BUDGET HIGHLIGHTS

2012
VI S I ON
To be the preferred Accountng and Business Advisory rm
MI S S I ON
Exceed client expectatons by providing solutons
through dedicated people
C ORE VALUES
Integrity
We have only one level of service Excellence
The power of our people
Commitment to each other
Strength from cultural diversity
Carrying out what is promised at the right tme
Innovaton and upgrading of procedures
Keep up-to-date with modern developments
Contnually growing to provide a wide sphere of services
21
st
November 2011
Dear Client
B U D G E T P R O P O S A L S 2012
This booklet includes the salient features in the budget proposals for 2012, delivered by His Excellency the President
Mahinda Rajapakse in his capacity as Minister of Finance & Planning. This has been prepared as a general guide exclu-
sively for the informaton of our clients and sta. Contents included may be subject to alteraton during the passage of
the legislaton, through the Parliament.
Since the informaton provided are proposals, no nal conclusion on any issues should be drawn without further con-
sideraton and consultaton. For additonal informaton or guidance on the issues dealt within the comments, the Tax &
Business Advisory Division of SJMS Associates, an Independent Correspondent Firm to Deloite Touche Tohmatsu will be
pleased to assist you.
This memorandum may be accessed on our website at www.sjmassociates.lk
Yours faithfully,
SJMS ASSOCIATES
Chartered Accountants
P. E. A. Jayewickreme, M. B. Ismail, Ms. A. M. J. P. E. A. Jayewickreme, M. B. Ismail, Ms. A. M. J. Patrick, T. Krishnakumar, Ms. S. L. Jayasuriya, D. Patrick, T. Krishnakumar, Ms. S. L. Jayasuriya, D. S. W. Andradi, S. W. Andradi,
G. J. David, Ms. F. M. Marikkar, Ms. M. S. J. Henr G. J. David, Ms. F. M. Marikkar, Ms. M. S. J. Henry, Ms. A. U. M. Keppetipola y, Ms. A. U. M. Keppetipola
Budget
Highlights
2012
Budget Highlights 2012
Contents
1. INCOME TAX 8- 12
2. ECONOMIC SERVICE CHARGES 12
3. NATIONS BUILDING TAX 13
4. VALUE ADDED TAX 14 - 16
5. MISCELLANEOUS 17 - 18
6. CUSTOMS DUTIES 19 - 28
7. OUR COMMENTS 29 - 30
Appendix
A Summary of Corporate Tax Rates 31 - 33
B Comparisons of Current Corporate Taxes,
Withholding Taxes, Indirect Taxes etc. 34
C Comparison of eectve tax rates
for resident individual 35
D Retring Benets 35
7
Budget Highlights 2012
8
Budget Highlights 2012
1. INCOME TAX
1.1 a. Exemptons
Proposed
A tax holiday of three years available under secton 16c of the Inland Revenue Act will be extended to new
enterprises engaged in any of the following actvites provided that an investment of not less than Rs. 50 million
is made on or before 31
st
March 2015.
Agricultural and/or agro processing
Animal husbandry and/or processing
Fisheries and/or sh processing
Informaton technology
Business/knowledge process outsourcing
Healthcare
Educaton
Beauty care
Cold room and storage
Tourism
Sports and tness centres
Creatve work including artwork
Present
Exempton from income tax for a period of three years of the prots and income of any new undertaking
engaged in or manufacturing of any artcles investng not less than Rs. 50 million.
b. Investment limit (for new enterprises)
Proposed
Small scale enterprises engaged in the following actvites investng a minimum sum of Rs. 25 million are eligible
for a 4 year tax holiday.
agriculture and/or agro processing
animal husbandry and/or processing
sheries and and/or sh processing
creatve work including artwork
Medium scale enterprises engaged in any specied actvity, to be noted in the future, will be eligible for a tax
holiday, as indicated below:

Investment Tax Holiday
Rs. 50 million - Rs. 100 million 4 years
Rs. 100 million - Rs. 200 million 5 years
Over Rs. 200 million 6 years
9
Budget Highlights 2012
Large scale enterprises engaged in specied actvites including any processing and solid waste management
will be eligible for tax holiday as follows.

Investment Tax Holiday
Rs.300 million - Rs. 500 million 6 years
Rs.500 million - Rs. 700 million 7 years
Rs.700 million - Rs. 1,000 million 8 years
Rs.1,000 million - Rs. 1,500 million 9 years
Rs.1,500 million - Rs. 2,500 million 10 years
Over Rs.2,500 million 12 years

Present
Certain industries were eligible for tax holiday not exceeding seven year with a minimum investment not
exceeding USD 3 Million.
c. Strategic Import Replacement enterprises
Proposed
The producton of the following items to replace imports by a new enterprise or by way of an expansion of an
existng enterprise with the corresponding investment will be eligible for a 5-year tax holiday followed by a
concessionary income tax rate.

Product Investment limit Concessionary Tax rate
Cement USD 50 million 12%
Steel USD 30 million 12%
Pharmaceutcals USD 10 million 12%
Fabric USD 5 million 12%
Milk Powder USD 30 million 12%
A ruling mechanism will be introduced in advance, for investors eligible for tax exemptons, to ensure consistency
in the applicaton of respectve provisions of relevant tax laws.
Present
No exemptons for import replacement actvites.
d. Tax exemptons for Insttutons
Proposed
Prots and income (other than dividends and interest) of the following will be exempt from income tax:
The Insttute of Certed Management Accountants of Sri Lanka;
The Child Protecton Authority.
Present
Presently, No such exemptons are available.
10
Budget Highlights 2012
e. Tax exemptons from specic sources
Proposed
Royalty received from outside Sri Lanka will be exempt, if remited to Sri Lanka through a bank;
Prots and income from the redempton of a unit of a Unit Trust or a Mutual Fund;
Interest accruing to any person or partnership outside Sri Lanka on a loan granted to any person or
partnership in Sri Lanka;
Prots and income from the administraton of any sports ground, stadium or sports complex;
Prots and income of a trainer of any sport, being a non-citzen individual who is brought to Sri Lanka for
that purpose.
Present
Presently, No such exemptons are available.
1.2 CONCESSIONARY RATES
a. Development actvites carried out by specied bank branches
Proposed
The prots and income of a newly set up branch of a commercial bank dedicated to development banking will
be taxed at a lower rate of 24%.
Present
The current tax rate is 28%.
b. Research and development
Proposed
The prots and income from the actvites carried out as research and development by a person other than a
company will be reduced to a maximum rate of 16%, and in the case of a company the rate will be reduced to
20%.
Present
There is no concessionary rate of tax for persons who carry out research and development actvites. The rates
applicable at present are as follows:
Company tax rate 28%.
Individuals - Progressive rate.
c. Value Added Tea
Proposed
A grower cum manufacturer or a manufacturer of tea, who establishes a joint venture with a tea exporter for
the purposes of exportng pure Sri Lankan tea (Ceylon Tea), in value added form, with a Sri Lankan brand name,
will be eligible to be taxed at the rate of 12% on the manufacturing income atributable to the quantum of tea
purchased for that purpose by the joint venture.
Present
There is no concessionary rate of tax for manufacture of value added tea. Present rate applicable to a company
is 28%.
11
Budget Highlights 2012
d. Handloom Industry
Proposed
The rate of tax applicable on the prots and income of a person or partnership from locally manufactured
handloom products will be reduced to 12% (maximum).
Present
Company tax rate 28%.
Individuals - Progressive rate.
e. Health Care Services
Proposed
The rate of tax applicable on the prots and income from the health care services will be reduced to a maximum
of 12%.
Present
Company tax rate 28%.
1.3 Ascertainment of Prots and income
The following expenses are allowed to be deducted under Secton 25:
a. Capital Allowance
Cost of any high tech plant, machinery or equipment.
b. Travelling Expenses
I. Expenses incurred by the employer in respect of vehicles used by the employee will be allowed irrespectve
of whether the benet is taxable on such employee.
This change is applicable with eect from 01.04.2011.
II. Foreign travelling expenses of a company providing the following services, will be allowed in full if the
expenditure is related to such services:
- Design development
- Product development, or
- product innovaton
c. Maintenance and management expenses incurred by any person in respect of a sports ground, stadium or
sports complex will be allowed in full.
1.4 Deducton from total statutory income (Secton 32)
Pre-commencement expenses of SME
The pre-commencement expenses of SME, with the expected turnover not exceeding Rs. 500 Million incurred
in the immediately year prior to the year in which commercial operatons commenced, will be allowed to be
deducted from its total statutory income of the year of commercial operaton.
12
Budget Highlights 2012
1.5 Qualifying payments (Secton 34)
Expansion of existng enterprises
Investment by an enterprise in its own business (expansion) of not less than Rs. 50 million made prior to 31
st
March 2015 will be treated as a qualifying payment deductble from assessable income subject to a maximum
of 25% of the investment for each year of assessment falling within a period of 4 years commencing from the
year of investment.
Expenditure incurred under any community development project carried out in most di cult villages as
idented and gazzeted by the Commissioner General.
Maximum deductble - Individual Rs. 1 Million
- Company Rs. 10 Million
1.6 Audit Certcate
Presently, all quoted public companies are required to submit audit certcates, while other companies have to
submit only if the turnover exceeds Rs. 250 Million or if the net prot exceeds Rs. 100 Million.
According to the proposal, the requirement of furnishing the audit certcate is extended to all companies
within the group, irrespectve of the turnover or prot.
1.7 Deniton of Dividends
Scrip dividends have also been included under the interpretaton of the word dividend.
2. Economic Service Charge (ESC)
2.1 Exemptons
Proposed
The turnover of following businesses are exempt from ESC :
any business of which the prots are subject to Income Tax except those incurring losses
sale of locally manufactured clay roof tles and potery products by the manufacturer
Present
Presently there are no such concessions.
2.2 Threshold
Proposed
The present threshold of Rs 25 Million per quarter has been increased to Rs 50 Million per quarter.
Present
The threshold is Rs 25 Million per quarter.
13
Budget Highlights 2012
3. NATION BUILDING TAX (NBT)
3.1 Exemptons
Proposed
Exemptons have been proposed for the following 4 categories:
The following artcles have been included under excepted artcles.
Artcle Tax Holiday
Importaton of air craf or ships 8802.11
8802.30
89.02
89.07
8802.12
8802.40
89.05
89.08
8802.20
89.01
89.06
Importaton of artcial limbs, crutches, wheel
chairs, hearing aids, accessories for such aids,
white canes for the blind, Braille typewriters and
parts ,Braille writng papers and boards
87.13
8473.10.10
90.21
8469.00.10
6602.00.10
Importaton of tmber logs 44.03
Importaton of yarn except sewing thread and
vegetable bre based yarn
50.01
50.01
50.06
51.04
51.08
52.03
53.02
54.02
55.01
55.06
55.11
50.02
50.02
51.01
51.05
51.09
52.05
53.03
54.03
55.02
55.07
56.04
50.03
50.03
51.02
51.06
51.10
52.06
53.06
54.04
55.03
55.09
56.05
50.04
50.04
51.03
51.07
52.01
53.01
53.07
54.06
55.04
55.10
56.06
Importaton of fabric 5007.10
51.12
52.10
53.10
55.13
58.01
58.09
60.03
5007.20
51.13
52.11
54.07
55.14
58.02
58.11
60.04
5007.90
52.08
52.12
54.08
55.15
58.04
60.01
60.05
51.11
52.09
53.09
55.12
55.16
58.06
60.02
60.06
Wholesale or retail sale of
Printed books ( with eect from 1
st
July 2011)
Goods to exporters
Fresh milk, green leaf, cinnamon, rubber (latex, crepe or sheet rubber) by collectors
Petrol, diesel or kerosene in a lling staton
Sale of locally manufactured clay roof tles and potery products by the manufacturer
Sale of paintngs by the creator of such paintngs
Present
The above categories are liable.
3.2 Deniton of exporter broadened
The deniton of exporter for the purpose of the NBT Act will be adjusted to also cover a manufacturer of goods
who exports produce through a Trading House established for purpose of export. (eectve from 2009)
14
Budget Highlights 2012
4. VALUE ADDED TAX (VAT)
4.1 Exemptons
(a) Import
Item HS codes
Speakers & ampliers, digital stereo processors & accessories, cinema
media players and digital readers for the improvement of lm theatres
with digital technology (the present exempton applicable to the import
of equipment for the cinema industry will be extended by additon of
the above items)
8518.29
8519.81
8518.40
8519.89
Pharmaceutcal machinery and spare parts by manufacturer of
pharmaceutcals (w.e.f. June 1, 2011)
8479.89.90
8413.81
8424.20
8481.80
Machinery for the manufacture of bio mass briquetes and pallets by
the manufacturer of such products (w.e.f. June 1, 2011)
8479.30
Green houses , poly tunnels and materials for the constructon of green
houses and poly tunnels by the growers
(b) Supply of:
(i) Locally manufactured goods :
Hydropower machinery and equipment
Products using locally procured raw materials for the required specicaton of the tourist hotels and airlines
which promote local value added products
Canned sh
Turbines
Specied products to idented State Insttuton replacing imports
Potery product by the manufacturer
(ii) Research and development services
Services by the Department of Commerce
Paintngs by the creator of such paintng
15
Budget Highlights 2012
(c) Import or the Supply of the following items
Item HS codes
Lorries and trucks 8704.10
8704.21.20
8704.23.10
8704.21.11
8704.22.10
8704.23.30
Buses 8702.10.59
Sport equipment 95.06
Machinery used for the producton of rubber and
plastc products
84.77
Wood sawn 44.07
44.09
44.08
Sunglasses 9004.10 9004.90
Perfumes 3303.00.10
Mammotes and fork 8201.30.10 8201.20
Artemia eggs and peat moss 0511.91.20 2703.00
Moulding (steel, glass, rubber and plastc) 84.80
Items and spares needed in the poultry industry 3926.90.30
8418.61.30
8418.69.30
3926.90.50
8418.61.40
Photo sensitve semi conductor devices 8541.40
The raw materials exclusively used for the manufacture of following artcles,
Item HS codes
for the manufacture of spectacles 3824.90.90
2916.32
3405.40.90
6805.30
8302.10
8466.92
2916.14.00
3919.10
5901.90
6805.20
For the manufacture of spectacle frames 2825.90
8479.90
7505.22
7506.20
(d) VAT on Financial Services:
The value additon atributable to a Unit Trust or a Mutual Fund from interest, dividend or dealing in debt
instruments
16
Budget Highlights 2012
4.2 Input tax restricton
Proposed
The mechanism introduced in 2011 to deduct unabsorbed input tax as at 31st December 2010, will be further
extended to facilitate claiming the balance (if any) in the following manner:
a. eectve from July 13, 2011, up to December 31, 2011 the set o is permited against taxes payable at the
point of Customs subject to the limit of 5% specied in the VAT Act, if no liability to VAT;
b. eectve from January 1, 2012, the 5% restricton will be removed and the tax payers will be permited
to claim the balance against any tax administered by the Commissioner General of Inland Revenue, or
the Director General of Telecommunicaton Regulatory Commission subject to the limit of 10% of the
unabsorbed balance as at December 31, 2010, untl the residue of the unabsorbed balance as at December
31, 2010, (afer deductng the amount already set o up to December 31, 2011) is fully absorbed;
c. In additon , in the case where there is no liability to VAT , the set o is extended to cover up the taxes
payable at the point of Customs, subject to the same restricton.
Present
Presently, the unabsorbed balance on 31st December 2010 is restricted to 10% per month or 5% of the net tax
payable for that period whichever is low.
4.3 VAT Suspension Scheme
Certain changes will be incorporated to the VAT Act, which are already being administratvely carried out and
communicated to tax payers through guidelines for the proper implementaton of the Simplied VAT (SVAT)
system.
4.4 VAT Deferment
Proposed
VAT on the importaton of plant, machinery or equipment by enterprises referred under paragraph number
(1.1. c) in this booklet, will be deferred during the project implementaton period, and such deferment will be
treated as an exempton on the fulllment of the conditons specied by the Board of Investment of Sri Lanka
with the concurrence of the Commissioner General of Inland Revenue.
Present
Presently no such concession is available
17
Budget Highlights 2012
5. MISCELLANEOUS
5.1 Telecommunicaton Charges
Descripton Proposed Present
Levy on outgoing internatonal calls Rs.3.00 per minute Rs. 2.00 per minute
Rate of incoming internatonal calls US$ 0.09 per minute US$ 0.07 per minute
5.2 Levy on rooms of Five Star Hotels under the Finance Act
The applicaton of levy will be subject to the concessionary rate specied for Airline crews in the Gazete Order
under Secton 53 of the Tourism Act No 38 of 2005.
5.3 Visa Fee
The Visa Fee has been proposed to be charged as follows.
Countries Proposed In US$
SAARC 10
Other 20
5.4 Hub Service (Special Provisions) Act
The government will be introducing a new Finance Act to exempt the applicaton of the following Acts to certain
enterprises recognized by the Board of Investment (BOI)
Customs Ordinance
Import Export Control Act (including regulatons there under)
Exchange Control Act
These enterprises so recognized by BOI are companies engaged in:
Entrepot trade in apparel involving import, simple processing and re-export
Transshipment business in apparel clothing where goods can be procured from one country or manufactured
in one country and shipped to another country without bringing into Sri Lanka maritme operaton.
Providing front end services to the apparel manufacturers in the region.
Promotng leading buyers to establish headquarters operatons in Sri Lanka for management of nance,
supply chain and billing operatons.
Promotng logistcs services such as mult country consolidaton in Sri Lanka.
Provisions will be made in that to ensure the following :
Where an enterprise is engaged in an actvity involving physical import of goods for re-export under any of
the actvites referred to above, such operatons shall be carried out either in a free port operated under
the supervision of the Sri Lanka Ports Authority or a bonded area declared under the BOI law or Customs
Ordinance.
18
Budget Highlights 2012
Any movement of goods from and to the idented free port or to a bonded area from or to the domestc
territory will be considered either as an export or import as appropriate.
Enterprises which are not involved in such physical movement of goods, but engaged in regional
headquarter operatons, supply chain management, etc., can be located outside such demarcated area.
5.5 Yarn
All yarn except sewing thread and vegetable bre based yarn, for value additon and import replacement by
handloom manufacturers and fabric manufacturers are exempt from all taxes.
Fabric
Imported fabric for domestc consumpton - All inclusive tax of Rs.75 per Kg.
Sale of excess fabric by export oriented manufacturers - All inclusive tax of Rs.75 per Kg.
However, the sale by small industrialist engaged in
manufacture of various items such as sof toys, hand bags etc,
if such cut pieces of fabric are not more than 2 meters - Rs.25 per Kg.
Fabric sold in the local market by export oriented
textle mills will be permited to sell 25% of their
producton, if they do not opt to be under the import
replacement programme. - All inclusive tax of Rs.40 per Kg.
Apparel
All imports of branded apparel products including - All inclusive tax at the point of
sportswear. Customs to a maximum of 35%.
Export oriented apparel manufacturers have to export
a minimum of 75% of their product and permited to
sell the balance in the local market on the payment of;
- All inclusive taxes at - Rs.25 per piece.
-For a bundle of 6 pieces of selected categories - Rs.25 per bundle.
5.6 Time bar provisions for taxes at the point of customs
A two year tme bar provision applicable to taxes collected by the Director General of customs has been
introduced.
5.7 Internatonal Financial Reportng Standards (IFRS)
Changes to the respectve tax laws would be made afer a study of the tax implicatons on nancial statements
prepared under IFRS.
19
Budget Highlights 2012
6. CUSTOMS DUTY
Customs Duty has been exempted or reduced or increased for certain artcles having the following H.S. Codes.
The policy of Customs Duty structure remains unchanged except for the revisions proposed.
H S Code Prevailing Customs Duty Proposed Customs Duty (%)
1. To strengthen caring society
Rate of incoming internatonal calls US$ 0.09 per minute US$ 0.07 per minute
Braille typewriters
8469.00.10 5% Free
Parts for Braille typewriters
8473.10.10 5% Free
2. To reduce the upfront cost of raw materials
Prepared glues and other prepared adhesives
3506.10.10 15% Free
3506.91.10 15% Free
3506.99.10 15% Free
Saturated other polyesters
3907.99.10 5% Free
Polymers of vinyl acetate
3905.12 15% 5%
Hardened gelatn capsules
3926.90.80 15% or Rs. 20/kg Free
Compounded rubber, unvulcanised
4005.10.19 15% Free
4005.10.29 15% Free
Vulcanised rubber thread
4007.00 15% 5%
Raw materials for spectacles
9003.90.10 15% Free
9003.90.90 15% Free
9001.90 5% Free
9001.50.10 5% Free
3. To encourage local value additon industries
Food preparatons based on maize, soya bean and green gram
1901.90.91 Free 15%
1901.90.92 Free 15%
1901.90.93 Free 15%
Pneumatc tyres of rubber
4011.10 30% or Rs. 90/Kg 30% or Rs. 100/Kg
Steel & parts of structures
7308.90.90 30% 5%
20
Budget Highlights 2012
Razor blades
8212.20.10 15% Free
8212.20.90 30% 5%
Easy open lids
8309.90.30 15% Free
Refrigerators
8418.10.10 30% 15%
8418.10.90 30% 15%
8418.21.10 30% 15%
8418.21.20 30% 15%
8418.21.30 30% 15%
8418.29.10 30% 15%
8418.29.20 30% 15%
8418.29.30 30% 15%
8418.29.90 30% 15%
Moulds for rubber and plastcs
8480.71 15% 5%
8480.79 15% 5%
Prefabricated buildings
9406.00 30% 5%
4. To boost the sport economy and to build a healthy society
Sports footwear
6402.12 30% or Rs.100/pair Free
6402.19 15% Free
6403.12 30% or Rs.100/pair Free
6403.19 15% Free
6403.12 30% or Rs.100/pair Free
5. To support transport ( passengers and goods )
Buses / Lorries
4011.20 30% or Rs 90 /kg 15% or Rs 50 /kg
Diesel engines (New)
8408.20.90 15% Free
Motor vehicles for the transport of goods/Lorries
8704.21.61 15% 5%
8704.22.10 5% Free
8704.22.20 5% Free
8704.23.10 5% Free
8704.23.20 5% Free
8704.23.30 5% Free
8704.23.40 5% Free
21
Budget Highlights 2012
6. To promote the use of energy saving lamps
Lamps/LED mounted in one housing & solar lanterns & sets for decoratve lightning
9405.10.10 15% Free
9405.20.10 15% Free
9405.10.20 15% Free
9405.20.20 15% Free
9405.30 30% Free
9405.40.30 15% Free
9405.40.40 15% Free
7. To promote ICT and BPO Sector
Automated data processing machines/ computers
8471.30.10 5% Free
8471.30.90 5% Free
8471.41.10 5% Free
8471.41.90 5% Free
8471.49.10 5% Free
8471.49.90 5% Free
8471.50.10 5% Free
8471.50.90 5% Free
8471.90 5% Free
8. Branded and other goods of interest to tourists
Footwear
6401.10 30% or Rs. 100/pair Rs. 100/pair
6401.92 30% or Rs. 100/pair Rs. 100/pair
6401.99 30% or Rs. 100/pair Rs. 100/pair
6402.20 30% or Rs. 100/pair Rs. 100/pair
6402.91 30% or Rs. 100/pair Rs. 100/pair
6402.99 30% or Rs. 100/pair Rs. 100/pair
6403.20 30% or Rs. 100/pair Rs. 100/pair
6403.40 30% or Rs. 100/pair Rs. 100/pair
6403.51 30% or Rs. 100/pair Rs. 100/pair
6403.59 30% or Rs. 100/pair Rs. 100/pair
6403.91 30% or Rs. 100/pair Rs. 100/pair
6403.99 30% or Rs. 100/pair Rs. 100/pair
6404.19 30% Rs. 100/pair
6404.20 30% Rs. 100/pair
6405.10 30% or Rs. 100/pair Rs. 100/pair
6405.20 30% or Rs. 100/pair Rs. 100/pair
22
Budget Highlights 2012
6405.90 30% or Rs. 100/pair Rs. 100/pair
Ornamental porcelain & ceramic products
6913.10 30% or Rs 25/kg Free
6913.90.10 30% or Rs 20/kg Free
6913.90.90 30% or Rs 20/kg Free
Glassware
7013.10 30% 5%
7013.22 30% 5%
7013.33 30% 5%
7013.41 30% 5%
7013.91 30% 5%
Cutleries
8211.10 15% Free
8215.10 30% Free
8215.20 30% Free
8215.91 30% Free
8215.99 30% Free
Sunglasses
9004.10 30% Free
9004.90 15% Free
Hair accessories
9615.11 30% Free
9615.19 30% Free
9615.90 30% Free
- Importaton of goods by the following insttutons will be exempt from Customs Duty.
Sri Lankan Air Lines Limited,
Air Lanka Catering Services Ltd.,
Mihin Lanka (Pvt) Ltd.,
- The import of plant and machinery or equipment by an enterprise with an investment not exceeding the
following amounts will be exempt from Customs Duty on the fullment of the conditons specied by the
B.O.I. in concurrence with the C.G.I.R.
Product Investment Limit
Cement US$ 50 Mn
Steel US$ 30 Mn.
Pharmaceutcals US$ 10 Mn.
Fabric US$ 5 Mn
Milk Powder US$ 30 Mn
- Changes to Customs Duty will be implemented with immediate eect.
Ports and Airports Development Levy ( PAL) (Amendments to PAL Act No. 18 of 2011 )
23
Budget Highlights 2012
The importaton of following goods will be exempt from PAL.:
Item H S Heading / Code
Artcial limbs, crutches, wheel chairs, hearing aids,
accessories for such aids, white canes for the blind,
Braille typewriters and parts, Braille writng papers
and boards
87.13, 90.21, 6602.00.10, 8473.10.10
and 8469.00.10
Timber logs 44.03
Yarn except sewing thread and vegetable bre based
yarn
50.01, 50.02, 50.03, 50.04, 50.06, 51.01,
51.02, 51.03, 51.04, 51.05, 51.06, 51.07,
51.08, 51.09, 51.10, 52.01, 52.03, 52.05
52.06, 53.01, 53.02, 53.03, 53.06, 53.07,
54.02, 54.03, 54.04, 54.06, 55.01, 55.02,
55.03, 55.04, 55.06, 55.07, 55.09, 55.10,
55.11, 56.04, 56.05 and 56.06
Fabric 5007.10, 5007.20, 5007.90, 51,11, 51.12
51.13, 52.08, 52.09, 52.10, 52.11, 52.12
53.09, 53.10, 54.07, 54.08, 55.12, 55.13
55.14, 55.15, 55.16, 58.01, 58.02, 58.04
58.06, 58.09, 58.11, 60.01, 60.02, 60.03,
60.04, 60.05 and 60.06
- Importaton of goods by the following insttutons will be exempted from Ports and Airport
Development Levy
Sri Lankan Air Lines Limited,
Air Lanka Catering Services Ltd.,
Mihin Lanka (Pvt) Ltd.,
- The import of plant and machinery or equipment by an enterprise with an investment not exceeding
the following amounts will be exempt from Ports and Airport Development Levy on the fullment of the
conditons specied by the B.O.I. in concurrence with the C.G.I.R.
Product Investment Limit
Cement US$ 50 Mn
Steel US$ 30 Mn.
Pharmaceutcals US$ 10 Mn.
Fabric US$ 5 Mn
Milk Powder US$ 30 Mn
- Changes to Ports and Airport Development Levy will be implemented with immediate eect.
24
Budget Highlights 2012
Special Commodity Levy
To simplify the taxaton at the point of Customs in lieu of all the applicable taxes, one single tax will be imposed
for the following items.
Item H S Code
Maldive sh 0305.59.10
Dried sh 0305.59.90
Oranges 0805.10.10
Mandarin 0805.20.20
Grapes 0806.10
Apples 0808.10
Corriander 0909.20.10 and 0909.20.90
Saron 09.10.30.10 and 09.10.30.90
- Changes to Special Commodity Levy will be implemented with immediate eect.
New Registratons and licensing of Motor Vehicles
(a) New Registraton Charges for Motor Vehicles
In order to simplify the charges payable on registraton of vehicles, the presently applicable relevant withholding
tax would be amalgamated with vehicle registraton charges.
Vehicle Category Existng (Rs.) Proposed (Rs.)
Hand Tractor 1,500 1,500
Motor Coach (Bus) 3,000 3,000
Motor Lorry 3,000 3,000
Tractor Trailer 6,000 6,000
Four Wheel Tractor 7,000 7,000
Land Vehicle 7,000 7,000
Lorry Trailer 7,500 7,500
Hearse 10,000 10,000
Motor Ambulance 10,000 10,000
Motor Cycle 1,500 2,000
Motor Tricycle 2,000 2,500
Motor Tricycle Van 2,500 3,000
Motor Car ( not exceeding 1600 cc) 10,000 15,000
Motor Car ( exceeding 1600 cc) 10,000 20,000
Prime Mover 10,000 15,000
Forklif 15,000 20,000
Dual Purpose Vehicle 10,000 15,000
25
Budget Highlights 2012
(b) Revenue Licensing Annual Fee for Motor Vehicles
Vehicle Category Change in revenue licence fee
Lorries, tractors, buses and trailers ( for tractors or
lorries )
No change
Motor bicycles, three-wheelers Existng fee increased by Rs. 150
Other vehicle categories Existng fee increased by Rs. 500
Mandarin 0805.20.20
Grapes 0806.10
Apples 0808.10
Corriander 0909.20.10 and 0909.20.90
Saron 09.10.30.10 and 09.10.30.90
(c) Luxury, Semi Luxury and Dual Purpose Motor Vehicle Taxes
Year
Vehicle Category and Cylinder Capacity Vehicle Category and Cylinder Capacity
Luxury
Diesel cars over 2,500
and
Petrol cars over 2,000
Semi Luxury
Diesel cars 2,201 to 2,500
Jeeps over 2,201,
Petrol cars over 1801 to 2,000
Jeeps over 1801
Dual Purpose
Diesel cabs over 2,200
Petrol cabs over 1,800
Existng Rate
(Rs)
New Rate
(Rs)
Existng Rate
(Rs)
New Rate
(Rs)
Existng
Rate (Rs)
New Rate
(Rs)
Year 1 100,000 150,000 50,000 60,000 20,000 40,000
Year 2 78,000 100,000 39,375 50,000 15,750 25,000
Year 3 68,000 75,000 34,000 40,000 13,600 20,000
Year 4 57,000 60,000 28,875 30,000 11,550 12,000
Year 5 48,000 50,000 24,000 25,000 9,600 10,000
Year 6 38,750 40,000 19,375 20,000 7,750 8,000
Year 7 30,000 30,000 15,000 15,000 6,000 6,000
Cess
To reduce the upfront cost of local manufacturers, Cess on the import of following raw materials has been
removed / reduced:
Item H S Headings / H S Code
Starch 11.08
Polymers of ethylene in primary form 39.02 3903.11, 3903.19, 3903.20,
3903.30, 3903.90.90, 3904, 3905.19,
3905.20, 3905.30, 3905.91, 3905.99,
3907.10 , 3907.20, 3907.30, 3907.40,
3907.60, 39.08 and 39.15
Pipes for mini hydropower project 3917.29.10 and 3917.40.10
Butyle rubber and rubber threads 4005.10.19, 4005.10.29 and 40.07
Scrap iron 7204.10
26
Budget Highlights 2012
Sanitary ware of plastc, steel sinks and baths 3922.10 3922.20, 3922.90 and 73.24
Buckles 83.08
Easy open ends for metal cans 8309.90.30
To enhance the availability of branded products, Cess on the import of following items has been reduced /
removed:
Item H S Headings / H S Code
Beauty or make-up preparatons 33.04, 33.05, 33.06 and 33.07
Luggage, travel bags, hand bags and belts 42.02, 42.03 and 42.05
Apparel 61.01 through 61.17,62.01 through 62.16,
63.02 through 63.04
Footwear 64.01 through 64.05
Hats 65.01 through 65.05
Ornamental porcelain and ceramic products 69.10 through 69.14
Glass ware 70.09, 70.13, 70.16
Cutlery and razors 82.11, 82.12, 82.14, 82.15
Toys 95.03
To encourage the local value added industries, Cess has been increased or imposed on the import of following
items:
Item H S Headings / H S Code
Dried vegetables / dried fruit 07.12, 0803.00.90, 0804.20.20,
0804.30.20, 0804.40.20, 0804.50.20,
0804.50.40, 0804.50.60, 0805.10.20,
0805.20.20, 0805.40.20, 0805.50.20
0805.90.20, 0806.20 and 08.13
Wheat our 1101.00.10
Thriposha 1901.90.91, 1901.90.92 and 1901.90.93
Gauze and bandage 30.05
Joss stcks 33.07.41
Vinyl chloride 3917.23
Refrigerators 84.18.10.10, 8418.10.90, 8418.21.90,
8418.21.30 8418.29.10, 8418.29.20,
8418.29.30 and 8418.29.30
Bicycle rim 8714.92.10
27
Budget Highlights 2012
To boost the sport economy and to build a healthy naton, Cess on the import of following items has been
reduced / removed:
Item H S Headings / H S Code
T shirts and shorts 61.09, 6103.42 and 6104.62
Track suits and swim wear 61.12 and 62.11
Shoes 64.01 through 64.05
To encourage local value additon, Cess has been increased / imposed on the export of following items:
Item H S Headings / H S Code
Raw rubber 4001.10 and 4001.21
Natural graphite 2504.90.90
Clay 25.07
Sand 2505.90
Phosphate 2510.10
Stones 2513.20
Granite, sand stones 2516.20, 2516.90
Mica 2525.10
Ilmanite 2614.00.10
Rutle 2614.00.20
Titanium 2614.00.90
Zirconium 2615.10
Timber logs 4403.99, 44.07, 44.08 and 44.09
- Importaton of goods by the following insttutons will be exempted from Cess.
Sri Lankan Air Lines Limited
Air Lanka Catering Services Ltd
Mihin Lanka (Pvt) Ltd.
- The import of plant and machinery or equipment by an enterprise with an investment not exceeding
the following amounts will be exempt from Cess on the fullment of the conditons specied by the B.O.I.
in concurrence with the C.G.I.R.
Product Investment Limit
Cement US$ 50 Mn
Steel US$ 30 Mn.
Pharmaceutcals US$ 10 Mn.
Fabric US$ 5 Mn
Milk Powder US$ 30 Mn
- Changes to Cess will be implemented with immediate eect.
28
Budget Highlights 2012
Excise Duty
- Liquor produced from local plant material or plant product will be subject to a lower excise duty of Rs.
100/- per proof litre.
- Importaton of goods by the following insttutons will be exempted from Excise Duty and Excise
( Special Provisions ) Duty:
Sri Lankan Air Lines Limited,
Air Lanka Catering Services Ltd
Mihin Lanka (Pvt) Ltd.
- The following artcles are exempted from Excise (Special Provisions ) Duty;
Electric motor bicycles ( H S Code 8711.90.10 )
Polymers of ethylene in primary forms ( H S Heading 39.01 )
- Changes to Excise Duty and Excise ( Special Provisions ) Duty will be implemented with immediate eect.
29
Budget Highlights 2012
Our Comments
Economic growth
The 2012 budget focused on maintaining economic growth at 8 percent, improving domestc productvity to reduce the
cost of living and creatng employment to drive consumer demand.
To improve the compettveness of the export industry, the rupee will be devalued by 3 percent with immediate eect.
Creatng a self su cient economy was resonant, and to this eect the budget proposed to maintain the high Cess to
discourage imports of consumer produce that can be locally cultvated.
To shif Sri Lankas status as a net importer, a 5 year tax holiday period and a concessionary income tax rate of 12 percent
are oered to cement, steel, milk powder and pharmaceutcal replacement industries.
Increased investment impetus
To increase employment opportunites by encouraging new investment by local and foreign investors, a 3 year tax holiday
for investments of more than Rs 50 million given to the manufacturing industry is expanded to include informaton
technology, beauty care, sheries, agriculture and tourism related industry.
Further it proposes investment limits for new enterprises as small, medium and large. Small scale enterprises have a
minimum investment of Rs 25 million proving a maximum 4 years tax holiday. A medium and large scale enterprise
requires a minimum investment of Rs 50 million and Rs 300 million respectvely. Medium scale companies investng
more than Rs 200 million and large scale companies investng more than Rs 2,500 million will enjoy a maximum of a 6
year and 12 year tax holiday respectvely. The actvites qualifying for the medium and large scale enterprises are yet to
be specied.
The budget takes further strides to build investor condence by providing existng companies the opportunity to expand
its operatons. It is proposed to allow this as a qualifying payment deductable for income tax at 25% per year over a 4
year period.
Infrastructure investment
Identfying that expansive infrastructure is vital to drive and maintain economic growth, Rs 30 billion is proposed to
improve the rural and agricultural road network as well as the provincial and inter-district road network.
The budget also proposed Rs. 750 million to be allocated in the next year to commence the constructon of airports in
Iranamadu, Nuwara Eliya and Kandy to further integrate the country.
30
Budget Highlights 2012
Concessionary tax rates
The budget idented specic industries integral to development and requires support to prosper. Therefore the tax rate
applicable to locally manufactured handloom products, health care services and value added tea exportng will enjoy a
12 percent income tax rate.
Research and development actvites carried out by a person will be taxed at a maximum rate of 16%, and 20% for a
company.
Social welfare
Recognizing the invaluable contributon of the armed forces during the ethnic conict, the budget proposed to contnue
the grant of Rs. 100,000 at the birth of the third child of any member of the security forces extending to those serving
in the Police force.
A sum of Rs 3,000 million will be allocated to support the low income families and improve the welfare of women and
children, expanding these services to the north and the east regions.
Economic Service Charge
Any persons whose prots are subject to income tax will be exempted from the Economic Service Charge.
Also, the Economic Service Charge threshold will be expanded from Rs 25 million to Rs 50 million per quarter.
The changes proposed above will generate free cash ow for investment by the private sector which is essental for
economic growth.

31
Budget Highlights 2012
2012/13 2011/12 2010/11 2009/10 2008/09 2007/08
Income Tax
Quoted Companies
Taxable Income > Rs. 5 Mn.
First 5 years 28 28 33
1
/
3
33
1
/
3
33
1
/
3
33
1
/
3
Thereafer 28 28 35 35 35 35
Manufacture & sale or imports
and sale of products of
tobacco and liquor 40 40 33
1
/
3
33
1
/
3
33
1
/
3
33
1
/
3
Taxable Income
<Rs. 5 Mn. 12 12 15 15 35 15
Unquoted Companies
Taxable Income >Rs. 5 Mn. 28 28 35 35 35 35
<Rs. 5Mn. 12 12 15 15 15 15
Any Holding Company
Subsidiary or Ass.Company
Taxable Income <Rs. 5 Mn. 28 28 35 35 35 35
Small Medium Industries (SMI)
with turnover <Rs. 300 Mn. 10 10 35 35 35 35
Provident Funds 10 10 10 10 10 10
Clubs and Associatons 10 10 20 20 20 20
Non Government Organizatons 28 28 30 30 30 3
Partnership 8 8 10 10 10 10
Manufacture & sale or imports
and sale of products of
tobacco and liquor 40 40 35 35 35 35
Operatons & Maintenance of
Facilites for Storage, local
Development Sofware or supply
of Labour
10 10 35 35 35 35
Educatonal Services 10 10 35 35 35 35
Deemed Dividend Tax 15 15 15 15 15 15
Prot Remitances -
(Non Resident Companies)
(as a % of remitance)
10 10 10 10 10 10
Foreign Dividends Exempt Exempt Exempt Exempt Exempt 10
Appendix A
Summary of Corporate Rates of Taxes
Y/A 2007/2008 2012/2013
32
Budget Highlights 2012
2012/13 2011/12 2010/11 2009/10 2008/09 2007/08
Withholding Tax
Interest &Royalty paid 10 10 10 10 10 10
Interest & Royalty paid - to a person
outside Sri Lanka ( subject to DTTA ) 15 15 15 15 15 15
Rent, annuites and ground rent
- Non residents 20 20 20 20 20 20
Dividends 10 10 10 10 10 10
Interest on listed debentures & debt
securites
10 10 10 10 10 10
Management fees 5 5 5 5 5 5
Reward payments by Govt.-
Lotery Prizes, Winning from-
Bet ng and Gambling 10 10 10 10 10 10
Capital Allowances
Buildings 10 10 6
2
/
3
6
2
/
3
6
2
/
3
6
2
/
3
Plant, Machinery & Fixtures 33
1
/
3
33
1
/
3
12 . 12 12 12
Sofware 25 25 25 25 25 25
Sofware (locally developed) 100 100 100 100 100 100
Commercial vehicles and o ce
furniture 20 20 20 20 20 20
Bridges, Railway 6
2
/
3
6
2
/
3
6
2
/
3
6
2
/
3
6
2
/
3
6
2
/
3
Plant & Machinery for healthcare,
printng on paper, gem cut ng,
polishing, rice milling & packaging 33
1
/
3
33
1
/
3
33
1
/
3
33
1
/
3
33
1
/
3
33
1
/
3
Energy e cient high tech plante
machinery and equipment 50 - - - - -
Note :
(1) To be paid by both buyer and seller
(2) Of turnover
(3) Divisible prot in excess of Rs. 600,000/-
2012/2013
%
2011/12
%
2010/11
%
2009/10
%
2008/09
%
2007/08
%
Concessionary Rate
Qualied Export 12 12 15 15 15 15
Prots /Constructon/Tourism 12 12 15 15 15 15
Agriculture 10 10 Exempt Exempt Exempt Exempt
Venture Capital Companies 12 12 20 20 20 20
Petroleum Exploraton 12 12 15 15 15 15
Exports with 65% value additon 10 10 15 15 15 15
Share transacton levy on sale of
shares of quoted companies 0.3 0.3 0.2 0.2 0.2 0.2
ESC 0.1 - 1 (2) 0.1 - 1 (2) 0.05 -1(2) 0.05 -1 (2) 0.05 -1 (2) 0.05-1(2)
Partnership 8 (3) 8 (3) 10 (3) 10 (3) 10 (3) 10 (3)
33
Budget Highlights 2012
2012/2013
%
2011/12
%
2010/11
%
2009/10
%
2008/09
%
2007/08
%
Deducton of Losses (restricted)
Life Insurance business Loss restricted
to Life Insurance
business prot
Loss restricted
to Life Insurance
business prot
Loss restricted
to Life Insurance
business prot
Loss restricted
to Life Insurance
business prot
Loss restricted
to Life Insurance
business prot
35 of
statutory
income
Finance Leasing
business
Loss restricted
to nance
leasing prot
Loss restricted
to nance
leasing prot
Loss restricted
to nance
leasing prot
Loss restricted
to nance
leasing prot
35 of
statutory
income
35 of
statutory
income
Limited to 35 of total
Statutory
Income
35 of total
Statutory
Income
35 of total
statutory
income
35 of total
statutory
income
35 of total
statutory
income
35 of
total
statutory
income
Value Added Tax
Standard 12 12 12 15 15 15
Zero 0 0 0 0 0 0
Luxury 12 12 20 20 20 18 or 20
NBT
Standard 2 2 3 3 - -
Retail & Wholesale
business
2 of 50 of
turnover
2 of 50 of
turnover - - - -
Distributors 2 of 25 of
turnover
2 of 25 of
turnover
34
Budget Highlights 2012
Sri Lanka
%
India
%
Bangladesh
%
Singapore
%
Malaysia
%
Corporate Tax
Quoted Company 28 32.4 27.5 17 25
Unquoted Company 28 32.4 37.5 17 25
Clubs and Associatons 10 30.90 10 - 25
(Income from
members not
liable)
17 0 - 26
Foreign Dividends Exempt 16.22 Exempt Exempt Exempt
Remitance Tax
( Non resident company) 10 - 10 - 37.5 - -
Capital Gains (Listed) - 16.22
(Short term)
15 Exempt Exempt - Liable only on
sale of land & building
Partnership Tax 8 30.90 10 - 25 Exempt -
Withholding Tax
Interest 10 42.02 10 15 15
Royalty 10 or 15 10.51 10 10 10
Dividends 10 21.01 10 Exempt Exempt
Rent - - - 15 10
Management Fee 5 10.51 10 17 -
Directors Fees 10 or 16 Taxed at normal
rates
- 20 -
Capital Allowance
Buildings 10 10 10 General
20 Factory
25 Inital
3 Annual
10 Inital
3 Annual
Plant & Machinery 33
1
/
3
15 20 33
1
/
3
20 Inital (General)
14 Annual (General)
20 (Heavy)
Furniture 20 10 10 33
1
/
3
20 Inital
10 Annual
Motor Vehicles 20 15 20 33
1
/
3
20
Computers 25 60 30 100 20 Inital
80 Annual
Indirect Taxes
Value Added Tax (VAT) 12 0 &14.5 15 7 5 or 10
Naton Building Tax (NBT)
(Retail / Wholesale )
2
2 of 50 of
T/O - - - -
Economic Service Charge (ESC) 0.1 to 1 - - - -
Customs Duty 0 - 32 24.42 average - - -
Excise Duty 0 - 22 10.30 - - -
Appendix B
Comparison of Current Corporate Taxes, Withholding Taxes, Indirect Taxes etc., Y/A 2011/2012
35
Budget Highlights 2012
Appendix C
Comparison of Eectve Tax Rates for Resident Individuals
Y/A 2002/2003 - 2012/2013
An Employee whose salary is Rs. 100,000 per month (1)
Rs. 150,000 per month (2)

Y/A Personal
Allowance
Taxable Income Income Tax Average
Eectve Rate

Rs.
(1)
Rs.
(2)
Rs.
(1)
Rs.
(2)
Rs.
(1)
Rs.
(2)
Rs.
2002/2003 240,000 960,000 1,560,000 264,000 474,000 22.0 26.3
2003/2004 240,000 960,000 1,560,000 234,000 414,000 19.5 23.0
2004/2005 300,000 900,000 1,500,000 198,000 378,000 16.5 21.0
2005/2006 300,000 900,000 1,500,000 105,000 275,000 8.8 15.3
2006/2007 300,000 900,000 1,500,000 105,000 280,000 8.8 15.6
2007/2008 300,000 900,000 1,500,000 105,000 280,000 8.8 15.6
2008 /2009 300,000 900,000 1,500,000 105,000 280,000 8.8 15.6
2009 /2010 300,000 900,000 1,500,000 75,000 180,000 6.2 10.0
2010/2011 300,000 900,000 1,500,000 75,000 180,000 6.2 10.0
2011/2012 500,000 700,000 1,300,000 36,000 96,000 3.0 5.3
2012/2013
Appendix D
Retring Benets
Rate
Y/A Nil 5% 10%
2007/2008 (1)(A) First Rs. 5,000,000 Next Rs. 1,000,000 Balance
2007/2008 (2)(A) First Rs. 2,000,000 Next Rs. 1,000,000 Balance
2008/2009 (1)(A) First Rs. 5,000,000 Next Rs. 1,000,000 Balance
2008/2009 (2)(A) First Rs. 2,000,000 Next Rs. 1,000,000 Balance
2009/2010 (1(A)) First Rs. 5,000,000 Next Rs. 1,000,000 Balance
2009/2010 (2)(A) First Rs. 2,000,000 Next Rs. 1,000,000 Balance
2010/2011(1)(A) First Rs.5,000,000 Next Rs.1,000,000 Balance
2010/2011(2)(A) First Rs. 2,000,000 Next Rs. 1.000,000 Balance
2011/2012 (1)(A) First Rs. 5,000,000 Next Rs. 1,000,000 Balance
2011/2012 (2)(A) First Rs. 2,000,000 Next Rs. 1,000,000 Balance
(A) Government Sector - All Retring Benets are exempt from tax.
(1) If the period of Provident Fund contributon is over 20 years.
(2) If the period of Provident Fund contributon is below 20 years.
(3) Provident Fund - Retring benets exempt from 2011 / 2012
36
Budget Highlights 2012
SRI LANKA TAX DATA 2011/2012
PERSONAL TAX
Employee Benets
Benet Value for Tax Purpose
Motor Vehicle Vehicle provided or allowance paid up to Rs.
50,000/- will be exempt
House Employment income < Rs. 150,000/- p.m.
Lower of actual rent or Rs. 120,000/- p.a.
Employment income > Rs. 150,000/- p.m.
Lower of actual rent or Rs. 180,000/- p.a.
Telephone 50% of actual cost
Other benets At actual cost
Value of shares received under employee share opton plan
- Normal Rate
Qualifying Payments
o Deducton from Assessable Income
Donaton to Government
Investments in specic projects
Donaton in money to approved charity that provides
insttutonal care for the sick and needy.
o Qualifying payments limited to
Donatons to approved charity & Insurance - 1/3 of
assessable income or Rs. 75, 000/- whichever is lower.
o An individual is not enttled to deduct Qualifying payments
from any employment income included in the assessable
income
o Tax Free Allowance Rs. 500,000/-
Income Tax & Rate
Taxable Cumulatve Rate Tax Cumulatve
Income (Rs.) Income Tax
On the rst 500,000 1,000,000 4% 20,000 20,000
On the next 500,000 1,500,000 8% 40,000 60,000
-do- 500,000 2,000,000 12% 60,000 120,000
-do- 500,000 2,500,000 16% 80,000 200,000
-do- 1,000,000 3,500,000 20% 200,000 400,000
Balance 24%
o Concession & Exempton
Resident person who is engaged in a profession and
earning in foreign currency by rendering services to
persons outside Sri Lanka - Exempt
Prot from constructon work outside Sri Lanka
(Payment made in foreign currency) - Exempt
Prot from sales of Textle, Leather products footwear
or bags by manufactures in foreign currency to a buyer
whose headquarters established in Sri Lanka (Sec 13)
- Exempt
Employment income if exceeds Rs. 500,000/- p.a, the
excess up to Rs. 100,000/- - Exempt
Prots from Tourism and Constructon Industry, Qualied
Exports, and deemed exports - 12%
Entertainer or artst - 12%
Expatriate
Employment income - Normal rates
Entertainers and Artsts - 12%.
Sri Lankan holding dual citzenship, foreign income is not
taxable during the stay in Sri Lanka.
Terminal Benets
Government - Any Retring Benets Exempt
Private Sector- Provident Fund Exempt
Compensaton for loss of employment
maximum rate 20%.
Compensaton paid under Voluntary Retrement Scheme
(VRS), up to Rs. 2 million with
conditons. Exempt
CORPORATE TAX
Income Tax
Companies
Taxable Income > Rs. 5 million 28%
Taxable income < Rs. 5 million 12%
Qualied Export prots and deemed exports,
Tourism & Constructon industry 12%
Prots and income earned in or outside Sri Lanka providing
any services other than discount, commission or similar
payments for such service rendered in Sri Lanka to a person
outside Sri Lanka and earnings remited in foreign currency
to a resident person or partnership in
Sri Lanka Exempt
Provident funds, charites 10%
Clubs and associatons undertaking for operaton and
maintenance of facilites for storage, local sofware
development or supply of labour 10%
Foreign Dividends remited in foreign currency Exempt
Prot remitance - Non-resident Companies 10%
Prot atributable to transshipment agency fee
received in foreign currency by shipping agency 15%
Interest income of charites applied for children homes,
homes for elders and disabled Exempt
Deemed dividend in excess prot of 1/3 of the distributable
prot less dividend distributed 15%
Prot or income from manufacture or import of
liquor or Tobacco products 40%
Venture capital companies, petroleum exploraton 12%
Prots from any agricultural seeds or plantng materials and
thire primary processing , and shing undertaking.
Exempt (5Y)
Small & medium enterprises with less than
Rs. 300M turnover 10%
Investment not less than Rs. 50M in any new
manufacturing undertaking Exempt (3Y)
Investment not less than US $ 3M in selected
projects Exempt (5-7Y)
Export or deemed export with 65% value
additons of Sri Lankan brand name 10%
WITHHOLDING TAX
On corporate debt interest 10%
On interest - Individuals 2.5% to 8%
On interest - Charitable insttutons if exceed
Rs. 500,000/- 8%
On interest - Companies 10%
On interest and royaltes paid outside Sri Lanka 15%
(or the rate applicable under Double Tax Treaty)
Royaltes paid in Sri Lanka * 10%
(For royalty if exceed of Rs. 50,000 p.m or Rs. 500,000 p.a.)
Dividends 10%
Reward payments by Government to informant & others 10%
Payment of shares of ne etc. by Government 10%
Payment of Lotery prizes, bet ng & gaming when
payment is more than Rs. 500,000 10%
Management Fee 5%
* Will not be applicable to any person or partnership paying ESC
CAPITAL ALLOWANCE
Rate
Building (constructed) 10%
Plant & Machinery 33 1/3%
Informaton technology equipment & sofware 25 %
Sofware developed in Sri Lanka 100%
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Budget Highlights 2012
Commercial vehicles & o ce furniture 20%
Bridges, railways, reservoirs, electricity or water
distributon & toll roads 6
2
/
3
%
Scientc industrial, agricultural research expenditure 200%
DEDUCTION ON LOSSES
Losses on leasing business only against leasing business prot and
losses on life insurance only against life insurance prot.
Other losses - limited to 35% of the total statutory income.
PARTNERSHIP TAX
On divisible prot in excess of Rs. 600,000/- 8%
LEVIES UNDER OTHER ACTs
Economic Service Charge (ESC) 0.1% to 1%
Share transacton levy - Buyer as well as Seller. 0.3%
Natons Building Tax (NBT) 2%
VALUE ADDED TAX (VAT)
Taxable supplies including Imports
Standard rate 12%
Direct exports of goods & specied services Zero
Financial Services 12%
THRESHOLD
VALUE ADDED TAX (VAT)
Rs. 2,500,000 per annum / Rs. 650,000 per quarter
ECONOMICS SERVICE CHARGE (ESC)
Rs. 25 million per quarter
NATION BUILDING TAX (NBT)
Rs. 500,000 per quarter
Retail & Wholesale business liable for NBT on 50% of turnover
Distributors liable for NBT on 25% of turnover
SOCIAL RESPONSIBLE LEVY (SRL)
SRL payable by companies on income tax abolished from the Y/A
2011/2012
Important Tax Dates
Y/A 2011/2012
April 2011
15 Withholding Tax on specied fees and interest, PAYE - Tax
payments - March 2011
15 4th Quarter self-assessment payment to obtain the 10%
discount in the nal tax.
20 VAT, NBT & ESC returns and payments for Month /
Quarter ending 31st March 2011.
30 PAYE annual declaraton for the Y/A 2010/2011.
May 2011
15 Payment of income tax 4th quarterly installment for Y/A
2010/201.
15 Withholding Tax on interest, PAYE - Tax payments - April
2011.
20 VAT return and payment - April 2011.
20 NBT payment - April 2011.
June 2011
15 Withholding tax on interest, PAYE - Tax payments - May
2011.
20 VAT return and payment - May 2011.
20 NBT payment - May 2011.
July 2011
15 Withholding Tax on interest, PAYE - Tax payment - June
2011.
15 1st Quarter self-assessment payment to obtain the 10%
discount in the nal tax.
20 VAT & NBT returns and payment - Month / Quarter
ending 30th June 2011.
20 ESC payment - Quarter ending 30th June 2011.
30 Half year VAT return on Financial Sector
August 2011
15 Payment of income tax 1st quarterly installment for Y/A
2011/2012.
15 Withholding Tax on interest, PAYE - Tax payments - July
2011.
20 VAT return and payment - July 2011.
20 NBT payment - July 2011.
September 2011
15 Withholding Tax on interest, PAYE - Tax payments -
August 2011.
20 VAT return and payment - August 2011.
20 NBT payment - August 2011.
30 Income tax nal payment for the Y/A 2010/2011.
30 Last date for the prot distributon to avoid deemed
dividend tax for 2011/2012
October 2011
15 Withholding Tax on interest, PAYE - Tax payments -
September 2011.
15 2nd Quarter self-assessment payment to obtain the 10%
discount in the nal tax.
20 VAT & NBT returns and payment - Month / Quarter
ending 30th September 2011.
20 ESC payment - Quarter ending 30th September 2011.
31 Deemed dividend tax for the Y/A 2011/2012.
November 2011
15 Payments of income tax 2nd quarterly installment for
2011/2012.
15 Withholding Tax on interest, PAYE - Tax payments -
October 2011.
20 VAT return and payment - October 2011.
20 NBT payment - October 2011.
30 Last date for the income tax return - 2010/2011
December 2011
15 Withholding Tax on interest, PAYE - Tax payments -
November 2011.
20 VAT return and payment - November 2011.
20 NBT payment - November 2011.
January 2012
15 Withholding Tax on interest, PAYE - Tax payments -
December 2011.
15 3rd Quarter self-assessment payment to obtain the 10%
discount in the nal tax.
20 VAT & NBT returns and payment - Month / Quarter
ending 31st December 2011.
20 ESC payment - Quarter ending 31st December 2011.
February 2012
15 Payment of income tax 3rd quarterly installment for the
Y/A 2011/2012.
15 Withholding Tax on interest, PAYE - Tax payments - January
2012.
20 VAT return and payment - January 2012.
20 NBT payment - January 2012.
March 2012
15 Withholding Tax on interest, PAYE - Tax payment -
February 2012.
20 VAT return and payment - February 2012.
20 NBT payment - February 2012.
38
Budget Highlights 2012
ABOUT SJMS ASSOCIATES
SJMS Associates is a mult disciplinary professional services rm and is an Independent Correspondent Firm
to Deloite Touche Tohmatsu, an internatonal rm of accountants. SJMS Associates was formed on the 1st of
July 2002 with the merger of SJ Associates with Manoharan&Sangakkara Associates. Both rms have a history
of over thirty ve years. The merger has enabled SJMS to establish one of the largest and e cient professional
service practces in the country. It also expanded the ability to oer such services at a tme when clients must
increasingly contend with the impact of globalizaton on their businesses.
SJMS Associates has over 35 professionals and a sta of 400 with a Branch and Correspondent o ce in Kandy.
SJMSfocuses on improving the growth and compettveness of clients businesses through the provision of a
wide range of specialized services.
Services provided :
Audit & Assurance Tax Compliance & Planning
Financial Assurance Corporate Tax, Compliance and assessments
Internal Audits including at appellate levels
Forensic Services Indirect Taxaton including VAT and Excise Duty
Due Diligence Expatriate Tax Consultng
Outsourced Accountng Services Internatonal Taxaton
Informaton System Audits Strategic Tax Planning
Management Consultng Restructure & Corporate Recovery
General Management Consultng Restructuring / Reorganizaton Services
Business Strategy Consultng Corporate Closure Management
Foreign Investment Services Liquidaton Services
Privatzaton Services
Human Resources Consultng
Systems and Solutons
Corporate Finance
Mergers and Acquisitons
Corporate Finance & Private Capital
Transacton Executon
Valuatons


39
Budget Highlights 2012
Contacts
SJMS Associates Tel. + 94 11 5444400 / 5444408/09 sjmsa@sjmsassociates.com
02 Castle Lane Fax. + 94 11 2586068
Colombo 04.
Ms. S. Kodagoda Tel. +94 11 5444400/ 5444410 sarala@sjmsassociates.com
Mr. P. Sivasubramaniam Tel. + 94 11 5444400 / 5444408/09
Mr. D. Fernando Tel. + 94 11 5444400 / 5444408/09 dfernando@sjmsassociates.com
Mr. M. Ratnayake, Tel. + 94 11 5444400 / 5444408/09 ratnayake@sjmassociates.com
Ms. I. Karunaratne Tel. + 94 11 5444400 / 5444408/09 indumali@sjmsassociates.com
Ms. L. Fernando Tel. + 94 11 5444400 / 5444408/09 laleena@sjmsassociates.com
Polytechnic Building Tel. + 94 11 2501677 / 5667829 / 5624303
30 - 2/1 Galle Road Fax. + 94 11 2507522
Colombo 06
Mr. M. Thavaraj Tel. + 94 11 2501677 / 5667829 / 5624303 thavkum@hotmail.com
Ms. T. Varathaluckshmy Tel. + 94 11 2501677 / 5667829 / 5624303 varatha@lmassociates.lk
Branch
SJMS Associates Kandy Tel. + 94 081 2228684 or 5628649
25/1/1 George E. de Silva Fax. +94 081 2203071
Mawatha
Kandy
Mr. R. Rajendran ramiahco@hotmail.com

Correspondent O ce
RanaweeraNagasinghe& Co. Tel. + 94 041 2222365
41/5B Old Market Road Fax. + 94 041 2221415
Kotuwegoda
Matara
Mr. S.J. Ranaweera sranaweera@sltnet.lk
40
Budget Highlights 2012