The government yesterday announced a new investment incentives scheme and new income tax structure that will come into effect with the passage of the new Inland Revenue Act in Parliament.
Finance Minister Ravi Karunanayake, giving out details of the new investment relief approach of the government, said significant tax exemptions and incentives have been granted to the investors depending on the size of the investment.
The minister, however, stressed that the tax holidays would hereafter be granted only when the investment is made, and not prior to that.
“We have introduced a different concept to ‘tax holidays’. So far, the tax holidays were granted just after the investors agree on the investment. But in the future, the investors have to make the investment first and show their commitment to be eligible to get the tax holiday,” Karunanayake said.
He said the generation of one million job opportunities, spurring investments to meet the target of USD 5-6 billion Foreign Direct Investments per year and giving a much clearer and simpler tax structure are the intentions of the new proposals.
“Earlier, there was a convoluted process and investors were perturbed. Now we have given a straightforward approach to them,” he said.
The minister, who was addressing a press conference at his ministry premises yesterday, said the Inland Revenue Bill that received Cabinet approval was already sent to the Government Printer to publish in the Gazette.
“The passage of the Bill will take several weeks as it has to remain in the Order Paper of Parliament for a certain number of days after the first reading. The Prime Minister instructed me to speak to the media and give out the details of the new system that will come into operation, so that the investors coming into the country during this transient period will not be confused,” he explained.
The minister, commenting on the borrowings, said the government borrowings exceeded the limit approved by Parliament from 2011-2014, but this amount was lesser than the approved limit in 2015 and 2016.
He said this year’s revenue has shown significant improvement, adding that it was Rs. 94 billion above the estimate as of now. He attributed this improvement largely to the Revenue Administration and Management Information System (RAMIS) newly introduced to the Department, adding that automatic filing process “brought a sense of discipline” to the tax collection.
According to the new investment incentive scheme announced yesterday, investments over USD 2 billion for ports development will be fully exempted from the Corporate Tax. Incentives have also been given to investments less than USD 3 million, investments that generate significant number of employment opportunities, as well as large-scale investments.
The minister explaining the new income tax structure said, hub activities, export of IT/BPO services, export of gold, gem and jewellery, relocation of International Head Quarters, earning from international trading platform, organic fertilizer production, solid waste management, export of services by individuals, agriculture/poultry/dairy, middle income housing would be exempted from the Corporate tax.
“Corporate tax system is simplified to a three-tier rate structure and concessionary rate is capped at 50 percent of the standard rate,” the minister said, adding that concessionary rates apply for SME’s, export of goods and services, local IT industry, manufacturing furniture, education, tourism, fisheries, plantation, renewable energy, freight forwarding, Employees Trust Funds, Provident or Pension Funds and Termination Funds and charitable institutions.
Higher rates of Corporate Tax apply for liquor, tobacco, and betting and gaming. Tax free threshold for Personal Income Tax is Rs 500,000 per annum and this threshold for PAYE tax is Rs 1.2 million.
Tax on Capital Gain will be 10 percent, and it is applicable to land and buildings and other investments excluding quoted shares.