Capital gains tax rate jumps to 15%, may force land, building sales
The Treasury has proposed major changes to its tax framework, including increased Capital Gains Tax (CGT) rates and a one-off relief for unpaid tax, through a Bill to amend the Inland Revenue Act, published on February 24.
Key proposals include an increase in the individual capital gains tax rate from 10 per cent to 15 per cent, effective from April 1. “This will impact transactions involving the sale of assets such as land and buildings,” Suresh R. I. Perera, Principal and the Head of Tax & Regulatory at KPMG in Sri Lanka explained.
An individual’s tax return will be accepted as filed for the year if they declare and pay tax on taxable income of at least 120 per cent of the previous year’s tax paid, pay the full tax amount with no refund claimed, and provide an affidavit confirming no fraud, evasion, or wilful default regarding the current year’s tax payable.
To enhance transparency and enable investors to meet their tax obligations accurately, the proposed Amendment Bill requires Unit Trusts to issue detailed income certifications to investors. Changes include a requirement for Unit Trusts to issue detailed income certifications to investors, outlining income earned and taxes deducted, with a compliance timeline of five months post-assessment year. If certifications are not provided, Unit Trusts may be taxed as companies.
However, some proposals limit the taxpayers’ such as if a taxpayer fails to provide required documentation by April 1st. Such documents cannot be utilised in judicial proceedings against assessments or in tax appeal submission proceedings unless accepted by the Commissioner General, Mr. Perera explained. Senior citizens can submit their tax returns in writing or electronically starting from the year of assessment 2025/26.
The sale of motor vehicles will also be free from income tax from April 1, 2024.
A new category of individual service providers will face a 5 per cent withholding tax when payments exceed Rs. 100,000 monthly, applicable only to company payers. Holders of the Golden Paradise visa will be exempt from taxation on foreign income starting April 1, 2025, as they won’t be deemed Sri Lankan tax residents. “However, the Bill fails to clarify the tax status of Investor Visa holders, which may affect the investor visa scheme’s viability,” Mr. Perera added.
The current income tax law provides an exemption for interest paid on foreign loans. This exemption will be granted only if the loan proceeds must be remitted to Sri Lanka, and such proceeds are actually utilised in Sri Lanka, Mr. Perera added. “This would ensure the exemption could not be abused, and the intention and the rationale for granting the exemption would be fulfilled.”
The export of liquor and tobacco will incur a tax of 30 per cent, differing from the 40 per cent tax rate set for their manufacture, sale, or import. This direction encourages companies to export.
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