Tax Proposals

1 Income Tax ( Amendments to the Inland Revenue Act No 10 of 2006)

1.1Exemptions/ Taxation at concessionary rates

1.1.1Exemption under Section 16 C

The present tax holiday regime stipulated in Section 16C of the Inland Revenue Act applicable in relation to manufacture of any product will be extended to new enterprises engaged in any of the following activities as well, provided that the investment is made on or before 31 st March 2015.

I Agriculture and/or Agro processing

ii. Animal Husbandry and/or processing

iii. Fisheries and/or Fish processing

iv. Information Technology

v. Business/ Knowledge Process Outsourcing

vi. Health Care

vii. Education

viii. Beauty care

ix. Cold room and storage

x. Tourism

xi. Sports and fitness centers

xii. Creative work including art work

1.1.2Investment Limits (for New Enterprises)

1.1.2.1 Small scale enterprises engaged in Agriculture and/or Agro processing, Animal Husbandry and/or processing, Fisheries and/or Fish processing or Creative work including art work will be eligible for 4 year tax holiday if a minimum sum of Rs. 25 mn is invested.

1.1.2.2. Medium scale enterprises engaged in any specified activity will be eligible to a tax holiday as follows:

Investment Tax Holiday

Rs. 50 mn – Rs. 100 mn 4 years

Rs. 100 mn – Rs. 200 mn 5 years

Over Rs. 200 mn 6 years

1.1.2.3 Large scale enterprises engaged in specified activities including any processing and solid waste management will be eligible for tax holiday as specified in section 17A. The period of tax holiday depending on the size of investment is as follows:

Investment Period of Tax Holiday

Rs. 300 mn - Rs. 500 mn 6 years

Rs. 500 mn - Rs. 700 mn 7 years

Rs. 700 mn - Rs. 1000 mn 8 years

Rs.1,000 mn - Rs. 1,500 mn 9 years

Rs 1,500 mn - Rs. 2,500 mn 10 years

Rs. 2500 mn and above 12 years

The qualifying activities will be expanded and included under the respective section of the Act.

1.1.3Expansion of existing Enterprises

If an existing enterprise is investing in such enterprise itself (an expansion) a minimum of Rs 50mn prior to 31 st March 2015, such investment will be treated as a qualifying payment deductible from the assessable income of the enterprise subject to a maximum of 25% of the investment for each year of assessment falling within the period of 4 years commencing from the year of investment.

1.1.4Strategic Import Replacement Enterprises

Having recognized that Sri Lanka is a net importer ,the production of the following items to replace imports either by a new enterprise or by way on an expansion of an existing enterprise with the corresponding investment will be eligible for following concessions:

- New enterprises: a 5 year tax holiday followed by the concessionary income tax rate;

- Existing enterprises : the concessionary income tax rate for a period of 5 years couple with qualifying payment relief ( described in item 1.1.3)

Product Investment limit Concessionary Tax rate

Cement US$ 50 mn 12%

Steel US$ 30 mn 12%

Pharmaceuticals US$ 10 mn 12%

Fabric US$ 5 mn 12%

Milk Powder US$ 30 mn 12%

1.1.5VAT, Customs Duty, Cess, and PAL on the importation of plant, machinery or equipment by enterprises referred to in above will be deferred during the project implementation period, and such deferment will be treated as an exemption on the fulfillment of the conditions specified by the Board of Investment of Sri Lanka with the concurrence of Commissioner General of Inland Revenue.

1.1.6Enterprises exporting more than 75% of their output will continue to get the same privileges that are prevalent today for such enterprises in relation to the above taxes.

1.1.7The BOI will be authorized through an amendment under the Inland Revenue Act to extend these concessions together with the other relevant concessions to qualified enterprises referred to in above.

For the purpose of the above provisions, the investment means as ‘investment in fixed assets’ such as land, plant, machinery or equipment.

1.1.8Advance ruling mechanism will be introduced for investors eligible for tax exemptions, to ensure consistency in the application of respective provisions of relevant tax laws.

1.1.9Other tax exemptions

(a)Institutions

Profits and income ( other than dividends and interest ) of the following will be exempt from income tax :

(i) The Institute of Certified Management Accountants of Sri Lanka;

(ii) The Child Protection Authority

(Section 7 of the Inland Revenue Act will be amended)

(b)Source specific exemptions:

(i) Royalty received from outside Sri Lanka will be exempt, if remitted to Sri Lanka through a bank;

(ii) Profits and income from the redemption of a Unit of a Unit Trust or a Mutual Fund ;

(iii) Interest accruing to any person or partnership outside Sri Lanka on a loan granted to any person or partnership in Sri Lanka ;

(iv) Profits and income from the administration of any sport ground , stadium or sport complex ;

(v) Profits and income of a trainer of any sport, being a non citizen individual who is brought to Sri Lanka for that purpose

(Section 13 of the Inland Revenue Act will be amended)

1.2Concessionary rates

(a)Development activities carried out by specified bank branches

The profits and income of newly set up branch of a commercial bank dedicated to development banking will be taxed at a lower rate of 24%.

(b)Research and development

The profits and income from the activities 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%.

(c)Value Added Tea

A grower cum manufacturer or a manufacturer of tea, who establishes a joint venture with a tea exporter for the purposes of exporting 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 attributable to the quantum of tea purchased for that purposes by the joint venture.

(d)Handloom Industry

The rate of tax applicable on the profits and income of a person or partnership from the locally manufacture of handlooms products will be reduced to 12% (maximum)

(e)Health Care Services

The rate of tax applicable on the profits and income from the health care services will be reduced to a maximum of 12%.

(f) Consequent to rate changes introduced, low rates will be accommodated in Third and Fifth Schedules to the Inland Revenue Act.

1.3Ascertainment of profits and income

Deductions ( allowable under section 25 of the Act )

- Capital Expenditure

Cost of any high tech plant, machinery or equipment acquired on or after April 1, 2012 for energy efficiency purposes, will be allowed at the rate of 50% on the cost of acquisition;

- Travelling expenses

(a)Consequential amendments will be made with effect from April 1, 2011, to allow expenses incurred by an employer on any motor vehicle used by an employee irrespective of whether such vehicle benefit is taxable on such employee.

(b)Companies exclusively providing the services of design development, product development or product innovation will be permitted to deduct in full, any travel expenditure (whether local or foreign) incurred in relation to such services.

- Maintenance and management expenses incurred by any person in respect of any Sports ground, Stadium or Sports Complex will be deductible without any restriction

(Section 25 of the Inland Revenue Act will be amended)

1.4Pre – commencement expenses of Small and Medium Scale Enterprises

In order to help new Small and Medium Scale Enterprises with expected turnover not exceeding Rs 500mn, the pre- commencement expenses incurred on any such enterprises in the year of assessment immediately preceding the year in which the enterprise commences commercial operations will be allowed for deduction from the total statutory income of year of commercial operation

(Section 32 of the Inland Revenue Act will be amended)

1.5Qualifying payments

Expenditure incurred by any person under any community development project carried out in most difficult villages as identified and published in the Gazette by the Commissioner General of Inland Revenue, will be a qualifying payment deductible subject to a upper limit of Rupees one million in the case on an individual and Rupees ten million in the case of a company.

(Section 34 of the Inland Revenue Act will be amended)

1.6Requirement of furnishing Audit Certificate:

Where a Quoted Public Company is a member of a group of companies, the requirement of furnishing compulsory audit certificate will be extended to all the member companies and associate companies of that group.

(Section 107 of the Inland Revenue Act will be amended)

1.7Definition of Dividends

Definition of dividends will be amended to cover scrip dividends

(Section 217 of the Inland Revenue Act will be amended)

2Textile and Apparel Industry

All yarn except sewing thread and vegetable fibre based yarn will be free from all taxes to facilitate handloom manufacturing or fabric manufacturing with a value addition and import replacement.

2.1Fabric

Imported fabric for domestic consumption will be subject to an all-inclusive tax of Rs.75 per kg. Sale of excess fabric of export oriented apparel manufacturers will also be subject to the above all inclusive rate. However, in order to assist small industrialist engaged in the manufacture of various items (soft toys, hand bags etc) such cut pieces of fabric not more than two meters can be sold subject to a tax of Rs 25/- per kg.

Fabric sold in the local market by export oriented textile millers, will be permitted to sell 25% of their production in the local market on the payment of all inclusive tax of Rs. 40 per kg in the domestic market if they do not opt to be under the import replacement programme.

Domestic manufacturers of fabric who are not enjoying BOI concessions will be exempted from Value Added Tax.

2.2Apparel

All imports of branded apparel products including sportswear will be subject to a maximum of 35% of all inclusive tax at the point of Customs.

Export oriented apparel manufacturers who are exporting a minimum of 75% of their production will be permitted to sell the balance in the local market on the payment of all inclusive tax of Rs. 25 per piece and Rs. 25 for a bundle of 6 pieces of selected categories.

3.Value Added Tax (VAT) [Amendments to VAT Act No 14 of 2002]

3.1Exemptions

(a)The import of :

- Speakers & amplifiers, Digital Stereo Processors & accessories, Cinema Media players and Digital readers under HS Code 8518.29, 8518.40, 8519.81, 8519.89 for the improvement of Film Theatres with digital technology ( the present exemption applicable to the import of equipment for the cinema industry will be extended by addition of the above items)

- Pharmaceutical machinery and spare parts under HS Code Nos 8479.89.90, 8424.20, 8413.81 and 8481.80, by manufacturer of pharmaceuticals (w.e.f. June 1, 2011)

- Machinery for the manufacture of bio mass briquettes and pallets by the manufacturer of such products under HS Code 8479.30 (w.e.f. June 1, 2011)

- Green Houses , Poly Tunnels and materials for the construction of green houses and poly tunnels by the growers

(b)The supply of:

(i)locally manufactured:

- hydropower machinery and equipment

- Products using locally procured raw materials for the required specification of the tourist hotels and airlines which promote local value added products

- Canned fish

- Turbines

-Specified products to identified State Institution replacing imports

- Pottery product by the manufacturer

(ii)-Research and development services

- Services by the Department of Commerce

- Paintings by the creator of such painting

(c)The import or the supply of:

- Lorries and Trucks under the HS Code Nos 8704.10 8704.21.11, 8704.21.20, 8704.22.10 , 8704.23 10 and 8704.23.30

- Buses under HS Code No 8702.10.59

- Sport equipments under HS Heading No 95.06

- Machinery use for the production of rubber and plastic prodcuts under HS Heading 84.77

- Wood sawn under HS Heading Nos 44.07, 44.08 and 44.09

- Sunglasses under H S Code Nos 9004.10 and 9004.90

- Perfumes under H S Code No 3303.00 .10

- Mammoties under H S Code No 8201.30.10 and fork under H S Code No 8201.20

- Artemia eggs under HS Code No. 0511.91.20 and Peat moss - under HS

Code No2703.00

- Moulding (steel, glass, rubber and plastic) under H S Heading 84.80

- Items and spares needed in the poultry industry under HS Code Nos. 3926.90.30, 3926.90.50, 8418.61.30,8418.61.40 and 8418.69.30

- Photo sensitive semi – conductor devices under H S Code No 8541.40

- In order to protect local industries the raw materials exclusively used for the manufacture of following articles:

- for the manufacture of spectacles under HS Codes 3824.90.90, 2916.14.00, 2916.32, 3919.10, 3405.40.90, 5901.90, 6805.20,6805.30, 8302.10 and 8466.92

- for the manufacture of spectacle frames under H.S. Code Nos. 2825.90, 7505.22, 8479.90, 7506.20

(d)VAT on Financial Services: The value addition attributable to a Unit Trust or a Mutual Fund from interest , dividend or dealing in debt instruments

(Part II of the First Schedule to the VAT Act will be amended)

3.2Input tax restriction

The mechanism introduced in 2011 to deduct unabsorbed input tax as at 31 st December 2010, will be further extended to facilitate claiming the balance (if any) in the following manner:

- effective from July 13, 2011, up to December 31, 2011 the set off is permitted against taxes payable at the point of Customs subject to the limit of 5% specified in the VAT Act, if no liability to VAT;

- effective from January 1, 2012, the 5% restriction will be removed and the tax payers will be permitted to claim the balance against any tax administrated by the Commissioner General of Inland Revenue, or the Director General of Telecommunication Regulatory Commission subject to the limit of 10% of the unabsorbed balance as at December 31, 2010, until the residue of the unabsorbed balance as at December 31, 2010, (after deducting the amount already set off up to December 31, 2011) is fully absorbed;

- In addition, in the case where there is no liability to VAT , the set off is extended against to cover up the taxes payable at the point of Customs, subject to the same restriction.

(Section 22 of the VAT Act will be amended)

3.3VAT Suspension Scheme

Certain changes will be incorporated to the VAT Act, which are already been administratively carried out and communicated to tax payers through Guidelines etc for the proper implementation of the SVAT system.

4Nation Building Tax (NBT) [Amendments to NBT Act No 9 of 2009]

4.1Exemptions :

(a)Importation of air craft or ships under HS Code Nos 8802.11, 8802.12, 8802.20, 8802.30 ,8802.40, 89.01, 89.02, 89.05, 89.06, 89.07 and 89.08

(b)Importation of artificial limbs, crutches, wheel chairs, hearing aids, accessories for such aids, white canes for the blind, Braille typewriters and parts , Braille writing papers and boards under HS Code Nos relevant HS Codes : 87.13, 90.21 ,6602.00.10 , 8473.10.10 and 8469.00.10

(c)Importation of timber logs under HS Heading No 44.03

(d)Importation of yarn except sewing thread and vegetable fiber based yarn under HS Heading Nos 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

(e)Importation of fabric under H S Code Nos 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

(Part I of the first schedule of the NBT Act will be amended.)

(f)Wholesale or retail sale of :

- printed books with effect from 1/7/2011

- goods to exporters

- Fresh milk, green leaf, cinnamon, rubber( latex , crape or sheet rubber) by collectors

- Petrol, diesel or kerosene in a filling station

(Section 3 of the NBT Act will be amended)

(g)Sale of locally manufactured clay roof tiles and pottery product by the manufacturer

(Part I of the First Schedule of the NBT Act will be amended)

(h)Sale of paintings by the creator of such painting

(Part II of the First Schedule of the NBT Act will be amended)

4.2The definition of the exporter for the purpose of the NBT Act will be adjusted to cover a manufacturer of goods who is exporting his produce through a Trading House established for export purposes as well effective from 2009.

5.Economic Service Charge ( ESC) [Amendments to ESC Act No 13 of 2006]

5.1Exemptions

- The chargeability to ESC will be further simplified by removing the liability to ESC on the turnover of any business of which the profits are subject to Income Tax. Accordingly, ESC is payable only on the turnover of any business, the profits for any year of assessment of which are not liable to income tax due to the application of any tax exemption or incurring losses during that period.

- Sale of locally manufactured clay roof tiles and pottery product by the manufacturer

5.2The threshold of ESC will be expanded from Rs 25mn to Rs 50mn per quarter.

6New Registrations and licensing of Motor Vehicles

(a)New Registration Charges for Motor Vehicles

In order to simplify the charges payable on registration of vehicle, the presently applicable relevant withholding tax would be amalgamated with vehicle registration charges. The applicable new vehicle registration charges will be as follow

Rs.

Vehicle Category Existing Proposed

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

Fork lift 15,000 20,000

Dual Purpose Vehicle 10,000 15,000

(b)Revenue Licensing Annual Fee for Motor Vehicle

8Excise Duty

Liquor produced from local plant material or plant product will be subject to a lower excise duty of Rs 100/- per proof liter.

9Excise (Special Provisions) Duty

Electric motor bicycles (H S Code 8711.90.10 ) and Polymers of ethylene in primary forms ( H S Heading 39.01) are exempted from Excise (Special Provisions ) Duty.

10Customs Duty

Considering requests received from industries and importers concerning reduction or increase of customs duty on imports were studied and duty revisions are proposed in order to protect the local industries adequately. Locally produced commodities are protected from imported goods by customs duties at levels of 30% (highest), 15% (intermediate) and 5% (low). The protection levels were reviewed and Customs duties are proposed to reduce on the products that have been protected for a long period of time. The local value addition, potential for exports and effect on the consumer were also considered to determine the level of protection. The protection levels are suggested to allow the local industry to compete with the imported products and promote to be competitive in the international market. The policy on Customs Duty structure remained unchanged except for the revisions proposed.

Hs Code Prevailing Customs Duty Proposed Customs

Duty (%)

1. To strengthening caring society

Braille typewriters

8469.00.10 5% Free

Parts for Braille type writers

8473.10.10 5% Free

2. To reduce upfront cost of raw materials

Prepared glues & 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 gelatin 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 spectacle

9003.90.10 15% Free

9003.90.90 15% Free

9001.90 5% Free

9001.50.10 5% Free

3. To encourage local value addition industries

Food preparations based on maize, soya bean and green gram

1901.90.91 Free 15%

1901.90.92 Free 15%

1901.90.93 Free 15%

Tyres for motor cars

4011.10 30% or Rs.90/kg 30% or Rs.100/Kg

Steel & parts of structures

7308.90.90 30% 5%

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 0% 15%

8418.21.30 30% 15%

8418.29.10 0% 15%

8418.29.20 30% 15%

8418.29.30 30% 15%

8418.29.90 30% 15`%

Moulds for rubber & plastics

8480.71 15% 5%

8480.79 15% 5%

Prefabricated buildings

9406.00 30% 5%

4. To boost the sport economy and to build the 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

6403.11 15% Free

5. To support transport (passengers and goods )

Tyres for 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

6. To promote use of energy serving lamp

Lamps/LED mounted in one housing & Solar lanterns

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 Tourists interest

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

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 and spectacles

9004.10 30% Free

9004.90 15% Free

Hair accessories

9615.11 30% Free

9615.19 30% Free

9615.90 30% Free

11 Ports and Airports Development Levy (PAL)[Amendments to PAL Act No 18 of 2011]

11.1 Exemption on importation of:

Items H S Heading/ Code

Artificial limbs, crutches, wheel chairs, 87.13, 90.21 ,6602.00.10 , 8473.10.10

hearing aids, accessories for such aids, and 8469.00.10

white canes for the blind, Braille

typewriters and parts , Braille writing

papers and boards

Timber logs 44.03

Yarn except sewing thread and vegetable 50.01, 50.02, 50.03, 50.04, 50.06, 51.01,

fibre based yarn 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

12 Special Commodity Levy

To simplify the taxation at the point of Customs in lieu of all the applicable taxes one single tax will be imposed for the following items.

Item HS Code

Maldive fish 0305.59.10

Dried fish 0305.59.90

Oranges 0805.10.10

Mandarin 0805.20.20

Grapes 0806.10

Apples 0808.10

Coriander 0909.20.10 and 0909.20.90

Saffron 09.10.30.10 and 09.10.30.90

13 Telecommunication Charges

13.1 Levy on outgoing international calls to be increased from Rs 2 per minute to Rs 3 per minute;

13.2 Rate of incoming international calls to be increased from US $ 7 cents per minute to US$ 9 cents per minute

14 Importation of goods by Sri Lankan Air Lines Limited, Air Lanka Catering Services Ltd and Mihin Lanka (Pvt) Ltd will be exempted from all applicable taxes on the importation of any goods at the point of Customs (including transactions through BOI Customs).

15 Levy on rooms of Five Star Hotels under the Finance Act

The application of levy will be subject to the concessionary rate specified for Airline crews in the Gazette Order under section 53 of the Tourism Act No 38 of 2005.

16 Visa Fee

Visa fees will be revised as follows

SAARC countries - US $ 10

Other countries - US $ 20

17 Time Bar Provisions for taxes at the point of Customs

Presently there is no time bar provision applicable to taxes collected by the Director General of Customs. A two year time bar provision will be introduced in relation to such taxes.

18 Technical Rectifications

Relevant amendment will be made to the Inland Revenue Act No 10 of 2006, Value Added Tax Act No 14 of 2002, Nation Building Tax Act No 9 of 2009, Economic service Charge Act No 13 of 2006, Finance (Amendment) Act No 15 of 2011, Telecommunication Levy Act No 21 of 2011, Tax Appeals Commission Act No 23 of 2011 to rectify certain ambiguities (including differences in translations)

19 International Financial Reporting Standards (IFRS)

Accounting Standard setters in several countries in the world including Sri Lanka have committed to converge from their existing domestic accounting framework to International Financial Reporting Standards (IFRS) promulgated by the International Accountancy Standards Board.

Necessary adjustments to the respective tax laws would be made after studying the tax implications of financial statements prepared under IFRS.

20 Hub Service ( Special Provisions) Act

20.1 A new Finance Act will be introduced to exempt the application of Customs Ordinance, Import Export Control Act (including regulations thereunder) and the Exchange Control Act to enterprises recognized by the Board of Investment as 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 brining into Sri Lanka maritime operation

- Providing front end services to the apparel manufacturers in the region

- Promoting leading buyers to establish headquarters operations in Sri Lanka for management of finance, supply chain and billing operations

- Promoting logistics services such as multi country consolidation in Sri Lanka

20.2 Provisions will be made in that to ensure the following:

i) Where an enterprise is engaged in an activity involving physical import of goods for re-export under any of the activities referred to above, such operations shall be carried out either in a free port operated under the supervision of the Sri Lanka Ports Authority of Sri Lanka or a bonded area declared under the BOI law or Customs ordinance.

ii) Any movement of goods from and to the identified free port or to a bonded area from or to the domestic territory will be considered either as an export or import as the case may be.

iii) In case of enterprises which are not involved in such physical movement of goods, but engaged in regional headquarter operations, supply chain management, etc., can be located outside such demarcated area.

21 Effective dates of proposed amendments

Unless stated otherwise, the proposed amendments in relation to :

(i) Income Tax and Economic Service Charge will be implemented with effect from April 1, 2012.

(ii) Value Added Tax, Nation Building Tax, Telecommunication charges and Visa Fee will be implemented with effect from January 1, 2012.

(iii) New Registration of Motor Vehicles will be implemented with immediate effect from November 24, 2011.

(iv) Luxury Motor Vehicle Tax, Cess, Ports and Airports Development Levy, Excise (Special) Duty, Excise Duty, Customs Duty and Special Commodity Levy will be implemented with immediate effect.
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