Salient features of the Inland

Revenue (Amendment) Act of

2022 (pending certification
by Speaker)

Issued on
09 December 2022
01 Personal Income Tax

Relief (Applicable for Resident Individuals and Non Resident Citizens)

Proposed

Type of Relief Prevailing From 01/04/22 - From 01/01/23 - From 1/04/23

31/12/22 31/03/23 onwards
(First nine (balance three
months of Y/A months of Y/A
2022/23) 2022/23)

Personal Relief LKR 3 Mn LKR 2.25 Mn LKR 300k LKR 1.2Mn for
for each Y/A each Y/A

Expenditure LKR 1.2Mn LKR 900k Not Applicable Not Applicable

Relief

“Y/A” = Year of Assessment

“k” = in thousands
“Mn” = Million

Rates (Applicable for residents and non – residents)

Proposed Rates on Taxable Income

Prevailing Rates From 01/04/22 - From 01/01/23 - From 1/04/23

on Taxable 31/12/22 31/03/23 onwards
Income (first nine (balance three
months of Y/A months of Y/A
2022/23) 2022/23)

First 3Mn - 6% First 2.25Mn - 6% First 125k - 6% First 500k - 6%

Next 3 Mn - 12% Next 2.25Mn-12% Next 125k - 12% Next 500k - 12%
Balance - 18% Balance - 18% Next 125k - 18% Next 500k - 18%
Next 125k - 24% Next 500k - 24%
Next 125k - 30% Next 500k - 30%
Balance - 36% Balance - 36%

“Y/A” = Year of Assessment

All amounts in LKR
“k” = in thousands
“Mn” = Million

Employment Income - APIT

An employer to deduct the Advance Personal Income Tax ("APIT") on any payment which falls under
section 5 of the IRA made to his employee, as specified by the Commissioner - General
(w.e.f. January 01, 2023)

Prevailing IRA :-

APIT is deductible if such employee -

(a) is a non-resident or non-citizen of Sri Lanka; or
(b) is a resident and citizen of Sri Lanka who gives his consent, as specified by the
Commissioner-General.
Rates - Terminal Benefits
(Applicable for residents and non – residents)

Any retirement payments received at the time of retirement by employee and has already been taxed
in a previous year of assessment shall be excluded in calculating individual’s gains and profit from an
employment.

Type of income Prevailing Rates Proposed Rates

ETF, Amounts received in Less than LKR 10Mn - 0% No change from prevailing
commutation of pension, Next LKR 10Mn - 6% rates
retiring gratuity, compensation Balance -12%
for loss of office under a
uniform scheme

“Mn” = Million

Rates - Capital gains & other specified income

Type of income Prevailing Rates Proposed Rates

Gains from realization of 10% No change from prevailing

investment assets rates
(capital gains)

Betting and gaming 40% No change from prevailing

rates

Manufacture and sale or import 40% No change from prevailing

and sale of any liquor or rates
tobacco product

Consideration received in 14% concessionary rate 14% concessionary rate will be

respect of gems and jewellery (introduced w.e.f 01.04.2021) removed w.e.f 01.01.2023 and
thus will be subject to general
PIT rates
Amounts received on the
supply of electricity to national
grid generated by using
renewable energy resources
02 Income tax rates

Companies
Proposed Rate

Gains and profits Prevailing Rate From 01/04/22- From 01/10/22- From 1/04/23
from; 30/09/22 31/03/23
(First six months (Second six
of Y/A 2022/23) months of Y/A
2022/23)

Small and
Medium
Enterprise (SME)
Export of goods
where payment is
received into SL
in FCY
Specified
undertaking 14% 14% 30% 30%

Educational
services

Undertaking for
the promotion of
tourism

Construction
services

Agro processing

Health care
services 14% 14% 30% 30%

Consideration
received in
respect of gems
and jewellery
Companies (cont.)
Proposed Rate

Gains and profits Prevailing Rate From 01/04/22- From 01/10/22- From 1/04/23
from; 30/09/22 31/03/23
(First six months (Second six
of Y/A 2022/23) months of Y/A
2022/23)

Export company
registered with
BOI from supply
of health
protective
equipment for
various
government
entities
Gains and profits
of company which
lists its shares on
or after January,
1 2021, but prior
to December 31, 14% 14% 30% 30%
2021, in the
Colombo Stock
Exchange (for 3
years)

Gains and profits

from the supply
of electricity to
national grid
generated using
renewable energy
resources

Manufacturing 18% 18% 30% 30%

Conducting
betting and 40% No change No change No change
gaming

Manufacture and
sale or import and
sale of any liquor 40% No change No change No change
or tobacco
product

Other businesses 24% 24% 30% 30%

• Dividends received from a resident company will be subject to a final withholding tax of
15% w.e.f. 01 January 2023

• An MNC that showed an increase in exports by 30% in the Y/A 2021/22, by 50% in the Y/A
2022/23 and maintains that status in the Y/A 2023/24 was entitled to a;
- 25% reduction in the income tax payable in the Y/A 2021/22 and
- 50% reduction in the Ys/A 2022/23 and 2023/24.
As per the Act, such 50% reduction will apply only for the first six months of Y/A 2022/2023
on achieving a target of 50% increase in exports for the said first six months.

• The 25% reduction (i.e. credit) on tax payable which corresponds to the proportion of the
farming produce produced by any person to the total farming produce utilized in agro
processing or manufacturing by that person will end in Y/A 22/23.
Trusts, Partnerships etc.
Proposed Rates

Type of Entity Prevailing Rates From 01/04/22- From 01/10/22- From 1/04/23
30/09/22 31/03/23
(first six months (second six
of Y/A 2022/23) months of Y/A
2022/23)

Partnership First LKR 1 Mn – 0% No change from prevailing rates

Balance – 6%

Trust 18% 18% 30% 30%

Unit trust/
mutual funds
24% 24% 30% 30%

Charitable
Institution 14% No change from prevailing rates

NGO 24% 24% 30% 30%

Employees Trust
Funds, Provident,
Pension Funds or
Gratuity Fund and 14% No change from prevailing rates
Termination
Funds

Capital Gains Tax

Proposed Rates

Type of Entity Prevailing Rates From 01/04/22- From 01/10/22- From 1/04/23
30/09/22 31/03/23
(first six months (second six
of Y/A 2022/23) months of Y/A
2022/23)

Company 10% 10% 30% 30%

Partnership 10% No change from prevailing rates

Trust 10% No change from prevailing rates

Unit trust/
10% No change from prevailing rates
mutual funds
Charitable
10% No change from prevailing rates
Institution

NGO 10% No change from prevailing rates

03 Deduction of expenses in determining
assessable income

• Expenditure or any other deduction incurred in deriving exempt / final WHT amounts not tax
deductible (w.e.f. 01 April 2021)

• Taxes or other levies specified by CGIR and any tax or levy which is not allowed to be
deducted in calculating a person’s income in terms of any other written law shall not be
deductible (w.e.f. 01 April 2021)

• Improvements (w.e.f. date on which Act is certified by the Speaker) - the

deductions of improvement with respect to a depreciable asset, where the written down
value is zero be deducted in equal amounts apportioned over -

(a) twelve years of assessment, for a Class 4 depreciable speakers;

(b) three years of assessment, for other Classes of depreciable assets

commencing from the year of assessment in which the expenditure was incurred.

• Financial cost -where there is no financial cost incurred during the year, the thin cap formular
used in the immediately preceding year of assessment maybe used in calculating the unused
limitation. (w.e.f. 01 April 2021)

• Additional 100% deduction on Marketing and Communication expenses commencing from

01 April, 2021 has reduced to two years from three years and will end in the Y/A 23/24.

• Amendment to the definition for “directives made by the Central Bank of Sri Lanka” for bad
debt claims in banking business ( w.e.f. 01 April 2022)

Prevailing
Where a person conducting a banking business makes specific provision for a debt claim in
accordance with the relevant directives made by the Central Bank of Sri Lanka, the
Commissioner-General may specify the extent to which that provision shall be deductible.
(Gazette No. 2064/57 dated 01.04.2018 has been issued)

With reference to the Banking Act, No. 30 of 1988, the Definition for “directives made by the
Central Bank of Sri Lanka” only covers any directives issued to make specific provisions relating to
bad and doubtful debts.

Proposed
Definition for “directives made by the Central Bank of Sri Lanka” to be broadened to include any
directives issued for classification, recognition and measurement of credit facilities under the powers
conferred by, section 46(1), section 46A and section 76J(1) of the Banking Act, No. 30 of 1988.

• Losses (w.e.f. 01 April 2018)

o Losses incurred against businesses liable at reduced rates maybe set off against loss
incurred against businesses with subsequently increased tax rates.
o Unrelieved losses from an investment shall be deducted only within the six years of
assessment commencing on the first date of the year of assessment immediately
succeeding the year of assessment in which such losses were incurred
o a gain from the realisation of an investment asset shall not be reduced by any loss
04 Advance Income Tax (“AIT”) and Withholding
Tax (“WHT”) (Mandatory deduction)

AIT - Section 84A

(w.e.f. 01 January 2023)

Payment type Proposed rates

Rent payments made to a resident person where the 0%

aggregate payment < LKR 100k per month

Rent payments made to a resident person where the 10% on the full amount
aggregate payment ≥ LKR 100k per month Not a final tax for residents

Interest or discount paid 5%

Not a final tax for residents

Dividends paid by a resident company 15%

Final Withholding payment

Other specified payments under section 84A 14%

(Natural resource payment, royalty or premium) Not a final tax for residents

Prevailing
A taxpayer who is resident in Sri Lanka may make a request to the withholding agent to deduct AIT
from the payment of dividend, interest, discount, charge, natural resource payment, rent, royalty,
premium or similar periodic payment having a source in Sri Lanka.

Any interest paid to a non-resident person who is a citizen of Sri Lanka is not treated as final
withholding payment if such interest income is less than the amount of the personal relief or after
aggregating other source of income to such interest income and if such aggregated amount is less
than the amount of the personal relief.

WHT - Section 85
(w.e.f. 01 January 2023)

Payment type Proposed rates*

Service fee payment to a non-resident person 14%

Service fee payment exceeding LKR 100k per month to a
resident individual who is not an employee of the payer –
(a) for teaching, lecturing, examining, invigilating or
supervising an examination;
(b) as a commission or brokerage to a resident insurance,
sales or canvassing agent; or 5%
(c) for services provided by such individual in the capacity
of independent service provider such as doctor,
engineer, accountant, lawyer, software developer,
researcher, academic or any individual service
provider as may be prescribed by regulation

Insurance premium payment to a non-resident person 14%

Prevailing
WHT on service fee payments and Insurance premium payments to a non-resident person is liable
to WHT however WHT is not deductible on payment of Service fees to a resident person.

• Payments made to a non-resident person who is not a citizen of Sri Lanka or to a non-resident
entity that is subject to withholding, other than payments derived through a Sri Lankan
Permanent Establishment will be a final withholding payment. Others - Not a final withholding
payment.

• Payments having a source in Sri Lanka to include payments made by an institute on behalf of
the government of Sri Lanka (w.e.f. 01 April 2018)
05 Realisation of assets

Transfer of assets to an associate or for no consideration

(w.e.f. 01 April 2021)
The person shall be treated as deriving an amount in respect of the realization equal to the net
cost of the asset immediately before the realization if the following conditions are satisfied.
(Item (iii) is a new condition brought in with retrospective effect)

on or after April 1, 2021

(i) the person and the associates are residents;
(ii) in the case of an associate partnership, any of its partners, or the associate, is not
exempt from income tax; and
(iii) the tax rate appliable on the person’s gain from the realization on transfer
(to associate) of an asset being trading stock, a depreciable asset, an investment
asset or a capital asset of a business, is equal or less than the tax rate which is
applicable on the gain of the associate from realisation of such asset

06 Partnership Income or Loss

Partnership income of a partnership for a year of assessment shall be the partnership’s income
from its business, investment or other income for that year of assessment. Previously only business
income or investment income was considered as partnership income. (w.e.f. 01 April 2018)

07 Second Schedule – Investment Incentives

• A three-year project implementation period, commencing from the first date of investment
on a depreciable asset, shall be provided to a person who has not made his intended total
investment in order to qualify for enhanced capital allowances.

At present there is no time limit for reaching the investment amount specified in the schedule.

• The Act specifies that enhanced capital allowances under second schedule can be deducted
only in the year of assessment in which the investor has completed the total intended
investment. However such claim should be made before the expiration of the “project
implementation period” referred to above.

At present enhanced capital allowances are claimed as and when the investment made.

Further, as per the proposed amendment, if the investor does not make the full investment
before the expiration of the “project implementation period” he will lose the entirety of the
enhanced capital allowances claim.
08 Third Schedule – Exempt Amounts

New Exemptions – Gains made by Government entities

A gain from the realisation of a capital asset or liability of the business or an investment asset will be
exempt, subject to the following conditions;
1) The gain should be made by an entity fully owned by the Government of Sri Lanka.
2) The gain was made due to a decision by the Government of Sri Lanka as being
essential for the economic development of Sri Lanka.
3) The realisation should subject to the prior written approval of the Minister.

Removal of Exemptions from 01st October 2022

• Dividends paid by a resident company to a member who is a non-resident person.

Dividends paid by a resident company which is engaged in any one or more of the following
business provided in PART IV of the Finance Act No. 12 of 2012 and which has entered into
an agreement with the BOI continues to be exempt :-
(ia) entrepot trade involving import, minor processing and re-export;
(ib) offshore business where goods can be procured from one country or manufactured in
one country and shipped to another country without bringing the same into Sri Lanka;
(ic) providing front-end services to clients abroad;
(id) headquarters operations of leading buyers for management of financial supply chain
and billing operations;
(ie) logistics services including bonded warehouse or multi-country consolidation in
Sri Lanka

• A gain made from the realisation of land or building which was sold, exchanged, or transferred
to a real estate investment trust listed in the Colombo Stock Exchange.

• Dividends and gains on the realization of Sri Lanka Real Estate Investment Trust units or gains
from the realization of capital assets of a business or investment by a unit holder.

Removal of Exemptions from 01st April 2023

Gains and profits from/ derived by;
• Providing information technology and enabled services
• Business of export of gold, gem & jewelry or the business of cutting and polishing of gems
which are brought to Sri Lanka for export.
• Any Vocational Education Institution meeting certain intake conditions (5 years). Further, any
such institution which already enjoyed such exemption is required to limit it for two years.
• A new undertaking for sale of recycled construction materials (10 years)
• An individual from a business commenced upon successful completion of vocational
education (5 years)
• Manufacture of boats and ships by a resident in Sri Lanka (7 years)
• Any renewable than one hundred Mega Watts of solar or wind power and supplied such
power to the national grid (7 years)
• Construction and installation of communication towers and related appliances using local
labour and local raw materials in Sri Lanka or provision required technical services for such
construction or installation ( 5 years)
• Letting bonded warehouses or warehouses related to the offshore business in the Colombo
and Hambanthota Ports

NB - The income tax exemption on -

• any service rendered in or outside Sri Lanka to any person to be utilized outside
Sri Lanka, where the payment for such services is received in foreign currency and
remitted through a bank to Sri Lanka
• any foreign source where such gains and profits are earned or derived in foreign
currency and remitted through a bank to Sri Lanka
will continue to be exempt together with other income tax exemptions that were not specifically
withdrawn by this Act.

Amendments to pass through dividend exemption

• From 01st October 2022, as a result of the reintroduction of Withholding Tax/ Advance
Income Tax, dividends declared from dividends received from another resident company
will be exempt only if Advance Income Tax has been deducted from such dividends received.
09 Fifth Schedule – Qualifying Payments

With effect from April 1, 2021, expenditure incurred by any financial institution by way of cost of
acquisition or merger of any other financial institution was allowed as a qualifying payment
apportioned in equal amounts over a period of three years.

The Act expands this provision to include expenditure incurred on partial acquisitions and
absorption of business. Further the Act specifies that the expenditure claim will apply only for
acquisition of banks, finance companies and finance leasing companies.

10 Administrative provisions of relevance

Amendment to a self - assessment return

An application for making an amendment to a self-assessment return shall be filed with the
Commissioner-General;

• for any Y/A ending prior to 01 April 2022 - within 30 months of the date that the
self-assessment taxpayer filed the self-assessment return to which the self-assessment
relates
• for any Y/A commencing on or after 01 April 2022 - within 12 months from the date on which
the self-assessment return was filed

Administrative Review
• The provisions relating to administrative review will remain as follows:-
o A request for administrative review shall be made to the Commissioner - General in
writing - within 30 days
o The receipt of every request for an administrative review shall be acknowledged -
within 30 days

• The rate of interest for any payment due and payable during the period from 01 March 2020
to 30 September 2020 would be zero percent, only if such payment has been made to the
Commissioner-General prior to 01 October 2022

Calculation of income tax payable

• The income tax payable by a person other than an individual for the year of assessment
commencing on 01 April 2022, shall be calculated separately for two periods of the year of
assessment as first six months and second six months on a pro-rata basis.

• The income tax payable by an individual for the year of assessment commencing on
01 April 2022, shall be calculated separately for two periods of the year of assessment as
first nine months and second three months on a pro-rata basis. (i.e. 75:25)

• Revised statement of Estimated Tax Payable is required to be submitted by the tax payers.

• A person is required to maintain separate accounts if he has business or investment activity

and the income tax payable at different rates or enjoy any exemption. However, by this
amendment if such person has commonly incurred expenses or commonly used any assets,
on all business or investment activities and any expense or deduction cannot be separately
identified, it will be lawful to divide such expenses or deductions on a proportionate basis
(according to the proportion of turnover or proportion of asset usage) in preparing the
financial statements for the purpose of section 120 of the IRA.

Return of income
• Exclusion of employees who have paid APIT from submitting return of income
(w.e.f. 01 April 2022)

A return of income for a Y/A will not be required to be filed by an individual whose tax
payable for the Y/A relates exclusively to income from employment where the employer
has deducted APIT under section 83A and no tax will be payable under self assessment.

A person may elect to file the return even if APIT has been deducted by the employer.

Assessments
Notice of assessment for default assessment, advance assessment or amended /additional
assessment could now be issued in electronic form.
Lets Talk

Sujeewa Mudalige
Chief Executive Officer / Managing Partner
T: +94 11 7719838 ext: 5001
E: sujeewa.mudalige@pwc.com

Charmaine Tillekeratne
Partner and Tax Leader, Tax Services
T: +94 11 771 9700 ext. 4201
E: charmaine.tillekeratne@pwc.com

Rishini Manatunga
Partner - Tax Services
T: +94 11 771 9700 ext. 4701
E: rishini.manatunga@pwc.com

Tharanga Amarasena
Director - Tax Services
T: +94 11 771 9700 ext. 4401
E: tharanga.amarasena@pwc.com

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