Know your taxes under the new tax system in Sri Lanka

What are the significant aspects of the new tax amendment? ?

It is a known fact that the people of Sri Lanka have been subject to taxation since ancient times. At present, Sri Lanka’s tax revenue is raised through the revenues generated by the Inland Revenue Department, Excise Department and Sri Lanka Customs. ?Looking at the country’s tax revenue in recent times, around one trillion rupees was raised in 2019. However, in 2020, due to various amendments, the tax revenue dropped to Rs.500 billion. As a result of the COVID-19 pandemic and the economic downturn that followed, it gradually declined further. While tax revenue fell from one trillion rupees to Rs.500 billion, the expenditure too reached the same amount, leading to a serious crisis. The new tax amendment introduced in 2022 was aimed at recovering the lost tax revenue of Rs.500 billion and thereby stabilizing the economy and national tax revenue.

How is the new tax amendment implemented?? ?????????

The tax amendments introduced in 2020 removed a number of taxes including withholding tax and PAYE tax. Whereas earlier the PAYE tax was regarded as a complete tax, all the income streams of a person were now consolidated into a single tax. Another method proposed was for taxpayers to make quarterly self-assessment income tax payments, but this failed due to complications arising from the pandemic.? Under the new tax system, which raised personal income tax up to 36%, we have seen many people face various difficulties in their day-to-day life. It can thus be said that the current tax system is one that is felt by our bodies. ?In addition to the salary, other sources of income are also subject to tax at the end of the year.

If the salary earned from your job or from a source of income outside your salary is close to Rs.100,000 per month, you will have to pay tax on this amount. Under the previous tax system, one was liable to pay tax only when the income exceeded Rs.250,000 per month. Under the new tax system introduced in 2022, the tax exemption has been reduced from Rs.3 million annually to Rs.1.2 million.

Though the income tax imposed reaches 36%, this amount is not charged uniformly. Once the total income is deducted from the tax exemption limit of Rs.1.2 million yearly, a tax of 6% on the first Rs.500,000, 12% on the second Rs.500,000 and so on will be charged. While the tax rises progressively, those earning over Rs.2.5 million are subject to a 36% income tax.

With regard to taxes, there is no need to create any unnecessary fear within ourselves. Furthermore, the tax policy implemented in Sri Lanka is not a permanent one. ?We hope that in the future, once the nation reaches a level of economic stability, the tax policy will change. In order to surmount a high task load, businesspeople may entrust tax documentation and tax payment to third parties. To gain a strong understanding on taxation and make things much easier, it helps to interact with a tax consultant or chartered accountant. It is prudent to consider the legal implications of tax evasion.? If you have deliberately avoided paying tax, once exposed, it will be considered a criminal act and will result in a fine or imprisonment.???? ?????????????????????????????

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Talk-show publish date – 25th June 2023?? ??