Recently the Sri Lankan Inland Revenue Department (IRD) announced that the proposals made in Budget 2016 regarding corporate and individual tax rates.
Main corporate income tax rate: As per the proposed revised Budget for 2016, a 28% tax rate will be applicable for banking and finance business including insurance, leasing and trading activities other than manufacturing or providing services. The tax rate for betting and gaming; liquor and tobacco business will be 40%. 17.5% tax rate will be applicable for all other sectors including services, manufacturing and agriculture.
Individual taxation: There are no changes to the prevailing progressive income tax rates, tax-free allowance, tax deduction and tax exemptions on income from employment including the Pay-As-You-Earn (PAYE) scheme. Employment income is taxed at a maximum rate of 16%. The PAYE tax liability of an employee is deducted from the employee’s remuneration and the Ministry of Finance will introduce provisions to prevent employers from settling the employee’s PAYE liability. The maximum tax rates for profits from the following sectors are as- any financial or trading activities – 24%, liquor, tobacco, lottery, betting and gaming activities – 40%; and other sectors – 17.5%. Income from others sources such as rent, net annual value and similar sources are taxed up to a maximum rate of 24%. The prevailing withholding tax rate of 2.5% on interest deposits continues to apply.
