The Sri Lankan Inland Revenue Department (IRD) has recently released the Inland Revenue (Amendment) Act, No. 04 of 2023. This act was certified on 8 May 2023, has now been officially published in the Official Gazette on 12 May 2023. The IRD also published a public notice to taxpayers with explanations of the amendments made. Key changes made from such amendment Act to the Inland Revenue Act (IRA), No. 24 of 2017 are as follows:

Limitations of cash transactions

No deduction shall be allowed to a person in computing his income, and amounts incurred by him shall not be considered as cost of an asset (So that, amounts incurred and deductible as “cost of an asset” for the calculation of gains from the realization of capital assets or investment assets or for the purposes of allowance for trading stock, capital allowances and balancing allowances and for other purposes of the IRA shall also be disregarded), where such person pays those amounts to another person exceeding Rs. 500,000 in a day, or in respect of a single transaction, or in respect of a series of single transactions relating to one event, otherwise than by way of an account payee cheque or account payee bank draft or by the use of a credit card, debit card or electronic payment system through a bank account. This provision is effective from the 8 May 2023.

Withholding tax related changes

The Commissioner General shall have power to specify the procedure of withholding tax from any payment made to a non-resident person (foreign outward remittances) with effect from 08.05.2023. In addition to the relevant withholding agent who is making the payment to a non-resident person, financial institution (relevant licensed commercial bank or authorized dealer who engaged for such payment of outward remittances) shall also be complied with such procedure. Failure to comply with such procedure by the financial institution shall result into a penalty not exceeding Rs. 50,000.

Withholding agents who have deducted Advance Income Tax under the provisions of Section 84A shall file three quarterly statements, in addition to the annual statement which shall be filed 30 days after the end of the year of assessment (April 30th). Such quarterly statements shall be filed within thirty days after the end of each three months period ending on the thirtieth day of June and September and thirty first day of December as specified by the Commissioner General.

Tax Returns

Filing of tax returns through the e-service platform (e-filing) is mandatory for all taxpayers from the year of assessment commencing on April 1, 2023 (2023/2024). However, the Commissioner General may authorize to furnish manual tax returns based on the just and equitable reasons of taxpayers.

Assessments

The Assistant Commissioner may further amend the original assessment (after the amended assessment) within the time bar period (30 months) specified in paragraph (b) of subsection (2) of Section 135 of the IRA or within one year time from the amended assessment. However, one year time from the amended assessment is available only for alterations or additions made in the amended assessment to the original assessment.