Sri Lankan Tax Reforms Effective

by Lorys Charalambous, Tax-News.com, Cyprus

01 January 2016

Numerous changes to Sri Lanka's value-added tax (VAT) and National Building Tax (NBT) regimes took effect on January 1.

In the area of VAT, the VAT registration threshold was cut from LKR15m to LKR12m (USD83,000). In addition, the single 11 percent rate of VAT was replaced with three rates: a zero rate now applies to exported goods and the provision of services for consideration in foreign currency outside of Sri Lanka; a 12.5 percent rate applies to supplies of services; and an eight percent rate applies to supplies of goods.

Wholesale and retail supplies of goods are now exempt, with several restrictions. The following entities will be precluded from obtaining the exemption: manufacturers; importers; a supplier who makes supplies under a tender agreement; and a supplier who is unable to satisfy the Commissioner General as to the source from which the goods supplied by him were acquired.

Exemptions were removed for imports or supplies of telecoms equipment or machinery; and for high-tech equipment, including copper cables, for the telecoms industry.

The Department of Inland Revenue has also released guidance on tax compliance changes required of registered persons as a result of the implementation of the Revenue Administration Management Information System.

The following changes to the Nation Building Tax took effect from January 1:

• The threshold for companies to be exempt from the NBT was reduced to those with a turnover of less than LKR3m per quarter;
• The rate was revised to four percent, including NBT payable on financial services;
• Its scope was expanded to cover telecommunications services, supplies of electricity other than to the national grid, and supplies of lubricants; and
• Exemptions were added for imported garments or footwear, providing certain conditions are fulfiled.

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