Act of Parliament · As enacted
Inland Revenue (Amendment) Act 2005
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s 1Short title
This Act may be cited as the Inland Revenue
(Amendment) Act, No. 8 of 2005.
s 2Amendment of section 3 of the Inland Revenue Act, No. 38 of 2000
Section 3 of the Inland Revenue Act, No. 38 of 2000
(hereinafter referred to as the “principal enactment”) as last amended by Act, No. 12 of 2004 is hereby further amended as follows :—
in paragraph (hh) of that section, by the substitution for the words “gambling ; and” of the words
“gambling ;” ; and
by the insertion, immediately after paragraph (hh)
of that section, of the following new paragraph :-
“(hhh)
in the case of a non-governmental organization, any sum received by such organization by way of grants, donations or contributions or any other manner on or after April 1, 2005 ; and”.
s 3Amendment of section 4 of the principal enactment
Section 4 of the principal enactment as amended by
Act, No. 37 of 2003, is hereby further amended in subsection (1) of that section as follows :—
in the proviso to paragraph (d) of subsection (1) of that section, by the substitution for all the words from “Provided that”, to the end of that proviso, and the substitution therefor of the following :—
“Provided that,
on or before March 31, 2005, any excess of the rental value over one hundred and twenty thousand rupees, where the aggregate of the profits referred to in paragraph (a), does not exceed one hundred and fifty thousand rupees ; and
for any year of assessment commencing on or after April 1, 2005, any excess of the rental value over one hundred and eighty thousand rupees, where the aggregate of the profits referred to in paragraph (a), exceeds one hundred and fifty thousand rupees, shall be disregarded ; and” ;
in paragraph (e) of that subsection in the paragraph immediately after the first proviso to that paragraph, by the substitution for the words “profits from the sole taxable income”, of the words “profits form the sole taxable income.” ;
s 4Amendment of section 8 of the principal enactment
Section 8 of the principal enactment as last amended by Act, No. 12 of 2004, is hereby further amended in paragraph (a) of that section as follows :-
in sub-paragraph (LXXVII) of that paragraph, by the substitution for the words and figures “Act, No.
21 of 2000 :”, of the words and figures “Act, No. 21
of 2000;” ; and
by the addition, immediately after sub-paragraph
of that paragraph, of the following new paragraph :—
“(LXXVIII) The Nordic Investment Bank:”.
s 5Amendment to section 9 of the principal enactment
Section 9 of the principal enactment as last amended by Act, No. 37 of 2003, is hereby further amended in subsection (1) of that section, as follows :—
in paragraph (b) of that subsection, by the substitution for the words “the official emoluments paid to-” of the words and figures “the official emoluments for any year of assessment commencing on or before April 1, 2005, paid to-” ;
by the insertion, immediately after paragraph (b), of that subsection, of the following new paragraph :-
“(bb)
one half of the official emoluments for any year of assessment commencing on or after
April 1, 2005, paid to —
any individual who holds any paid office under the Republic, out of the
Consolidated Fund ;
any employee of any public corporation, being a public corporation which pays such emoluments or such pension or such profits, from emoluments wholly or partly out of the sums voted annually by Parliament to such corporation from the
Consolidated Fund ;
the Governor of any Province appointed under the Article 154B of the Constitution ;
any member of any Provincial Council ;
any employee of any Provincial
Council or to any officer of any
Provincial Public Service ;
any member of any local authority ;
any employee of any local authority ;
any employee of any University which is established or deemed to be established by the Universities Act, No.
16 of 1978 ;
any employee of the Institute of Policy
Studies of Sri Lanka, established by the
Institute of Policy Studies of Sri Lanka
Act, No. 53 of 1988 ;
a member or employee of any board or commission of inquiry established by or under any law being a board or commission, all the members of which are appointed by the President or by a
Minister, and any such pension or any profit from employment referred to in paragraph (c) of subsection (1) of section 4 as are received by any individual in respect of past services performed by such individual or by any other person whether before or after the commencement of this Act, as an individual, an employee, the Governor or a member as referred to in items (i), (ii), (iii), (iv), (v), (vi), (vii), (viii) or (ix) ;” ;
in paragraph (p) of that subsection, by the substitution for the words “any sum paid to any employee”, of the words “for any year of assessment commencing on or before April 1, 2005, any sum paid to any employee” ; and
by the insertion immediately after paragraph (p) of that subsection, of the following new paragraph :-
“(pp)
for any year of assessment commencing on or after April 1, 2005, such part of any sum paid to any employee being a sum paid as compensation for loss of any office or employment consequent to -
the voluntary retirement by such employee in accordance with a scheme, which in the opinion of the
Commissioner-General is uniformly applicable to all employees employed by such employer ; or
the retrenchment of such employee in accordance with a scheme approved by the Commissioner-General of Labour, as does not exceed two million rupees.”.
s 6Amendment of section 10 of the principal enactment
Section 10 of the principal enactment as last amended by Act, No. 12 of 2004 is hereby further amended as follows :—
in paragraph (e) of that section, by the substitution for the words “in any Commercial Bank with the approval of the Central Bank of Sri Lanka ;” of the words “in any Commercial Bank or any specialized
Bank with the approval of the Central Bank of
Sri Lanka ;” ;
by the addition, immediately after paragraph (h) of that section, of the following new paragraph :—
“(i)
such part of any interest as does not exceed one hundred thousand rupees, accruing in any year of assessment commencing on or after
April 1, 2005 to any individual who is a citizen of Sri Lanka and resident in Sri Lanka, and who is more than sixty years of age on the first day of that year of assessment, from any special deposit scheme for age on the first day of that year of assessment, from any special deposit scheme for senior citizens operated by the National Savings Bank established by the National Saving Bank Act, No. 30 of 1971, or by the Bank of Ceylon established by the
Bank of Ceylon Ordinance (Chapter 397), or the People’s Bank established by the People’s
Bank Act, No. 29 of 1971.”.
s 7Amendment of section 11 of the principal enactment
Section 11 of the principal enactment as last amended by Act, No. 12 of 2004, is hereby further amended in subsection (1) of that section by the substitution in paragraph (i) of that subsection, for the words “paid to a share holder”, of the words “paid to an unit holder”.
s 8Amendment of section 12 of the principal enactment
Section 12 of the principal enactment as amended by
Act, No. 37 of 2003, is hereby further amended by the repeal of subsection (1A) of that section and the substitution therefor of the following subsection :—
“(1A) There shall be exempt from income tax, the income accruing to the owner of any house from such house, where such house is constructed on or after April 1,
2003, for the year of assessment, in which the construction of such house was completed and for the four years of assessments immediately succeeding that year of assessment, if such house is used solely for residental purposes :
Provided that where the floor area of the house is one thousand and five hundred square feet or less the income accruing to the owner on or after April 1, 2005 shall be exempt from income tax for the year of assessment in which the construction of that house is completed and for the six years of assessment immediately succeeding that year of assessment.”.
s 9Amendment of section 15 of the principal enactment
Section 15 of the principal enactment as last amended by Act, No. 12 of 2004 is hereby further amended as follows :—
by the substitution for paragraph (i) of that section, of the following paragraph :-
“(i)
the profits and income within the meaning of paragraph (a) of section 3 arising to any person from -
the sale of gold, gems or jewellery, for any year of assessment commencing prior to April 1, 2005 ;
export of gold, gems or jewellery, for any year of assessment commencing on or after April 1, 2005;” ;
by the substitution for paragraph (vv) of that section, of the following paragraph :—
“(vv)
for the period commencing on April 1, 2004
and ending on December 1, 2004, any profits derived by or accruing to any person, other than a unit trust or a mutual fund, from the sale of any share including a right to any share or a bonus share or a warrant where such disposal has taken place two years after the acquisiton ;” ; and
by the insertion immediately after paragraph (vv) of that section, of the following new paragraph :-
“(vvv)
for the period commencing on January 1,
2005 and ending on March 31, 2005 and for any year of assessment commencing on or after April 1, 2005, any profits derived by or accruing to any person or partnership other than any unit trust or mutual fund or any venture capital company, from the sale of any share, a right to any share, a bonus share or a share warrant in respect of which the Share Transaction Levy under section 7
of the Finance Act, No 5 of 2005 has been charged, or where such disposal has taken place after two years from the date of acquisition ;”.
s 10Insertion of new section 16A in the principal enactment
The following new section is hereby inserted immediately after section 16 of the principal enactment and shall have effect as section 16A of that enactment :—
16A. Notwithstanding anything to the contrary in any other provision of this Act, the profits and income derived from outside
Sri Lanka by any individual who has been a non-resident of Sri Lanka and who arrives and stays in Sri Lanka, shall be exempt from income tax, if such individual is a citizen of both
Sri Lanka and any other country at the time of such arrival and during the whole of such stay.”.
s 11Insertion of new section 17A in the principal enactment
The following new section is hereby inserted immediately after section 17 of the principal enactment and shall have effect as section 17A of that enactment :—
17A. (1) The profits and income from any agricultural undertaking (other than any profits and income from the sale of capital assets) shall be exempt from income tax for a period of five years reckoned from the commencement of the year of assessment commencing April 1, 2005.
For the purposes of subsection (1)
“profits and income from any agricultural undertaking” means the profits and income from the cultivation of land and the sale of the produce therefrom :
“Exemption of profits and income devired from outside Sri
Lanka.
“Exemption from income tax of profits and income from agricultural undertakings.
Provided that where the produce from the cultivation of land is subject to any process of production or manufacture in the course of one undertaking, such produce shall be deemed to have been sold for production or manufacture at the open market price prevailing at the time of such sale and profits and income from cultivation of land and sale of the produce therefrom shall be deemed to be the profit and income arising from such deemed sales.”.
s 12Amendment of section 21 of the principal enactment
Section 21 of the principal enactment as amended by Act, No. 12 of 2004 is hereby further amended by the substitution for the words and figures from “the government sells any house or flat”, to the end of that section of the words and figures “the government sells on or before March 31,
2005 any house or flat, the floor area of which does not exceed two thousand square feet and the construction of which was commenced by such person on or after January 1, 1977 such sale being the first sale of that house or flat, seventy five per centum of the profits and income arising from such sale shall be exempt from income tax.”.
s 13Amendment of section 21A of the principal enactment
Section 21A of the principal enactment as last amended by Act, No. 12 of 2004 is hereby further amended in subsection (4) of that section, by the substitution in paragraph (iii) of that subsection, for the words “non-transitional products”, of the words “non-traditional products”.
s 14Amendment of section 23 of the principal enactment
Section 23 of the principal enactment as last amended by Act, No. 12 of 2004 is hereby amended as follows :—
in paragraph (bb) of subsection (1) of that section:—
by the substitution in sub-paragraph (i) of that paragraph, for the words “such equipments, as the case may be ;”, of the following words and figures :—
“such equipments, as the case may be :
Provided that in the case of software acquired on or after April 1, 2005 -
(A)
where such software is a software developed in Sri Lanka, the rate shall be one hundred per centum ; and
(B)
where such software is other than software developed in Sri Lanka the rate shall be twenty five per centum ;”;
by the substitution in sub-paragraph (vi) of that paragraph, for all the words from “any qualified building or any unit” to the words “acquisition as the case may be :” , of the following words :-
“any qualified building, any unit of a condominium property acquired which is approved by the Urban Development Authority established by the Urban Development Authority
Law, No. 41 of 1978, and constructed to be used as a commercial unit or any hotel building
(including a hotel building complex) or any industrial building (including a industrial building complex) acquired from a person who has used such buildings in any trade or business, at the rate of six and two third per centum per annum, on the cost of construction or cost of acquisition, as the case may be :” ; and
by the substitution in the proviso to that paragraph, for the words and figures “(v) of this paragraph”, of the words and figures “(v) or (vi)
of this paragraph.” ;
in the paragraph appearing immediately after sub-paragraph (id) of the proviso to paragraph (m) of subsection (1) of that section, by the substitution for the words and figures “sub-paragraphs (ia), (ib)
and (ic)”, of the words and figures “sub-paragraphs (ia), (ib), (ic) and this sub-paragraph” ; and
by the renumbering subsection (3a) of that section as subsection (3A).
s 15Amendment of section 24 of the principal enactment
Section 24 of the principal enactment is hereby amended in subsection (1) of that section, as follows :—
in paragraph (c) of that subsection :—
by the substitution in sub-paragraph (iii) of that paragraph, for the words “training referred to”, of the words and figures “prior to
March 31, 2004, training referred to” ; and
in the proviso to that paragraph, by the substitution for the words and figures “any year of assessment commencing on or after
April 1, 2002”, of the words and figures “any year of assessment commencing on or after
April 1, 2002, but prior to April 1, 2005.” ;
in paragraph (d) of that subsection :—
by the substitution for the words “subsection (1) of section 23”, of the words “subsection (1) of section 23 prior to April 1, 2005,”; and
in the proviso to that paragraph, by the substitution for the words and figures “any year of assessment commencing on or after
April 1, 2002, of the words and figures “any year of assessment commencing on or after
April 1, 2002 but prior to April 1, 2005 ;”;
in the proviso to paragraph (e) of that subsection, by the substitution for the words and figures “on or after April 1, 2002 if the expenses” of the words and figures “on or after April 1, 2002, but prior to April 1, 2005, if such expenses” ;
in paragraph (f) of that subsection, by the substitution for the words and figures “in any year of assessment commencing prior to April 1, 2002;”, of the words and figures “in any year of assessment commencing prior to April 1, 2002 and in any year of assessment commencing on or after April 1,
2005 ;” ;
in paragraph (l) of that subsection, by the insertion immediately after sub-paragraph (iv) of that paragraph, of the following new sub-paragraphs :—
“(v) any Economic Service Charge levied under
Finance Act, No. 11 of 2004 on or after April 1st, 2004 ;
any Value Added Tax on Financial Services levied under Chapter IIIA of the Value Added
Tax Act, No. 14 of 2002, (inserted by amendment Act, No. 13 of 2004) on or after
April 1, 2005 ;
any Social Responsibility Levy chargeable under the Finance Act, No. 5 of 2005 as is referred to in item (4) of the First Schedule to the said Act, levied on or after April 1,
2005 ;”; and
by the addition at the end of that subsection, of the following new paragraphs :-
“(v)
one half of such person’s cost of advertisement in connection with any trade, business, profession or vocation carried on or exercised by him in any year of assessment commencing on or after April 1, 2005, other than the cost of advertisement outside
Sri Lanka incurred solely in connection with the export trade of any articles or goods or the provision of any services for payment in foreign currency ;
any expenditure incurred in any trade or business carried on in Sri Lanka by any non-resident company, being expenditure in the nature of head office expenditure incurred in any period by reference to the profits and income of which the statutory income from such trade or business for any year of assessment commencing on or after April 1,
2005 is computed.
For the purpose of this paragraph the expression “head-office expenditure” shall have the same meaning as given in section 24A of this Act.”.
s 16Insertion of new section 24A in the principal enactment
The following new section is hereby inserted immediately after section 24 of the principal enactment and shall have effect as section 24A of that enactment :—
24A. (1) Where any non-resident company carrying on in Sri Lanka any trade or business incurs in any year of assessment commencing on or after April 1, 2005 any expenditure in the nature of head office expenditure, there shall be deducted from the profits and income of such company for such year of assessment from such trade or business, a sum equal to the lesser of -
the amount of such expenditure ; or
the amount equal to ten per centum of such profits or income.
“Deduction of head office expenses incurred by any non-resident company.
For the purpose of this section “head office expenditure” in relation to non-resident company and to any year of assessment means, the executive and general administration expenditure incurred by or on behalf of such company outside Sri Lanka, including expenditure -
comprising the aggregate of the total profits from employment of and the total cost of traveling undertaken by every employee and every other person employed in, or managing the affairs of, any office of such company outside Sri
Lanka ; and
in respect of —
any premises outside Sri Lanka ; and
such other matters connected with the executive and general administration as may be determined by the
Commissioner General having regard to all the circumstances of the case, as being reasonable and commercially justifiable .”.
s 17Amendment of section 29 of the principal enactment
Section 29 of the principal enactment as amended by Act, No. 12 of 2004, is hereby further amended as follows :—
in subsection (1A) of that section :-
by the substitution in paragraph (a) of that subsection, for the words and figures “section 122A and section 122B ; and”, of the words and figures “section 122A and section 122B;” ;
by the substitution in paragraph (b) of that subsection, for the words “through any other company,”, of the words “through any other company ; and” ; and
by the insertion immediately after paragraph (b) of that subsection, of the following new paragraph :-
“(c)
statutory income from interest arising or accruing to any individual in respect of a secondary market transaction on any Security or Treasury Bond issued under the Registered Stock and
Securities Ordinance (Chapter 420), or
Treasury Bill issued under Treasury
Bills Ordinance (Chapter 417), or
Central Bank Securities issued under the Monitory Law Act (Chapter 422)
and from the interest on which tax under section 122A has been deducted from a primary dealer,” ;
in subsection (1B) of that section, by the substitution for all the words and figures from “for the purposes of subsections (1A) and (1B)”, to the end of that paragraph, of the following words and figures :-
“for the purposes of subsection (1A) and (1B) of this section —
“interest income” means the proportionate amount of interest or discount allowed by the issuer of any security or instrument referred to in sub-paragraph (b) of subsection (1B) of this section, in proportion to the holding period of such security or other instrument by any holder over the period of maturity of such security or other instrument ;
“primary market transaction” means the purchase of any Security or Treasury Bond issued under the Registered Stock and Securities
Ordinance (Chapter 420), or Treasury Bill issued under the Local Treasury Bills
Ordinance (Chapter 417), or Central Bank
Security issued under the Monetary Law Act,
(Chapter 422) at the time of the original issue of such Security, Bill or Bond or by any primary dealer subject to any discount or payment of interest by the issuer ; and
“secondary market transaction” means the sale of a security or other instruments referred to in sub-paragraph (b) of subsection (1B) of this section or re-purchase or reverse re-purchase of such security or other instruments after the original issue of such security or holding of any such security or instrument for a period longer than one day from the date of acquisition, by any primary dealer who has acquired such security or other instruments.” ;
in subsection (2) of that section :—
by the repeal of paragraph (i) of the definition of “interest” appearing in sub-paragraph (iv)
of paragraph (aaa) of that subsection and the substitution therefor of the following paragraph :—
“(i)
for the construction or purchase of any building or for the purchase of any site for the construction of any building on or after April 1, 2004 ;” ;
in paragraph (f) of that subsection :—
by the substitution for all the words from
“of thirty five per centum of the total statutory income” to the words “and so on :”, of the following words and figures :—
“of thirty five per centum of the excess of the total statutory income for that year over the aggregate of —
statutory income from interest and dividends referred to in subsection (1A) ;
any interest income referred to in subsection (1B) ; and
any reward, a share of fine, any lottery winning and any interest on compensation payable referred to in subsection (1C), for that year and any loss which cannot be deducted may be carried forward to the next year of assessment and so on:” ;
in item (iii) of the proviso to that paragraph, by the substitution for the words “deducted from income arising ;”;
of the words “deducted from income arising subsequent to such declaration of insolvency ;” ; and
in subsection (2A) of that section, by the substitution for the words and figures “The provisions of paragraphs (b), (c), (d) and (e) of subsection (2), shall”, of the words and figures, “The provisions of paragraphs (b), (c), (d) and (e) of subsection (2), or subsection (4), or sub-paragraphs (i) and (iii) of paragraph (d) of subsection (5), or subsection (6), (7) and (8) shall”.
s 18Amendment of section 31 of the principal enactment
Section 31 of the principal enactment as, last amended by Act, No. 12 of 2004, is hereby further amended as follows :—
in the proviso to subsection (2) of that section by the substitution for the words and figurers “otherwise than in money, made on or after April 1, 2004 as in excess of two million rupees”, of the words and figures “otherwise than in money, made on or after
April 1, 2004, but prior to January 1, 2005, as in excess of two million rupees” ;
in paragraph (a) of subsection (4) of that section :—
by the substitution for sub-paragraph (i) of that paragraph, of the following sub-paragraph :—
“(i)
in respect of all qualifying payments other than those referred to in —
paragraphs (b), (c), (g), (h), (i), (j)
and (k) of subsection (2) made by him or deemed to have been made by him in any year of assessment ending on or before March 31,
2004 ; and
paragraphs (a), (b), (c), (e), (g), (h), (i), (j) and (k) of subsection (2) made by him or deemed to have been made by him in any year of assessment commencing on or after
April 1, 2004, shall not exceed one third of such assessable income or twenty five thousand rupees, whichever is less ;” ;
by the substitution in sub-paragraph (iii) of that paragraph for the words and figures
“paragraph (g) of subsection (2), made by him”, of the words and figures “paragraph (g) of subsection (2), made by him prior to March 1,
2004” ; and
by the substitution for sub-paragraph (v) of that paragraph, of the following sub paragraph :—
“(v)
in respect of the aggregate of all qualifying payments made —
on or before March 31, 2004 and referred to in paragraphs (a), (c), (d), (e) and (f) of subsection (2), shall not exceed twenty five thousand rupees ; and
on or after April 1, 2004 and referred to in paragraphs (a), (e) and (g) of subsection (2), shall not exceed seventy five thousand rupees or one-third of such assessable income,”
in subsection (6A), by the substitution for the words and figure “in paragraphs (i) or (j) of subsection (2)”, of the words and figures “in paragraph (i) of subsection(2)”. and
s 19Amendment of section 38D of the principal enactment
Section 38D of the principal enactment is hereby amended by the substitution for the words “Schedule to this
Act.” of the following words :—
“Schedule to this Act :
Provided that the provisions of this section shall not apply in relation to the sale on or after January 1, 2005 of any share, if in respect of such sale the Share Transaction
Levy under section 7 of the Finance Act, No. 5 of 2005 has been paid.”.
s 20Amendment of section 39 of the principal enactment
Section 39 of the principal enactment as amended by Act, No.37 of 2003, is hereby further amended in subsection (2) of that section, by the substitution for sub-paragraph (ii) of paragraph (a) of that subsection, of the following sub-paragraph:-
“(ii)
subject to the provisions of section 17A of this Act, cultivating land with plants of whatever description ; and ;”.
s 21Amendment of section 48A of the principal enactment
Section 48A of the principal enactment as last amended by Act No. 12 of 2004, is hereby further amended by the substitution for the words and figures “and (h) of section 11,”, of the words and figures “and (h) of subsection (1) of section 11,”
s 22Amendment of section 52A of the principal enactment
Section 52A of the principal enactment as last amended by Act, No.12 of 2004, is hereby further amended as follows :—
in subsection (1) of that section, by the substitution for the words and figures “commencing on or after April 1,
2003,” of the words and figures commencing on or after April 1, 2003 but prior to March 31, 2005,” ; and
in subsection (2) of that section, by the substitution for the words and figures “commencing on or after
April 1, 2003”, of the words and figures
“commencing on or after April 1, 2003 but prior to
March 31, 2005,”.
s 23Amendment of section 53 of the principal enactment
Section 53 of the principal enactment as last amended by Act, No. 12 of 2004, is hereby further amended in paragraph (e) of subsection (1) of that section, by the substitution for the words “under paragraph (a) of subsection (1)”, of the words “under paragraph (a) of this subsection”.
s 24Amendment of section 60 of the principal enactment
Section 60 of the principal enactment as last amended by Act, No. 12 of 2004, is hereby further amended by the substitution for the words and figures “commencing on or after April 1, 2004” of the words and figures
“commencing prior to April 1, 2002”.
s 25Amendment of section 62 of the principal enactment
Section 62 of the principal enactment is hereby amended as follows :—
in subsection (1) of that section, by the substitution for the words “Where, in the case of a company controlled by not more than five persons, the Assessor is satisfied that the company has not distributed”, of the following words :-
“Where, in the case of —
a company controlled by not more than five persons, in respect of any year of assessment commencing on or before April 1, 2005 ; or
any company in respect of any year of assessment commencing on or after
April 1, 2005, the Assessor is satisfied that the company has not distributed”, and
by the repeal of subsection (7) of that section.