On 7 September 2017, the Parliament of Sri Lanka has passed the new income tax law. Minister of Finance said all the provisions of the new income tax law will be implemented from the 1st of April 2018.

Corporate Tax

Rate: Beginning from 1 April 2018, the corporate income tax (CIT) rates will be revised to a three tier structure consisting of a lower rate of 14%, standard rate of 28%, and a higher rate of 40%.

The higher rate of 40% will be applicable on the profits and income of Betting and gaming, Liquor, Tobacco in 2017/2018 assessment Year and Liquor and Tobacco in 2016/2017 assessment Year.

Reduced rate: Beginning from 1 April 2018, the lower rate of 14% will be applicable on the profits and income of small and medium enterprises (SMEs) where the turnover does not exceed 50 million Sri Lankan rupees (LKR), export of goods or services, agriculture, and education.

Capital gains: With effect from 1 October 2017, a new capital gains tax will be introduced, charging a flat rate of 10% on the gains derived on disposal of immovable properties, at the time of realization of such gains.

Appeal: From 1 April 2017 the Tax Appeal Commission must determine an appeal within 6 months of receiving the appeal.

Withholding Tax

Dividends: With effect from 1 October 2017, an increased 14% tax rate will apply to withholding tax on dividends.

Interest: With effect from 1 October 2017, 5%, 10%, and 8% rate apply for individuals and charitable institutions on deposits made.

Fees: Subject to 5% withholding tax will be reintroduced for specified fees exceeding LKR50,000 effective from 1 April 2017.

Individual Tax

The individual annual tax free income limit will be increased from LKR 750,000 to LKR 1.2 million with effect from 1 October 2017. The new threshold is following: