are correct

CA Sri Lanka 25
 Chapter 5
VALUE ADDED TAX

1) Weerasena Man Power Suppliers (Pvt) Ltd supplied labor under a contract agreement
and Rs.58,000,000 (excluding VAT) received from Kandurata PLC for the quarter ended
30th September 2019. Weerasena Man Power Suppliers (Pvt) Ltd has purchased new
office building and VAT paid on building is Rs.5,500,000. VAT payable by Weerasena
Man Power Suppliers (Pvt) Ltd for the quarter ended 30th September 2019 is,

A. Rs. Zero
B. Rs. 3,200,000
C. Rs. 5,500,000
D. Rs. 8,700,000

2) Mr. Saparamadu is engaged in the business of manufacturing, importing and selling of bath
room fittings in the local market and registered for Value Added Tax. Identify the input tax
that he could not be claimed?

A. VAT paid to Director General of Customs on Custom Declaration (on

CUSDEC).
B. VAT paid to a registered raw material supplier on Tax Invoice.
C. VAT paid to a raw material Importer on Tax Invoice.
D. VAT paid to a registered raw material supplier on commercial Invoice.

3) Yashoda (Pvt) Ltd is engaged in the business of manufacturing of Rubber products for the
local market and registered for VAT since year 2013. The company has not furnished VAT
return for the quarter ended 30th September 2019 yet. What was the due date for filing VAT
return for above quarter?
A. 30th November 2019
B. 31st October 2019
C. 20th October 2019
D. 20th November 2019

4) (Continuation of question 3) what is correct statement in relation to time bar provision applicable
for the quarter ended 30th September 2019 for Yashoda (Pvt) Limited?
A. The time bar provision of 3 years ending 30 September 2022
B. No time bar provision will apply
C. The time bar provision of 2 years ending 30 September 2022
D. The time bar provision of 18 months ending 31 March 2021

26 CA Sri Lanka
 5) Silverline Exports (Pvt) Ltd is engaged in the business of manufacturing and sale of textile items
for the foreign and local market and registered for Value Added Tax. The Company has made direct
exports amounting to Rs.22,540,000/= (excluding VAT), indirect exports amounting to Rs.
8,270,000/= (excluding VAT) (sales made as RIP under SVAT scheme and received Rs.1,240,500
worth credit vouchers for suspended supply). and local sales amounting to Rs.12,568,000/=
(excluding VAT)during the quarter ended 30th September 2019. Select the correct answer for the
total output tax of Silverline Exports (Pvt) Ltd for above quarter.

A. Rs. 6,506,700/=
B. Rs. 5,266,200/=
C. Rs. 1,885,200/=
D. Rs. 3,125,700/=

6) (continuation of question No. 5) Silverline Exports (Pvt) Ltd has paid VAT amounting to Rs.
1,075,000 at the customs during the quarter ended 30th September 2019 and VAT paid on local
purchases amounting to Rs. 125,000. This local purchase includes VAT amounting to Rs. 23,000
paid for the repairs made to Managing Directors car use for travelling. What is the VAT liability
of the Silverline Exports (Pvt) Limited for the quarter ended 30th September 2019?

A. Rs. 1,925,700/=
B. Rs. 2,050,700/=
C. Rs. 708,200/=
D. Rs. 1,948,700/=

7) Mr. Sandaruwan started a business of manufacturing of soft toys mattress and obtained the
registration for VAT. The following information is given in relation to the quarter ended 30th
September 2019.
Local Sales (excluding VAT) Rs. 6,000,000

Export Sales (excluding VAT) Rs. 14,000,000

Input tax Rs. 85,000 for which the tax invoices are available.

In addition, Mr. Sandaruwan received an invoice amounting to 115,000 which is inclusive of

VAT.

What is the tax liability of Mr. Sandaruwan for the quarter ended 30th September 2019?

A. Rs. 2,915,000/=
B. Rs. 815,000/=
C. Rs. 2,900,000/=
D. Rs. 800,000/=

CA Sri Lanka 27
 8) ( Continuation of Question 7) Mr. Sandaruwan has obtained an advance payment of Rs. 250,000
on 29th of September 2019 to supply soft toys for an organization in Sri Lanka. Due to the
capacity problem the order was completed and delivered in two batches on 15th November 2019
and 10th December 2019. Total value of supply was Rs. 750,000 and issued a tax invoice on 15th
December 2019 for Rs. 750,000
According to the time of supply,
i. The tax invoice issued for the full amount on 15th December is correct.
ii. A tax invoice for the advance should have been issued in 29th September 2019
iii. A tax invoice can be issued within 10 days from the date of delivery

A. i and ii are correct

B. ii and iii are correct
C. i is correct
D. iii is correct

9) Sithkalu Partners started a business of manufacturing concrete blocks and registered

for VAT in August 2019 and issued Tax Invoices to customers and got many complaints
from customers about the validity of the Tax invoices issued by Sithkalu
Partners.
The particulars should be containing in the Tax invoice,

i. the name, address and the VAT registration number of the supplier
ii. the date of manufactured of goods and the description of goods
iii. the words “TAX INVOICE” in a conspicuous place
iv. the date on which the tax invoice was issued and not required a serial number

A. i and ii are correct

B. ii and iii are correct
C. i and iii are correct
D. iii and iv are correct

10) Mr. Jayarathne is a new Finance Manager joined to Sadasarana Transport services (Pvt)
Ltd on 01st September 2019 and needs to know the statutory due dates applicable to Sadasarana
Transport Services for the VAT payment for the month of September 2019. Payment for the
September 2019 was due on

A. From 01-09 to 30-09 was due on 20th October 2019

B. From 01-09 to 15-09 was due on 30th October 2019 and 16-09 to 30-09
was due on 15th November 2019
C. From 01-09 to 15-09 was due on 30th September 2019 and 16-09 to
30-09 was due on 30th October 2019
D. From 01-09 to 15-09 was due on 30th September 2019 and 16-09 to
09 was due on 15th October 2019

28 CA Sri Lanka
 11) Quality Customers (Pvt) Ltd started a business of manufacturing curtain and Rs.7, 500,000/= worth
products have been sold for the quarter ended 30th June 2019. The company has paid VAT on above
income without claiming input tax on imports and local purchases for which VAT is applicable.
What is the correct statement on claiming input tax:
A. Input tax can be claimed within 12 months from the date of any tax
invoice on Local Purchases.
B. Input tax can be claimed within 12 months from the date of any Customs
Declaration.
C. Input tax can be claimed within 24 months from the date of any tax
invoice on Local Purchases.
D. Input tax can be claimed within 6 months from the date of any Customs
Declaration

12) Best Products (Pvt) Ltd is a VAT registered company engaged in manufacturing of Toys for
foreign and local market. Following information of the company is given for the quarter ending
30th September 2019. (All the figures given below are exclusive of VAT, unless otherwise stated)
Revenue:
Direct Exports Rs. 35,425,000
Sales to local market Rs. 70,850,000
Sales proceeds from sale of PPE (inclusive of VAT) Rs. 2,300,000

What is the total output tax for the month of September 2019:

A. Rs. 16,286,250/=
B. Rs.16,241,250/=
C. Rs. 10,972,500/=
D. Rs. 10,927,500/=

13) (continuation of question No. 12) The input tax details of Best Products s (Pvt) Limited for the
quarter ended 30th September 2019 is as follows:
VAT paid on imports 2,400,000/=
VAT paid on material purchased from local suppliers registered for VAT 3,125,000/=
VAT paid on lease rentals paid, for car used for travelling 150,000/=
VAT payments
Monthly payments: For the month of July 2019 Rs.450,000/=
For the month of August 2019 Rs.650,000/=
What is the balance tax payable for September 2019?
A. Rs. 4,302,500/=
B. Rs. 5,252,500/=
C. Rs. 5,402,500/=
D. Rs. 4,152,500/=

CA Sri Lanka 29
 14) Wood Masters (Pvt) Ltd is a furniture manufacturing company. The following financial
Information is given for the quarter ended 30th September 2019.
Sales: Rs.
Local sales to customers registered for VAT (exclusive of VAT) 40,000,000/=
Local sales to customers not registered for VAT (inclusive of VAT) 23,000,000/= Exports
9,000,000/=

What is the total output tax for the month of September 2019:

A. Rs. 10,350,000/=
B. Rs.10,800,000/=
C. Rs. 9,000,000/=
D. Rs. 9,450,000/=

15) (continuation of question No. 14) The input tax details of Wood Masters (Pvt) Ltd for the quarter
ended 30th September 2019 is as follows:
VAT paid on imports – Not paid
VAT paid on the tax invoices received during the quarter ended 30th September 2019 Rs.
1,500,000/=
VAT paid on the tax invoices received during the quarter ended 30th June 2018 Rs. 125,000/=
VAT paid on the tax inclusive invoices received during the quarter ended 30th September 2019
Rs. 175,000/=
VAT payments

Monthly payments: For the month of July 2019 Rs.1,500,000/=

For the month of August 2019 Rs.1,600,000/=
What is the balance tax payable for September 2019?

A. Rs. 4,400,000/=
B. Rs. 4,100,000/=
C. Rs. 5,402,500/=
D. Rs. 4,275,000/=

16) (continuation of question No. 14) What are the due dates to pay VAT for the quarter ending 30th
September 2019 by Wood Masters (Pvt) Ltd.?
A. 15th August, 15th September and 15th October 2019
B. 30th August, 30th September and 30th October 2019
C. 20th August, 20th September and 20th October 2019
D. 15th July, 30th August and 15th September 2019

30 CA Sri Lanka
 17) (continuation of question No. 14) What is the correct statement in relation to Wood Masters (Pvt)
Ltd.’s VAT Returns?
A. VAT return for the quarter ended September 2019 is due on 20th October 2019
B. VAT return for the month ended September 2019 is due on 31st October 2019
C. VAT return for the quarter ended September 2019 is due on 31st October 2019
D. VAT return for the month ended September 2019 is due on 20th October 2019

18) Quality Exports (Private) Limited is a company manufactured coir pits for export market. Only
2%-4% of the products are sold in Sri Lanka. According to the provisions of the VAT Act, what
is the taxable period in relation to Quality Exports (Private) Limited.
A. A month
B. A quarter
C. period of six months
D. A year

19) Mr. Perera provides IT consultancy services and has not registered for VAT as at 30th September
2019. Mr. Perera wants to know what the VAT liable threshold is.,
A. Rs. 3 million per quarter
B. Rs. 15 million per annum
C. Rs. 25 million per annum
D. Rs. 12.5 million per quarter

20) Quality Exports (Private) Limited filed the VAT return for the month ended August 2016 on 30th
October 2016. The Department of Inland Revenue has raised an assessment for August 2016
VAT return on November 2019. What is the correct statement with regards to the time bar
provision to make an assessment for the VAT return for the month ended August 2016.

A. Invalid assessment as time bar period is 18 months from January 2018

B. Valid assessment as time bar provision is not applying
C. Valid assessment as time bar period is 5 years from 31st August 2016
D. Invalid assessment as time bar period is 3 years from 31st August 2016

CA Sri Lanka 31
 ANSWERS

1) B – Rs. 3,200,000
2) D – VAT paid to registered raw material supplier on Commercial Invoice
3) B - 31st October 2019
4) B - No time bar provision will apply
5) D- Rs. 3,125,700/=
6) C- Rs. 708,200/=
7) B- Rs, 815,000/=
8) B- ii and iii are correct
9) C - i and iii are correct
10) D -From 01-09 to 15-09 was due on 30th September 2019 and 16-09 to 30-09 was
due on 15th October 2019
11) A -Input tax can be claimed within 12 months from the date of any tax invoice on
local purchases
12) D -Rs. 10,927,500/=
13) A -Rs. 4,302,500/=
14) C -Rs. 9,000,000/=
15) A - Rs. 4,400,000/=
16) C -20th August, 20th September and 20th October 2019
17) C- VAT return for the quarter ended September 2019 is due on 31st October 2019
18) A -A month
19) A -Rs. 3 million per quarter
20) B -Valid assessment as time bar provision is not applying

32 CA Sri Lanka
 Chapter 6
OTHER TAXES APPLICABLE TO BUSINESS
1) Sulalitha Garments (Pvt) Ltd engages in the business of manufacturing of Garments products to Local
Market and the turnover of Sulalitha Garments (Pvt) Ltd for the quarter ended 30th September 2019 is
Rs. 26,800,000. During the quarter the Company received sales return of Rs.1,400, 000 and incurred bad
debts Rs.420,000. Discount given on the invoice is Rs.26,800 and discount given for early payments is
Rs.40.000. The liable turnover for Nation Building Tax for the quarter ended 30th September 2019 is,

A. Rs. 25,400,000
B. Rs. 24,980,000
C. Rs. 24,953,200
D. Rs. 24,913,200

2) Wihanga Enterprises is engaged in the manufacturing of Toys. Turnover of the Business for the
quarter ended 30th September 2019 was Rs.102,500,000/=. This includes Rs. 52,000,000/= Exports
turnover and Rs.5,000,000/= sale of old machinery.
The liable turnover for Nation Building Tax for the quarter ended 30th September 2019 is,

A. Rs. 102,500,000
B. Rs. 45,500,000
C. Rs. 50,500,000
D. Rs. 57,000,000

3) Wasana Traders act as a distributor of Anuradhapura District for a well known locally manufactured
product. Turnover for the quarter ended 30th September 2019 was Rs.50,800,000/=
What is NBT liability of Wasana Traders for the quarter ended 30th September 2019.

A. Rs. 1,016,000
B. Rs.508,000
C. Rs. 762,000
D. Rs. 254,000

4) Thuna-Paha is a business of buying and selling of spices. The sales for the quarter ended 30th
September 2019 includes local sales of Rs.41,000,000 and export sales of Rs. 54,000,000. What is the
NBT liability of Thuna-Paha for the quarter ended 30th September 2019.

A. Rs. 410,000
B. Rs. 950,000
C. Rs. 1,900,000
D. Rs. 820,000

CA Sri Lanka 33
 5) Cindarella (Pvt) Ltd. is engaged in the business of manufacturing Ladies footwear and bags, for the wholesale
and retail market. Turnover of the Company for the quarter ended 30th September 2019 was as follows.

- Manufactured footwear and bags Rs.12,450,000/=.

- Sale of imported footwear and bags which was purchased from an importer Rs.18,950,000/=
- Sale of well popular locally branded footwear as a distributer Rs.24,600,000/=

What is the NBT liability of Cindarella (Pvt) Ltd prior to any tax credits for the quarter
ended 30th September 2019.

A. Rs. 1,120,000
B. Rs. 561,500
C. Rs. 684,500
D. Rs. 820,000

6) (Continuation of question 5) The Company purchased raw materials from various kinds of suppliers to
manufacture footwear and bags and received Rs.12,500/=,. NBT paid for the months of July and August 2019 was
Rs. 100,000 and Rs. 150,000 respectively. What is the balance NBT payable for the quarter ended 30th September
2019.

A. Rs. 857,500
B. Rs. 979,500
C. Rs. 299,000
D. Rs. 422,000

7) What are the due dates to pay NBT for the quarter ended 30th September 2019

A. 20th July 2019, 20th August 2019 and 20th September 2019
B. 20th August 2019, 20th September 2019 and 20th October 2019
C. 15th August 2019, 15th September 2019 and 15th October 2019
D. 30th August 2019, 30th September 2019 and 30th October2019

8) The newly recruited Accounts Executive wants to know what is the due date to file NBT return for the quarter
ended 30th September 2019?

A. 20th September 2019

B. 30th September 2019
C. 20th October 2019
D. 30th November 2019

34 CA Sri Lanka
 9) Yashoda (Pvt) Ltd is engaged in the business of manufacturing of Rubber products for the local market. The
total sales for the quarter ended 30 June 2019 was Rs. 17,825,000
(including VAT). What is the Economic Service Charge (ESC) liability for the quarter ended 30 June 2019?

A. Rs. 77,500
B. Rs. 155,000
C. Rs. 89,125
D. Rs. 178,250

10) (Continuation of question 9) Yashoda (Pvt) Ltd’s total sales for the quarter ended 30 September 2019 was
Rs. 13,800,000 (including VAT). What is her Economic Service Charge (ESC) liability for the quarter ended
30 September 2019?

A. Rs. 60,000
B. Rs. 69,000
C. No liability
D. Rs. 138,000

11) (Continuation of question 9) Mr. Sapumal jointed to Yashoda (Pvt) Ltd as an Assistant Accountant.
He wants to know what is the due date to file the ESC return for the year of assessment 2019/2020?

A. 30th June 2020

B. 15th April 2020
C. 30th April 2020
D. 20th April 2020

12) (Continuation of question 9) Yashoda (Pvt) Ltd paid the ESC liability for the quarter ended 30 June
2019 on 21st August 2019 and received a penalty letter from the Department of Inland Revenue. What is
the due date to pay ESC for the quarter ending 30th June 2019?

A. 20th July 2019

B. 30th July 2019
C. 15th August 2019
D. 20th August 2019

13) Lanka Cement is a company which imports bulk cement and supply to the companies engaged in
construction industry. Each cement supply is over Rs. 100,000 and the Company issues receipts for its
customers upon the settlement of invoices. Lanka Cement has issued 112 receipts to its customers during
the month of November 2019. What is the Stamp Duty liability of Lanka Cement for the month of
November 2019?

A. Rs. 2,800/=
B. Rs. 1,112/=
C. Rs. 5,600/=
D. Rs. 8,400/=

CA Sri Lanka 35
14) Mrs. Wijewardena sold a land received from his father during the month of December 2019. The land is in
the Western Province and sold at Rs. 7,325,000/=. What is the Stamp Duty payable to Provincial Council on this
land sale?

A. Rs. 219,750
B. Rs. 293,000
C. Rs. 366,250
D. Rs. 292,000

15) Weerasena Man Power Suppliers (Pvt) Ltd paid salaries to 225 employees for the month of December 2019.
Out of 225 employees 47 employees eared a net salary of below Rs. 25,000/- and the balance employees earned
net salary over Rs. 25,000/- for the month of December 2019. What is the Stamp Duty liability of Weerasena
Man Power Suppliers

(Pvt) Ltd in respect of employee salaries for the month of December 2019.
A. Rs. 5,625/=
B. Rs. 1,175/=
C. Rs. 4,450/=
D. Rs. 2,250/=

36 CA Sri Lanka
 ANSWERS

1.C. Rs. 24,953,200

2.B.Rs. 45,500,000
3.D. Rs. 254,000
4.A. Rs. 410,000
5.B.Rs. 561,500
6.C.Rs. 299,000
7.B. 20th August 2019, 20th September 2019 and 20th October 2019
8.20th October 2019
9.A. Rs. 77,500
10.C. No liability
11.20th April 2020
12.A.20th July 2019
13.A. Rs. 2,800/=
14.D. Rs. 292,000
15.C.Rs. 4,450/=

CA Sri Lanka 37
Chapter 7
BASIC INCOME TAX ADMINISTRATION AND INCOME TAX PAYMENT PROCEDURE

1) There are number of services provided by the Sri Lanka Government at free of charge or at
subsidized rates for its citizens. In order to finance the above public expenditure, government
impose taxes. Which of the following function of tax is indicated by the above situation?
(A) Economic function of taxation
(B) Social function of taxation
(C) Primary function of taxation
(D) Social and economic functions of taxation

2) Select the incorrect statement with regard to the collection of taxes by tax authorities in Sri
Lanka for the year of assessment 2018/19.
(A) Collection of Value Added Tax is assigned to the Inland Revenue Department and Sri
Lanka Customs.
(B) The Inland Revenue Department has been designated as the Administrative Authority
for Income Tax.
(C) Stamp Duty is collected only by Provincial Revenue Departments.
(D) Sri Lanka Customs is collecting import duties on importation of goods

3) Select the correct statement with regard to the differences between direct and indirect taxes
i. Direct tax is collected by a person other than the person on whom the tax is imposed.
ii. Indirect tax is collected by a person other than the person on whom the tax is imposed.
iii. Cost of collection of Direct tax is high compared to Indirect Tax.
iv. Collection cost of Direct is low compared to Indirect Tax.

A. (i) and (iii) only

B. (i) and (iv) only
C. (ii) and (iii) only
D. (ii) and (iiv) only

4) Section 02 of the Inland Revenue Act No. 24 of 2017, specified the person who is liable to pay
Income Tax for a year of assessment. Which of the following statements correctly state the
person who is chargeable for Income Tax?
(A) Person who has taxable income for the year or a person who receives a final
withholding payment during the year.
(B) Person who has profit or income for the year
(C) Person who receives a Business income during the year.
(D) Any person who has open a tax file with the Inland Revenue Department.

38 CA Sri Lanka
 5) Select the correct statement with regard to the computation of taxable income for a year of
assessment.
(A) Business loss or loss from investment can be deducted from taxable income
(B) Qualifying payments and reliefs for that year shall be deducted in arriving the taxable
income.
(C) Annuity, Ground Rent cannot be deducted from assessable income
(D) Qualifying payments and reliefs for that year shall be deducted in arriving the
assessable income.

6) Mr. Prasanna is an officer of Sri Lanka Army and assign duties as security in charge to the Sri
Lankan High Commissioner to the United Kingdom. Mr. Prasanna reported to duty on
01.01.2018. During the year ended 31.03.2019 he has visited Sri Lanka several times. Details
of his visiting are as follows;
(A) On 12th April 2018 for New Year vacation and departure on 20th April 2020.
(B) On 18th August 2018 for his daughter’s wedding and departure on 18th September 2018.
(C) On 01st of December 2018 he was promoted to senior officer carder and assigned duties
in Sri Lanka Army head quarter.

Select the correct statement with regard to the residency of Mr. Prasanna for the purpose of Sri
Lanka Income Tax.
i. He is Resident person for Sri Lanka Income Tax for the year of Assessment 2018/2019.
ii. He is Non-Resident person for Sri Lanka Income Tax for the year of Assessment
2018/2019.
iii. He is Non-Resident person for Sri Lanka Income Tax for the year of Assessment
2018/2019 and Resident person for Sri Lanka Income Tax for the year of Assessment
2019/2020.
iv. He is Non-Resident person for Sri Lanka Income Tax for the year of Assessment 2019/20.

CA Sri Lanka 39
 7) Ms. Koralage is working as senior financial analysis to a reputed company in Sri Lanka. She
did not receive any income other than emoluments from the company. During the month of
April 2018, company provided following benefits to her.
i. Monthly salary 250,000/-
ii. Motor vehicle (1800cc) was provided to her. As per the running chart maintained by
the company, 1500KM was used by her, and out of that, 500KM was used for her
private travelling.
iii. Company has obtained a medical insurance facility for all full time employees.
Monthly premium of Rs. 7,500/- has been incurred by the company for each and every
employee.
Her assessable income from employment for the month of April 2018 is;
i. 257,500
ii. 262,500
iii. 250,000
iv. 277,500

8) Mr. Thusith was an Employee. After completion of 21 years of service period, he retired from
the employment. Following benefits was received by him during the year 2018/19.
Retiring Gratuity (Paid as per gratuity Act) - Rs. 2,000,000
Employer’s contribution to approved Provident Fund - Rs. 1,200,000
Employee’s contribution to approved Provident Fund - Rs. 800,000
Interest Income on EPF Balance (after 1/4/1987) - Rs. 150,000
Employer’s contribution to Employee’s Trust Fund - Rs. 300,000
Interest Income on ETF Balance (after 1/4/1987) - Rs. 50,000
Ex Gratia Payment - Rs. 1,000,000
Select the Assessable income of Mr. Thusith from Employment for the year 2018/19

i. 5,600,000
ii. 4,200,000
iii. 4,500,000
iv. 3,300,000

40 CA Sri Lanka
9) Select the correct statement with regard to the income tax liability on employment income.
i. Qualifying payments and relief shall be deductible in arriving the assessable income
from employment for the year of assessment 2018/2019.
ii. Reimbursement of expenses incurred by the individual on behalf of the employer
shall be excluded in calculating gains and profits from an employment for a year of assessment.
iii. Employment income from a company in Sri Lanka, received by a Non-Resident person
is not liable for Sri Lanka Income Tax for the year of Assessment 2018/2019.
iv. Gifts received in respect of the employment shall be excluded from employment income.
A. (i) and (iii) only
B. (ii) only
C. (iii) and (iv) only
D. None of above statements

v. Ms. Theja reached 61 years old in the year 2018/19 and received Gross interest of Rs.
400,000 from National Savings Bank and Rs. 900,000 from Sampath Bank PLC for Y/A
2018/2019 on her savings accounts. Select the correct statements with regard to the income tax
liability of above interest.

vi. Interest received by a resident individual shall be treated as final withholding payments.
vii. Interest received only from National Savings Bank is exempted from income tax.
viii. Senior citizens are not liable for income tax on Interest income received from Bank.
ix. Relief can be claimed by a senior citizen up to Rs. 1,500,000 as against the total of the
individual’s interest income received from financial institution for the year.

(A) (i) and (ii) only

(B) (i) and (iv) only
(C) (i) and (iii) only
(D) None of above statements

11. Income tax return filing date for the year of Assessment 2018/2019 is

i) Not later than 8 months from the end of the year of assessment
ii) Not later than 12 months from the end of the year of assessment
iii) Not later than 6 months from the end of the year of assessment
iv) Not later than 9 months from the end of the year of assessment

CA Sri Lanka 
 12) PAYE payment shall be made on or before the 15th day of the following month and employer’s
annual declaration (tax return) filling date for a year of assessment is within thirty days after
the end of each year.
Under the different principals of taxation, which of the following tax principle is applicable for
the above situation?
i) Equity
ii) Progressivity
iii) Efficiency
iv) Certainty

13) Select the incorrect statement with regard to the income tax liability of an Individual.
i) An application may be made to the Commissioner General for a change to year of
assessment.
ii) Income from an employment or investment shall account for income tax purposes on
a cash basis.
iii) Business income shall account for income tax purposes on an accrual basis.
iv) No deduction shall be made in calculating the income from employment

14) .Select the incorrect statement with regard to the submission of tax return by a person for the
year of assessment 2018/19
i. Every person chargeable with income tax is required to submit a return of income to the
Department of Inland Revenue.
ii. A resident individual who exclusively has income from employment and tax on such
income has paid under the PAYE scheme, such individual not required to submit a return
of income for the year.
iii. The Commissioner General of Inland Revenue may extend the time limit specified for
filing a tax return.
iv. Even though the Commissioner General served a notice in writing to a resident individual
to file a return, he is not required to file a return if he has no tax payable or no taxable
income for the year.

15) Mr. Ranawaka is engaged in the business of importing and selling of building accessories in
the local market and registered for Value Added Tax. Identify the input tax that he could not
claim.
i) VAT paid to Director General of Customs and having valid Custom Declaration (on
CUSDEC).
ii) VAT paid to supplier of spare part for motor car used for his private travelling and
received valid Tax Invoice.
iii) VAT paid on security service made by a local supplier and received valid Tax Invoice.
iv) VAT paid on purchase of Furniture used in accounts office and supplier has issued
valid Tax Invoice

42 CA Sri Lanka
 16) Instalment Tax payer shall file a statement of estimate tax payable for each year of assessment.
Filing date for the statement of estimate tax payable for the year of Assessment ended
31.03.2019 was;
th
i) 15 September 2018
ii) 15th August 2018
th
iii) 15 April 2019
th
iv) 30 November 2018

17) When a return for gain on the realization of investment assets (capital gains tax return) should
be submitted by:
i. After the end of the year of assessment, at any time prior to 30th November of the
following year of assessment.
ii. Not later than one month after that realization of the Investment asset.
iii. At the end of every month.
iv. After the end of respective quarter at any time prior to the last date of the following
month.

18) Commissioner General of Inland Revenue has the authority to impose a penalty for failure to
file a return of income or capital gain return on time. What is the correct statement with regard
to the maximum penalty that could be imposed by the Commissioner General of Inland
Revenue?
(A) Not less than Rs. 50,000/- but not more than Rs.100,000/-
(B) Not more than Rs. 50,000/-
(C) Maximum penalty chargeable is Rs.400,000/-
(D) Maximum penalty chargeable is Rs. 150,000/-

19) Every person chargeable with income tax is required to submit a return of income to the
Department of Inland Revenue. Such return is treated as;
(A) Self- assessment tax return
(B) Additional tax return
(C) Advance tax return
(D) Amendment Tax return

CA Sri Lanka 43
 20) Select the correct statements with regard to the amendments to a tax return submitted by a
person for a year of assessment
i. Taxpayer who has filed a self-assessment return may apply to the commissioner
General of Inland Revenue for an amendment.
ii. Tax payer request for amendment to the return submitted, shall be made within the
period of 30 months.
iii. There is no option in the income tax act for tax payer to amend the tax return.
iv. Commissioner General by a notice can make an amendment to the return submitted by
tax payer.

A. (i) and (ii) only

B. (i) and (iii) only
C. (i) and (iv) only
D. None of above statements

21) Dinithi Management Services (Pvt) Ltd is engaged in the business of supplying professional
consultancy services. The Company has received Rs.2,500,000/- form service made to overseas
customers and Rs.13,225,000/- collected from non VAT registered local client for the quarter
ended 31st March 2019. Company has received valid tax invoices from local suppliers. Total
VAT amount as per tax invoices were Rs. 725,000/-. Select the correct answer for Value Added
Tax liability of Dinithi Management Services (Pvt) Ltd for above quarter.
i) Rs. 1,258,750/-
ii) Rs. 1,983,750/-
iii) Rs. 1,875,000/-
iv) Rs. 1,000,000/-

22) As per the Inland Revenue Act, there are few types of assessments. Such assessments shall be;
i) Self-Assessment, Default assessment, Advance assessment and Amended /additional
assessments
ii) Estimated assessment, penalty assessment and additional assessments
iii) Assistant Commissioner’s assessment and revised assessment
iv) Assessment by the assistant commissioner and notice of assessment to the tax payer

44 CA Sri Lanka
 23) Mr. Kithsiri Bandara has duly completed his return of income for the year of assessment
2018/19 and submitted the return by 30thNovember 2019. What statement correctly stated the
statutory time limitation (Time bar) for Assistant Commissioner to issue an additional
assessment subject to an assumption that there is willful default?
i) No assessment can be made by an Assistant Commissioner after 30th May 2022.
ii) Assistant Commissioner can issue an additional assessment on or before 30th
November 2023
iii) Assistant Commissioner can issue an additional assessment on or before 31st May 2021
iv) There is no time limit to Assistant Commissioner to issue an additional assessment
under any circumstances.
24) Ranasinghe Engineering (Pvt.) Ltd has registered as withholding Tax agent with the
Department of Inland Revenue. Company has made following payment during the month of
March 2019.
i) Rent payment of Rs. 200,000/- has been paid to the owner of the building, used for
administrative office.
ii) Janitorial fee paid to M & E Partners was Rs. 150,000/-. It is a partnership registered
in Sri Lanka.
iii) Consultancy fee of Rs. 100,000/- has been paid to UPS Management Consultants (Pvt.)
Ltd.
iv) Lawyer charges paid to Ms. Pushpamali was Rs. 75,000/-. She is resident person for
Sri Lanka Tax.
Withholding Tax deduction to be made by Ranasinghe Engineering (Pvt.) Ltd for the
month of March 2019 and due date for the payment shall be;
A. WHT is Rs. 23,750/- and due date was 15th April 2019
B. WHT is Rs. 36,250/- and due date was 30th April 2019
C. WHT is Rs. 21,250/- and due date was 30th April 2019
D. WHT is Rs. 26,250/- and due date was 15th April 2019
25) Ms. Jayani has joint as the Manger finance to a reputed company in Sri Lanka on 15th June
2018. What is the correct statements with regard to her tax liability on employment income?
i) Employer has to obtain a consent from Ms. Jayani for her income tax liability and
monthly tax deduction.
ii) Jayani has to give a declaration nominating her primary employer for a year of
assessment.
iii) Jayani has to pay income tax on her monthly remuneration on self-assessment basis.
iv) If no primary employment declaration was received from Jayani, employer has to apply
the Tax Table 7 and deduct PAYE on her monthly remuneration.

E. (i) and (iii) only

F. (i) and (iv) only
G. (ii) and (iii) only
H. (ii) and (iv) only

CA Sri Lanka 45
 ANSWERS

1.(C)Primary function of taxation

2.(C)Stamp Duty is collected only by Provincial Revenue Departments.
3.C. (ii) and (iii) only
4.(A)Person who has taxable income for the year or a person who receives a
final withholding payment during the year.
5.(B)Qualifying payments and reliefs for that year shall be deducted in arriving
the taxable income.
6. i.He is Resident person for Sri Lanka Income Tax for the year of Assessment
2018/2019.
7.ii. 262,500
8.iv. 3,300,000
9. B. (ii) only
10.(B)(i) and (iv) only
11. i) Not later than 8 months from the end of the year of assessment
12. iv) Certainty
13. i) An application may be made to the Commissioner General for a
change to year of assessment.
14. Even though the Commissioner General served a notice in writing to
a resident individual to file a return, he is not required to file a return if he has
no tax payable or no taxable income for the year.

15.ii) VAT paid to supplier of spare part for motor car used for his private
traveling and received valid Tax Invoice.

16. ii) 15th August 2018

17. ii. Not later than one month after that realization of the Investment asset.
18.(C) Maximum penalty chargeable is Rs.400,000/-
19. (A) Self- assessment tax return
20. A. (i) and (ii) only
21.iv) Rs. 1,000,000/-
22.i) Self-Assessment, Default assessment, Advance assessment and Amended /
additional assessments
23. ii) Assistant Commissioner can issue an additional assessment on or before
30th November 2023
24.A. WHT is Rs. 23,750/- and due date was 15th April 2019
25.H. (ii) and (iv) only

46 CA Sri Lanka
 Chapter~8
TAXATION OF OTHER PERSONS AND ENTITIES

1. "Viru sevana" is a charitable institution solely engaged in providing care to disabled soldiers.
The institution has earned following income during the year 2018/19.
a. Grant from the government Rs. 1,000,000
b. Gross interest income from Fixed deposits Rs. 243,000
c. Profit from Sale of handicrafts made by disabled soldiers Rs. 1,765,000
Select the correct statement with regard to the income tax liability of above income.
i. Grant from the government is liable to income tax
ii. Interest income from Fixed deposits is a final withholding payment.
iii. Profit from Sale of handicrafts made by disabled soldiers is liable to income tax.

A. (ii) only.
B. (ii) and (iii) only.
C. (iii) Only
D. All of above

2. "Ruk Mithuro" is an organisation engaged in activities related to protecting trees. During the
Y/A 2018/19, it has received following income.

a. Net dividend of Rs. 172,000 from a listed company

b. Net interest of Rs. 190,000 from fixed deposit made in Bank of Ceylon.
c. Donations from well-wishers amounts to Rs. 3,540,000
Select the correct statement with regard to the income tax liability of above income.
(i) Net dividend received from a listed company is a final withholding payment.
(ii) Net Interest received from Bank of Ceylon is a final withholding Payment.
(iii) Donations are liable to income tax.

A. (i) only.
B. (i) and (iii) only.
C. (i) and (ii) Only
D. All of above

3. Identify incorrect statement relating to the taxation of a charitable institution.

A. A charitable institution is deemed to be a person under the Inland Revenue Act,

B. A charitable institution is not entitled to the tax-free allowance of Rs.500,000.
C. Charitable institutions are not entitled to deduct qualifying payments
D. The tax rate of a charitable institution is 14%

CA Sri Lanka 47
4. "Our rights" is a nongovernmental organization established for the purpose of providing
assistance in violence against women.
This organization has received following income during the year 2018/19.
Donations from foreign donors 5,200,000
Donations from local donors 435,000
Interest income on fixed deposits where WHT deducted 122,500
profit on Sale of publications 300,000
6,057,500
Less: Administrative Expenses (2,453,000)
Income over expenditure 3,604,500

What would be the tax payable as a nongovernmental organization?

A. Rs. 30,278
B. Rs. 47,334
C. Rs. 43,680
D. Rs. 50,883

5. Following information are given for your review

a. "Success International School" is an international school established under Companies Act
b. “People in Need" is an institution engaged in providing free legal assistance to poor people.
c. “Sharing hands" is a trust established by Mr. Hewage to provide financial assistance to his
grandchildren in higher education.
d. "Roo Foundation", was established to provide facilities for its members who are in film
industry.
What are the entities that can be considered as charitable institutions" under Inland Revenue
Act.?
A. a and b only
B. b and c only
C. a, b and d
D. b only
Read the Mini case study given below together with information given in each question and
answer for the questions from 6 to 8.
Suren is an engineer. On 1st April 2018, he and Subash, one of his friends, formed a partnership
called “S and S Designers” to provide professional engineering services. It was agreed to share
profits in the ratio of 3:2 between Suren and Subash.
The profit before tax of the partnership for the Y/A 2018/19 was Rs. 15,200,000 and following
income and expenses were taken into account in the financial statements.

48 CA Sri Lanka
 - During Y/A 2018/19 Suren and Subash withdrew Rs. 2,000,000 and Rs. 1,200,000 respectively
from the partnership for their personal expenses.
- A monthly salary of Rs. 20,000 was paid to Subash’s wife who works as the accounts clerk of
the partnership.
- The office is situated in Suren's house for the time being. Therefore he charged a monthly rent
of Rs. 25,000 from the partnership.
- Each partner use a computer for office work and the cost of each was Rs. 260,000.
- They had to incur another Rs. 150,000 to purchase office furniture at the commencement of
operations.
- Accounting depreciation for the Y/A 2018/19 was Rs. 41,134.
- As per the agreement the partnership pays a monthly salary of Rs. 250,000 to each partner.
- During Y/A 2018/19, the partnership donated Rs. 500,000 to a children’s home which is an
approved charity.
- The partnership earned Rs. 123,500 as interest income (net) from its fixed deposits.

6. When computing business income of “S & S Designers” for Y/A 2018/2019 what would be the
amount deductible as Capital Allowances for tax purposes?

A. Rs. 134,000
B. Rs. 82,000
C. Rs. 160,000
D. Rs. 154,000

7. According to given information, calculate the total income of “S & S Designers” for Y/A
2018/2019 which should be shared among partners.

A. Rs. 24,683,500
B. Rs. 25,223,500
C. Rs. 25,353,500
D. Rs. 24,813,500

8. What would be the withholding tax to be deducted on partnership income of "S & S Designers"?

A. Rs. 1,985,080
B. Rs. 1,974,680
C. Rs. 1,894,680
D. Rs. 1,977,880

CA Sri Lanka 49
 9. Select the correct statement with regard to the taxation of partnerships.

A. Assets owned, and liabilities owed in common by partners should be treated as assets owned
or liabilities owed by the partners at the capital contribution ratio
B. When the partnership incurs a loss, such loss will be allocated to the partners in their profit
sharing ratio.
C. A partnership is entitled to claim withholding tax on interest income.
D. Different business activities of a partnership shall be treated separately for income tax
purposes.

10. Following information are given for your review. Select the correct statement/s with regard to
the taxation of a partnership.

(i) a partnership in which at least 25 of the partners have limited liability for the debts of the
partnership is specifically deemed to be a company for the income tax purposes
(ii) Gains on disposal of interest of a partner in a partnership are treated as income from
investment in the hands of the partner and tax should be paid.
(iii) A partnership can obtain loans from partners and interest paid on such loans is deductible
when calculating taxable income of the partnership.

A. (i) and (iii)

B. (i) and (ii)
C. (ii) and (iii)
D. none of the above

11. Following information are given for your review. Select the correct statement/s with regard to
the taxation of a receiver.

(i) A receiver is personally liable for the amount of tax to be paid on assets held by receiver.
(ii) A receiver can dispose of an asset situated within Sri Lanka held in the receiver’s capacity
as receiver, without the prior permission of the Commissioner-General.
(iii) A receiver is required to notify the Commissioner-General of the receiver’s appointment
within 21 days after being appointed.
(iv) Receiver is not entitled for personal relief of Rs. 500,000 for each year of assessment.
A. (i) , (iii) and (iv) only
B. (i), (ii) and (iii) only
C. (i) and (iv) only
D. (ii) and (iii) only

50 CA Sri Lanka
 Read the information given below and answer for the questions 12 to 13.
12. Suneth Trust is a trust set up by Mrs. Mathew with the objective of providing assistance to
women entrepreneurs in rural areas. At the inception she transferred her properties to the trust
and income generated from those properties are used for trust's work. Summarized income
statement for the year ended 31.03.2019 is given below.
Rent income 13,640,000
Sale of agricultural produce (coconut, cinnamon) 3,235,000
Net Interest on fixed deposits where WHT is deducted 631,750
Commission received from sale of books 86,500
17,593,250
Less: Donations to needy women (10,000,000)
Donation to Ministry of Women and Child Affairs (500,000)
Administrative Expenses (no disallowable items for tax
(675,000)
purposes)
Trustee's Fees (240,000)
expenses incurred on harvesting (245,000)
Income over expenditure 5,933,250
Taxable income of Suneth Trust for the Y/A 2018/19 would be;
A. Rs. 3,443,250
B. Rs. 5,966,500
C. Rs. 5,933,250
D. Rs. 2,943,250
13. Tax liability of Suneth Trust for the Y/A 2018/19 would be;

A. Rs. 824,110
B. Rs. 826,380
C. Rs.1,423,980
D. Rs. 1,431,960

14. Following information are given for your review. Select the correct statement/s with regard to
the taxation of a trust

(i) A beneficiary will be liable to tax on his share of the gains on realisation of an investment
asset at 10%.
(ii) In computing the tax liability of a beneficiary, the tax free allowance of Rs.500,000
is claimable.
(iii) A beneficiary will be assessed to tax on his share of trusts income at the rate of 24%.
A. all of above
B. (i) and (ii) only
C. (i) and (iii) only
D. (ii) only

CA Sri Lanka 51
15. Late Mr Jayasinghe has established a trust for the benefit of his two daughters, Amitha and
Pamitha. The trust is managed by Mr. Weeraman, with a fee of Rs. 45,000 per month. Under
the trust deed, the trust’s assets comprise three residential Apartments which are rented out for
a monthly rent of Rs. 120,000 each.
Each daughter has the right to demand payment of Rs. 1 million of rental income per annum.
During the year, expenses incurred on above properties amounted to Rs. 162,000.
Which of the following states correct taxable income of Amitha, Pamitha and the trust.
Amitha Pamitha Trust

A 875,000 875,000 2,030,000

B 962,500 962,500 2,233,000

C 837,500 837,500 1,943,000

D 1,000,000 1,000,000 2,320,000

52 CA Sri Lanka
ANSWERS

1.C. (iii) Only

2.C. (i) and (ii) Only
3. C. Charitable institutions are not entitled to deduct qualifying payments
4. B. Rs. 47,334
5. D. b only
6. A. Rs. 134,000
7.A.Rs. 24,683,500
8.B. Rs. 1,974,680
9. B.When the partnership incurs a loss, such loss will be allocated to the partners in their
profit sharing ratio.
10. D. none of the above
11. C.(i) and (iv) only
12.B. Rs. 5,966,500
13.D. Rs. 1,431,960
14.(ii) only
15.C. Amitha Pamitha Trust
837,500 837,500 1,943,000

CA Sri Lanka 53