New taxation with policy clarity gives impetus for businesses 

Sri Lankan businesses have been assured a new beginning with policy clarity under the Covid-19 new normal situation following the introduction of a novel taxation system proposed in budget 2021.

The Treasury announced recently that a swing of taxes will be submitted to the Cabinet of Ministers and thereafter, the relevant tax amendment bills are to be presented in parliament before April this year.  

Treasury Secretary S.R. Attygalle told reporters that income and corporate tax changes, plus new goods and services tax proposed in Budget 2021 will be enacted in parliament soon.

Legislation is also being drafted to charge 1% tax on any previously undeclared foreign exchange brought into Sri Lanka.

He said legal provisions will be given to entrepreneurs to return such forex funds for investment in Sri Lanka and they will be liable to a tax of only 1%.

Opposition parties have been vehemently protesting this move alleging the Government of encouraging money laundering.

However, Attygalle said most of the proposals had already been presented to Cabinet and the Legal Draftsman was mid-way in formulating amendments to the Monetary Act to legalise the 1% tax for undeclared forex brought back into the country.

Sri Lanka’s tax collection efficiency will be improved through the introduction of an online-managed single Special Goods and Service Tax (GST) in place of the various goods and service taxes and levies commencing from April.

This GST is now set to be enforced under multiple laws and institutions on alcohol, cigarettes, telecommunication, betting and gaming and vehicles, which accounts for 50% of the income from taxes and levies.

It is expected through this reform to direct institutions under special legislation such as the Excise Ordinance to have a more focused regulatory engagement in facilitating the government to secure its revenues otherwise lost through sale of illicit alcohol and cigarettes, Finance Ministry sources said.

Relevant documents including the Finance Bill relating to the implementation and enactment of the tax are now being drafted to present and pass it in parliament soon, a senior Treasury official said, adding that this single tax will further simplify the country’s taxation system replacing several taxes under the new GST bill.

The new tax, one of the key proposals in the 2021 budget, will be determined before its implementation soon, he said, adding that the estimated revenue from this tax would be over LKR 670 billion.

The government is expected to raise around LKR 1.7 trillion from direct and indirect taxes this year, provisional data and economic model calculations revealed.