On 19 December 2022, the Inland Revenue Department (IRD) has published the Inland Revenue (Amendment) Act No. 45 of 2022. The IRD has also issued notices to taxpayers regarding significant tax changes. The changes are effective from 1 January 2023.

Significant changes include the following:

  • The Deduction of Withholding Tax (WHT), Advance Income Tax (AIT) and Advance Personal Income Tax (APIT) has been made mandatory with updated rates, effective from 1 January 2023.
  • In terms of Section 83A(1A) of the IRA as amended, with effect from 1 January 2023, an employer shall deduct Advance Personal Income Tax on any payment which falls under section 5 made to his employee.
  • Dividend declared by a resident company, on after January 1, 2023 shall be a final withholding payment.
  • The income tax rates applicable to Trusts – 30%, Companies – 30%, Unit trusts and mutual funds – 30%, and Non-Governmental Organizations – 30%, effective from 1 October 2022.
  • Additional 100% deduction of Marketing and Communication Expenditure (granted subject to the provisions of the IRA) is not available for the year of assessment 2023/2024.
  • Concessionary tax rates applied on gains and profits of following entities have been removed with effect from 1 October 2022: small and medium enterprises (SMEs), goods export businesses; specified undertakings; educational services; promotion of tourism; Agro-processing; construction; health care services; export companies registered with the BOI for the supply of health protective equipment for various government entities; gains and profits of companies listed in the Colombo Stock Exchange during the period 1 January 2021 to 31 December 2021; consideration received in respect of gems and jewelry; gains and profits from the supply of electricity to the national grid generated using renewable energy resources; and manufacturing.
  • Exemptions are removed from 1 April 2023 for the following:
    1. A new undertaking for sale of recycled construction materials commenced on or after 1 April 2021.
    2. An undertaking for the purpose of manufacturing of boats and ships (by a resident Person) in Sri Lanka commenced on or after 1 April 2021.
    3. Any renewable energy established with a capacity to produce not less than one hundred Mega Watts of solar or wind power and supplied such power to the national grid commenced on or after 1 April 2021.
    4. From an undertaking (by any resident person) to construct and install of communication towers and related appliances using local labour and local raw materials in Sri Lanka or to provide required technical services for such construction or installation commenced on or after 01 January 2021.
    5. Undertaking for letting bonded warehouses or warehouses related to offshore business in the Colombo and Hambanthota Ports commenced on or after 01 April 2021.