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Two tier tax regime

Ceylon Finance Today: Budget 2016 has encapsulated a two tier VAT tax regime for
the financial year 2016/17, where, at the lower end it will be 15% and at the higher
end, 30%.
This was said by Ms. Shamila Jayasekara, KPMG's Tax Head at a "Budget 2016"
seminar organized by her institution on Saturday
Currently, there is a flat, corporate tax rate of 28%.

The higher rate of 30% is applicable to the "profits and income" from betting and
gaming, liquor, tobacco and banking and finance, including insurance, leasing and
"related activities, etc."
"With a surcharge of 25% applicable from 1 April, 2016 on the betting and gaming,
liquor and tobacco industries; that would effectively take up the corporate tax rate of
such businesses to 37.5%", a banker cum accountant told this reporter. This is
however currently at the higher, overall, corporate tax rate of 40%.

Nonetheless, industries such as banks would see their corporate tax rate move up by
two percentage points, i.e. from the current 28% to 30%, from 1 April, 2016, under a
"Budget 2016" proposal.

And "trading activities (other than the manufacture or provision of services)" will also
be liable to this 30% new tax.
Another budget proposal was that, "the prevailing withholding tax rate of 2.5% on
interest income accruing to an individual will be removed and such income will be
considered as part of the taxable income of an individual."

Meanwhile, "Budget 2016" has uplifted the new personal tax, which also includes the
P.A.Y.E. tax threshold from the current Rs 750,000 per annum to Rs 2.4 million, with
the tax rate applicable to those who come within the tax bracket being a flat 15%,
compared to the current, "progressive" tax range of between a minimum of 4% to a
maximum of 24%.
Among some of the other budgetary proposals were the removal of the share
transaction levy (0.3%) related to stock market transactions in an attempt to boost
this market.

Economic service charge (ESC) will be doubled from the current rate of 0.25% to
0.5%. At present the ESC is applicable "only if a person is exempt from income tax or
has incurred a loss during the previous year of accounting (Y/A)". Nevertheless, the
proposed amendment seeks to extend the tax base to cover persons who are liable
to income tax as well, KPMG in a note said.
Also, the present, maximum ESC ceiling of Rs 120 million per year will be removed.
Further, the period provided for the setting off of ESC credits against income tax
payable will be limited to three years, i.e. the current Y/A and a further two years.
Currently set-off is permitted within five years.
On VAT, KPMG said that the present threshold of Rs 3.75 million per taxable period
(one to three months) or Rs 15 million per annum, will be revised to Rs three million
per quarter or Rs 12 million per annum, "probably as a measure to widen the VAT
The retail chargeability of VAT on the consumer vis--vis VAT on the wholesale and
retail (supermarkets' et al) will be removed, possibly giving some relief to the
The present four band tariff structure of exempt, 7.5%, 15% and 25% will be revised
to a three band structure comprising exempt, 15% and 30% respectively. Vehicle
permits to be abolished.
Exchange Control Act will also be abolished and will be replaced by a Foreign
Exchange Management Act. Securities Investment Account will be abolished with
foreigners being allowed to route their money from the existing banking system.
Establishment of a one-stop-shop at Customs, by bringing together Import and Export
Control Department, Sri Lanka Standards Institution, Consumer Affairs Authority,
Inland Revenue Department, Commerce Department, Registrar of Companies,
Agriculture Department, Animal Production Department and the Health Department,
was another proposal in Budget 2016. (PGA)