Act of Parliament · As enacted
Inland Revenue (Amendment) Act 2021
Official English translation. The Sinhala text prevails.
Official translationFrom Department of Government Printing, unchanged
This Act may be cited as the Inland Revenue
(Amendment) Act, No. 10 of 2021.
The provisions of this Act (other than the provisions of sections referred to in Table ‘A’ and Table ‘B’ set out in this Amendment Act) shall commence on the date on which the certificate of the Speaker is endorsed thereon.
The provisions of sections referred to in Table ‘A’ set out in this Amendment Act shall be deemed to have come into operation on April 1, 2021.
The provisions of sections referred to in Table ‘B’ set out in this Amendment Act shall be deemed to have come into operation on the respective dates specified in that Table.
s 2Amendment of section 5 of Act, No. 24 of 2017
Section 5 of the Inland Revenue Act, No. 24 of 2017
(hereinafter referred to as the “principal enactment”) is hereby amended in subsection (3) of that section as follows: -
in paragraph (c) of that subsection, by the substitution for the words “on equal terms;” of the words “in the same grade of the service, on equal terms;”;
in paragraph (f) of that subsection, by the substitution for the words “provident or savings fund or savings society” of the words “provident, gratuity or savings fund or savings society”.
Act, No. 10 of 2021
s 3Amendment of section 6 of the principal enactment
Section 6 of the principal enactment is hereby amended in paragraph (d) of subsection (2) of that section, by the substitution for the words “the Second or Fourth
Schedule to this Act”, of the words “the Fourth Schedule to this Act”.
s 4Amendment of section 9 of the principal enactment
Section 9 of the principal enactment is hereby amended in subsection (3) of that section, by the substitution for the words “commencement of this Act.” of the words and figures, “commencement of this Act or for any projects approved under the Strategic Development Projects Act,
No. 14 of 2008.”.
s 5Amendment of section 10 of the principal enactment
Section 10 of the principal enactment is hereby amended in subparagraph (v) of paragraph (b) of subsection (1) of that section, by the substitution for the words
“provident or savings fund” of the words “provident, gratuity or savings fund”.
s 6Amendment of section 11 of the principal enactment
Section 11 of the principal enactment is hereby amended by the addition immediately after subsection (3)
of that section, of the following new subsection: -
“(4) For the purpose of this section, cost of funds of the financial institution incurred on the loans provided for new businesses commenced on or after
April 1, 2021 by any individual after successful completion of vocational education from any
Vocational Education Institution which is standardized under Technical and Vocational Education and
Training concept (TVET concept) and regulated by the Tertiary and Vocational Education Commission, shall be deemed to be incurred in the production of income of such financial institution.”.
s 7Amendment of section 14 of the principal enactment
Section 14 of the principal enactment is hereby amended as follows: -
in subsection (2) of that section-Act, No. 10 of 2021
by the substitution for the words and the figure “The deductions referred to in subsection (1) granted for a year of assessment”, of the words and figures “The deductions of improvements referred to in subsection (1) granted for any year of assessment commencing from April 1, 2021”;
and
in subparagraph (i) of paragraph (a) of that subsection, by the substitution for the words
“in the case of repair or improvement to”, of the words “in the case of improvement to”;
in subsection (3) of that section, by the substitution for the words and figure “(paragraph (3) of the
Fourth Schedule)”, of the words and figure
“(paragraph 3 of the Fourth Schedule)”;
by the addition immediately after subsection (3) of that section, of the following new subsection: -
“(4) In this section, “improvement” means the expenditure incurred by a person to make additions or alterations to a depreciable asset which enhances the value of such asset, but excludes the expenditure incurred to maintain or repair a depreciable asset which temporarily enhances the value of such asset.”.
s 8Insertion of new section 15A in the principal enactment
The following new section is hereby inserted immediately after section 15 of the principal enactment, and shall have effect as section 15A of that enactment: -
15A. (1) For any year of assessment commencing on or after April 1, 2021, in calculating a person’s income from a business, marketing and communication expenses incurred by such person in the production of
“Marketing and communication expenses
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income during the year of assessment shall be deducted irrespective of whether they are of a capital nature or not.
In this section, “marketing and communication expenses” means, any expenses incurred by any person in-
carrying out a market research by such person or any institution in Sri
Lanka on his behalf;
the development or production of marketing, advertising and communication campaign to the extent that such development or production is carried out in Sri
Lanka;
advertising on mainstream media or social media including television, radio, print or as outdoor advertising;
product launches or campaign activation carried out by such person or by any local institution on his behalf;
development and printing of point-of-sale material by such person or by any local institution on his behalf.”.
s 9Amendment of section 16 of the principal enactment
Section 16 of the principal enactment is hereby amended as follows: -
in paragraph (b) of subsection (2) of that section, by the substitution for the words “the Second or
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Fourth Schedule to this Act.” of the words “the
Second, Fourth or Sixth Schedule to this Act.”;
in paragraph (b) of subsection (4) of that section, by the substitution for the words “the Second or
Fourth Schedule to this Act.” of the words “the
Fourth Schedule to this Act.”.
s 10Amendment of section 18 of the principal enactment
Section 18 of the principal enactment is hereby amended by the repeal of subsection (1) and subsection (2)
of that section, and the substitution therefor of the following subsections: -
“(1) The amount of financial costs deducted in calculating the income of a company (other than a financial institution) which is incorporated in or outside Sri Lanka and having an issued share capital as at the date on which the year of assessment ends, from conducting a business or investment for a year of assessment commencing from April l, 2021, shall not exceed the limit referred to in subsection (2).
The limit shall be computed according to the following formula: -
A
--
X
C
B
Where:
‘A’ = financial cost of the year;
‘B’ = value of financial instruments on which the financial cost incurred during the year; and
‘C’= 4 x total of the issued share capital and reserves of the company as at the end of the year.”.
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s 11Amendment of section 19 of the principal enactment
Section 19 of the principal enactment is hereby amended in subsection (3) of that section, by the substitution for the words “in calculating exempt amounts.”, of the following: -
“in calculating exempt amounts.
For the purpose of this subsection, where any company has an unrelieved loss from business to deduct in the current year of assessment from a period during which that company had operated as a small and medium enterprise and, if-
the unrelieved loss was a profit in the year of assessment in which that unrelieved loss was incurred and which would have been taxed at a reduced rate; and
the current year business income is not taxable at the same reduced rate as in the year referred to in the paragraph (a), that unrelieved loss shall, (subject to paragraph (b) of subsection (1)), be deemed to be a loss (if it would have been a taxable profit) taxed at the same rate of the current year.”.
s 12Amendment of section 20 of the principal enactment
Section 20 of the principal enactment is hereby amended as follows: -
by the repeal of subsection (2) of that section, and the substitution therefor, of the following subsection: -
“(2) Where a trust or company is unable to submit the accounts for the period of twelve months of the year of assessment as provided in subsection (1), such trust or company may apply to the Commissioner-General requesting that the accounts based on an alternative period of twelve months be used to compute the income tax payable for a given
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year of assessment. The Commissioner-General may approve such request on such terms and conditions as he thinks fit. The
Commissioner-General may revoke such approval if the trust or company fails to comply with terms and conditions attached to the approval.”.
in subsection (3) of that section, by the substitution for the words “A change in a trust or company’s year of assessment shall”, of the words and the figure
“A change approved under subsection (2) shall not”;
by the substitution for the marginal note of that section, of the following marginal note: -
“Year of assessment”.
s 13Amendment of section 36 of the principal enactment
Section 36 of the principal enactment is hereby amended by the addition immediately after subsection (4)
of that section, of the following new subsection: -
“(5) Where, in any year of assessment commencing from April 1, 2021, an asset owned by a person is used in the production of different gains and profits from business (including losses) taxable at different tax rates, the cost of, and consideration received for the asset shall be apportioned among such gains and profits, according to the market value of the parts of the assets used to produce respective gains and profits.”.
s 14Amendment of section 38 of the principal enactment
Section 38 of the principal enactment is hereby amended by the insertion immediately after subsection (1)
of that section, of the following new subsection: -
“(1A) Notwithstanding anything to the contrary in subsection (1), the consideration received for the realisation of an investment asset of a person shall be the amount received or receivable by the person in
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respect of such asset or the assessed value at the time of realisation, whichever is higher:
Provided, however, a tax official may determine the consideration received for an asset in terms of subsection (1), if such tax official is of the opinion that the assessed value is not indicative of the market value of such asset.
For the purpose of this subsection, “assessed value”
means the value at the time of the realisation, certified by a professionally qualified valuer in a valuation report.”.
s 15Amendment of section 53 of the principal enactment
Section 53 of the principal enactment is hereby amended as follows: -
in subsection (1) of that section, by the substitution for the words “a partnership”, of the words and figures “prior to January 1, 2020, a partnership”;
by the insertion immediately after subsection (1) of that section, of the following new subsection: -
“(1A) Every partnership shall be liable to pay income tax with effect from January 1, 2020 at the rate provided for in paragraph 2 of the First Schedule to this Act, separately from its partners.”;
in subsection (9) of that section, by the substitution for the words “The precedent partner”, of the words and figures “Prior to January 1, 2020, the precedent partner”;
by the addition immediately after subsection (9) of that section, of the following new subsection: -
“(10) Each partner in a partnership shall be responsible for performing any duty or obligation
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imposed by this Act on the partnership in relation to its income tax payable.”.
s 16Amendment of section 55 of the principal enactment
Section 55 of the principal enactment is hereby amended in subsection (4) of that section, by the substitution for the words “as paid by them.” of the words “as paid by them without any right to a refund (but with a right to carry forward to the next succeeding year to deduct as a tax credit in that year) of any excess of such share of tax attributable to such partner.”.
s 17Amendment of section 60 of the principal enactment
Section 60 of the principal enactment is hereby amended in subsection (2) of that section, by the substitution for the words “a single company business.”, of the words “a single company business, unless different tax rates are applicable to the different activities and sources of income, in which case each such different activity and source shall be treated as distinct businesses and sources.”.
s 18Amendment of section 62 of the principal enactment
Section 62 of the principal enactment is hereby amended in subsection (2) of that section, by the substitution for the words “making such remittances.” of the following: -
“making such remittances:
Provided however, if a non-resident person retained the total income earned in any year of assessment commencing on or after April 1, 2021
in Sri Lanka for a minimum period of three years commencing from the first day of the immediately succeeding year of assessment in which the income is earned and invested the same in Sri Lanka to expand its business or to acquire shares or securities from the Colombo Stock Exchange licensed by the
Securities and Exchange Commission of Sri Lanka or to acquire any treasury bill, treasury bond or Sri
Lanka International Sovereign Bond issued on behalf of the Government of Sri Lanka, the tax rate on remittances of such retained income invested shall be zero percent.”.
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s 19Amendment of section 66 of the principal enactment
Section 66 of the principal enactment is hereby amended as follows: -
in subsection (2) of that section, by the substitution for the words “are complied with.”, of the following:-
“are complied with:
Provided that, where the previously allowed specific provision for a debt claim as a deduction has been reversed, reduced or paid during the year in full or part, the amount so reversed, reduced or paid shall be included in calculating such person’s income.”;
by the repeal of subsection (3) of that section and the substitution therefor, of the following subsection: -
“(3) A person conducting a banking business shall, in addition to the records, accounts or any other document required to be prepared as referred to in any other provision of this Act, prepare and retain the records in respect of specific provision for a debt claim, in such form as may be specified by the Commissioner-General.”;
by the addition immediately after subsection (3) of that section, of the following new subsection: -
“(4) In this section-
“banking business” means the banking business of a financial institution;
“debt claim” does not include the right to receive a payment on deposits, debentures, stocks, treasury bills,
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promissory notes, bills of exchange and bonds;
“directives made by the Central Bank of Sri Lanka” means any directives issued to make specific provisions relating to bad and doubtful debts under subsection (1) of section 76J of the Banking Act, No. 30 of 1988 or under subsection (1) of section 12 of the Finance Business Act, No. 42 of 2011 or under subsection (1) of section 9 of the Finance Companies Act, No.
78 of 1988 by the Central Bank of Sri
Lanka and applicable to the relevant year of assessment, but excludes any directives issued in relation to the adaptation of Sri Lanka Accounting
Standards.”.
s 20Amendment of section 68 of the principal enactment
Section 68 of the principal enactment is hereby amended in subsection (1) of that section, by the substitution for the words “additional tax of three percent on amounts”
of the words “additional tax on three percent of amounts”.
s 21Amendment of section 70 of the principal enactment
Section 70 of the principal enactment is hereby amended in subsection (1) of that section, by the substitution for the words and figures “paragraph (c) of subsection (1) of section 69,” of the words and figures “paragraph (b) of subsection (1) of section 69,”.
s 22Amendment of section 75 of the principal enactment
Section 75 of the principal enactment is hereby amended as follows: -
by the repeal of subsection (1) of that section and the substitution therefor of the following subsection:-
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“(1) (a) Where Parliament by resolution approves any double taxation agreement or mutual administrative assistance agreement entered into between the Government of Sri
Lanka and the Government of any other territory, or such agreement entered into by the
Government of Sri Lanka with the Governments of any other territories, such agreement shall, notwithstanding anything in any other written law, have the force of law in Sri Lanka. Every such resolution which is so approved by
Parliament, shall be published in the Gazette.
Every agreement entered into between the
Government of Sri Lanka and the Government of any other territory and having the force of law in Sri Lanka by virtue of the provisions of section 70 of the Inland Revenue Act, No. 4 of 1963, or section 82 of the Inland Revenue Act, No. 28 of 1979, or section 92 of the Inland Revenue Act,
No. 38 of 2000, or section 97 of the Inland
Revenue Act, No. 10 of 2006 shall be deemed for all purposes to be an agreement approved by
Parliament under paragraph (a) of this subsection.”;
in subsection (5) of that section, in the definition of the expression “double taxation agreement”, by the substitution for the words “international agreement relating to the avoidance of double taxation and the prevention” of the words
“international agreement for the purpose of affording relief from double taxation in relation to income tax under Sri Lanka law and any taxes of a similar character imposed by the laws of the other territory, and the prevention”.
s 23Amendment of section 76 of the principal enactment
Section 76 of the principal enactment is hereby amended as follows: -
in subsection (2) of that section-Act, No. 10 of 2021
by the repeal of paragraph (b) of that subsection, and the substitution therefor of the following paragraph: -
“(b) “permanent establishment”, in relation to a country with which an agreement has been entered into on avoidance of double taxation means, a permanent establishment defined in an agreement for the relief of double taxation where an agreement is in force between the
Government of Sri Lanka and the
Government of any territory in which any person and their agencies, branches or establishments in Sri Lanka is resident;”;
in paragraph (c) of that subsection, by the substitution for the words “in Sri Lanka, in which case” of the words “in Sri Lanka or elsewhere, in which case”;
in subsection (3) of that section-
in paragraph (f) of that subsection, by the substitution for the words and figures “paragraph (a) or (b) of subsection (2)”, of the words and the figure “paragraph (a) or (b) of subsection (3)”;
in paragraph (g) of that subsection-
by the substitution for the words
“reduce or enhance the arm’s length price” of the words “reduce, enhance or annul the arm’s length price”;
by the repeal of items (i) and (ii) of that paragraph, and the substitution therefor, of the following items: -
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“(i)
a final order, where all the members of the Committee are in agreement; or
an interim order, where the majority of the members of the
Committee are in agreement.”;
in paragraph (j) of that subsection, by the substitution for the words “Where person or partner of a partnership has not”, of the words
“Where a person has not”;
in paragraph (l) of that subsection, by the substitution for the words “Such person or partner of a partnership who is” of the words
“Such person who is”;
in subsection (4) of that section, by the substitution for the words and figure “under subsection (2) has”, of the words and the figure “under subsection (3)
has”.
s 24Amendment of section 77 of the principal enactment
Section 77 of the principal enactment is hereby amended as follows: -
in subsection (2) of that section-
by the repeal of item (ii) of paragraph (f) of that subsection, and the substitution therefor of the following item: -
“(ii)
an interim order in any other circumstances where the majority of the members of the Committee are in agreement.”;
in paragraph (g) of that subsection, by the substitution for the words “may be to such
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person or partner of such partnership.” of the words “may be to such person.”;
in paragraph (e) of subsection (5) of that section, by the substitution for the words “where a connected transaction” of the words “where a controlled transaction”.
s 25Amendment of section 78 of the principal enactment
Section 78 of the principal enactment is hereby amended in subsection (3) of that section, by the substitution for the words “made by the Transfer Pricing Officer or
Assistant Commissioner may”, of the words “made by the
Technical Review Committee may”.
s 26Amendment of section 83 of the principal enactment
Section 83 of the principal enactment is hereby amended in subsection (1) of that section, by the substitution for the words “shall withhold tax”, of the words and figures
“shall withhold tax prior to January 1, 2020”.
s 27Insertion of new section 83A in the principal enactment
The following new section is hereby inserted immediately after section 83 of the principal enactment, and shall have effect as section 83A of that enactment: -
83A. (1) An employer shall deduct an
Advance Personal Income Tax with effect from
April 1, 2020 on any payment which falls under section 5 made to his employee, if such employee -
is a non-resident or non-citizen of Sri
Lanka; or
is a resident and citizen of Sri Lanka who gives his consent, as specified by the Commissioner-General.
The obligation of an employer to withhold tax under subsection (1) shall not be reduced or extinguished when –
“Advance
Personal
Income Tax
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the employer has a right or is under an obligation to deduct and withhold any other amount from the payment; or
any other law provides that an employee’s income from employment shall not be reduced or subject to attachment.
The provisions applicable to the withholding tax under this Act shall, mutatis mutandis, be applicable to the Advance
Personal Income Tax and every reference to the term “withholding”, “withholding tax” or
“tax payable by withholding” in any such provisions of this Act shall, subject to such modification, be deemed to be a reference to the “Advance Personal Income Tax.”.
s 28Amendment of section 84 of the principal enactment
Section 84 of the principal enactment is hereby amended in paragraph (a) of subsection (1) of that section as follows: -
in subparagraph (i) of that paragraph, by the substitution for the words “retirement payment or pays amounts as winnings from a lottery, reward, betting or gambling; or” of the following: -
“retirement payment, prior to January 1, 2020;
or”;
by the insertion immediately after subparagraph (i)
of that paragraph, of the following new subparagraph: -
“(ii)
pays amounts as winnings from a lottery, reward, betting or gambling; or;”;
by the re-numbering of subparagraph (ii) of that paragraph, as subparagraph (iii) of that paragraph;
and
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in the re-numbered subparagraph (iii) of that paragraph, by the substitution for the words “has been allocated; and”, of the words and figures “has been allocated prior to January 1, 2020; and”.
s 29Insertion of new section 84A in the principal enactment
The following new section is hereby inserted immediately after section 84 of the principal enactment, and shall have effect as section 84A of that enactment: -
84A. (1) Subject to section 83A and subsection (3) of section 84, with effect from
April 1, 2020, the taxpayer who is resident in
Sri Lanka may make a request to the withholding agent to deduct Advance Income
Tax from the payment of dividend, interest, discount, charge, natural resource payment, rent, royalty, premium or similar periodic payment that the payment or allocation has a source in Sri Lanka. On the receipt of such request, a withholding agent shall deduct advance income tax as specified by the
Commissioner-General.
The provisions applicable to the withholding tax under this Act shall, mutatis mutandis, be applicable to the Advance Income
Tax, and every reference to the term
“withholding”, “withholding tax” or “tax payable by withholding” in any such provisions of this Act shall, subject to such modification, be deemed to be a reference to the “Advance
Income Tax.”.
s 30Amendment of section 85 of the principal enactment
Section 85 of the principal enactment is hereby amended as follows: -
in subsection (1) of that section, by the substitution for the words “shall withhold tax”, of the words and figures “shall, prior to January 1, 2020, withhold tax”;
“Advance
Income Tax
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by the insertion immediately after subsection (1) of that section, of the following new subsection: -
“(1A) Subject to subsections (2) and (3), a person shall withhold tax at the rate provided for in paragraph 10 of the First Schedule to this
Act, where such person pays a dividend, interest, discount, charge, natural resource payment, rent, royalty, premium, service fee or an insurance premium with a source in Sri Lanka to a non-resident person.”; and
in the marginal note of that section, by the substitution for the words “fees and contract payments.”, of the words “fees, contract payments and payments to non-residents.”.
s 31Amendment of section 87 of the principal enactment
Section 87 of the principal enactment is hereby amended in paragraph (b) of subsection (4) of that section, by the substitution for the words “of that year”, of the words
“of the subsequent year”.
s 32Amendment of section 88 of the principal enactment
Section 88 of the principal enactment is hereby amended as follows: -
in subsection (1) of that section-
by the substitution for the words “the following shall be the final”, of the words and figures “the following shall, prior to
January 1, 2020, be the final”;
in paragraph (d) of that subsection, by the substitution for the words and figures
“paragraph (b) of subsection (2) of section 84”, of the words and figures “paragraph (b)
of subsection (3) of section 84”;
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by the insertion immediately after subsection (1) of that section, of the following new subsection: -
“(1A) For the purposes of this Act, the following shall, on or after January 1, 2020, be the final withholding payments: -
amounts paid as winnings from a lottery, reward, betting or gambling, other than amounts received in conducting a business consisting of betting and gaming;
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 under this Division, other than payments derived through a Sri Lankan Permanent
Establishment; and
interest paid to or treated as being derived by a non-resident individual who is a citizen of
Sri Lanka:
Provided however, the following interest amounts shall not be deemed as final withholding payments to such non-resident individual who is a citizen of Sri Lanka: -
such amount of interest paid and falling within the relief threshold in paragraph 2(a) of the Fifth Schedule to this Act;
or
such amount calculated by deducting the total of other sources of assessable income (total assessable income other than interest) from the relief threshold if the total of assessable income from other sources does not exceed the relief threshold.”;
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in subsection (3) of that section, by the substitution for the words and figures “paragraph (b) of subsection (2) of section 84”, of the words and figures “paragraph (b) or (d) of subsection (3) of section 84”.
s 33Amendment of section 90 of the principal enactment
Section 90 of the principal enactment is hereby amended as follows: -
in paragraph (a) of subsection (1) of that section, by the substitution for the words “a business or investment; or”, of the words “a business, investment or other income; or”;
by the repeal of subsection (2) of that section and the substitution therefor, of the following subsection: -
“(2) An instalment payer shall pay instalments of tax for the year of assessment on or before the fifteenth day respectively of August, November and
February in that year of assessment and the fifteenth day of May of the next succeeding year of assessment.”;
in subsection (3) of that section, by the substitution for the words “payment of the instalment.”, of the following: -
“payment of the instalment:
Provided however, in calculating the estimated tax payable by an instalment payer, the Advance
Personal Income Tax deducted by an employer or to be deducted by an employer for the year of assessment may be deducted prior to applying the formula given in this subsection.”;
in subsection (5) of that section, by the substitution for the words “instalment for the year.” of the following: -
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“instalment for the year. Notwithstanding anything to the contrary in section 55 (but without any right to a refund), a partner in a partnership shall be entitled to a tax credit in calculating the amount of current instalment of tax payable for such share of tax credit amount treated as being paid by the partner, but subject to the payment of the same instalment due by the partnership.”.