BUDGET 2017 An Over View
1 BUDGET PROPOSALS 2017 1. Personal Income Tax Employment Income 1.1 Tax Free Threshold Tax free threshold on employment income will be increased from Rs. 750,000 to Rs. 1.2Mn. The deduction of Allowance on employment income claimed under qualifying payment will be increased from Rs. 250,000 to Rs. 700,000 which along with the Tax Free Allowance of Rs. 500,000 will make up the increased threshold of Rs. 1.2Mn. 1.2 The present exemption of Rs. 50,000 per month on providing transport will be removed. 1.3 Tax Rates will be adjusted in equal slabs of Rs. 600,000 each from 4% to 24%. 1.4 PAYE on second employment The tax rates on second employment will be revised as follows. Payment less than Rs. 50,000 per month, rate is 10%. Payment over Rs. 50,000 per month, rate is 16%. Personal Income Tax other than Employment Income 1.5 The Tax rates applicable will be adjusted in equal slabs of Rs. 600,000 each from 4% to 24%. 1.6 Interest income The present exemption on interest income on deposits applicable to Senior Citizens will be restricted to Rs. 1.5Mn per month. 2. Corporate Income Tax 2.1 Changes in Rate Structure The corporate income tax rates will be revised to 3 tiers structure of lower rate of 14%, standard rate of 28% and the higher rate of 40% as follows. a) Lower Rate 14% The lower Rate of 14% will be applicable for the profits and income of: SMEs Export of goods or services Agriculture Education 2
For this purpose, SME will be defined with specific criteria of having a maximum turnover limit of Rs. 500Mn per annum. b) Higher Rate 40% The higher rate of 40% will be applicable for the profits and income of: Betting & Gaming Liquor Tobacco c) Standard Rate 28% The standard rate of 28% will be applicable on the profits and income of all the other sectors including Banking and Finance, insurance, leasing and related activities etc. 3. Other Tax Rate changes The present tax rate of 10% applicable for Funds (EPF, ETF, etc), Charitable institutions, Dividends, Treasury Bonds and Treasury Bills and any other sector will be increased to 14%. 4. Income Taxable at special Rates Special rates were applicable to certain categories of income such as educational services, agricultural undertaking, qualified export profits, promotion of tourism, construction work, health care services and some other specific services. Now it appears these will also come under the General Rates proposed for Corporate Sector and for individuals according to the new rate slabs given. It is not clear whether proposed 14% concessionary rate given for profit and income from SMEs, export of goods and services, agriculture and education is applicable for individuals as maximum tax rate for their profit and income from such source. 5. Withholding Tax (WHT) 4.1 Rate changes on Interest WHT on interest income will be increased to 5% 4.2 Notional Tax Credit The Notional tax credit will be removed and the income on instruments subject to upfront tax such as Treasury Bills, Bonds or Corporate Debt Securities will be taxable on the net interest. 4.3 Withholding Tax on specified fee WHT of 5% will be introduced for specified fees exceeding Rs. 50,000/ per month. 6. Income Taxable at special Rates Special rates were applicable to certain categories of income such as educational services, agricultural undertaking, qualified export profits, promotion of tourism, construction work, health care services and some other specific services. 3
Now it appears these will also come under the General Rates proposed for Corporate Sector and for individuals according to the new rate slabs given. It is not clear whether proposed 14% concessionary rate given for profit and income from SMEs, export of goods and services, agriculture and education is applicable for individuals as maximum tax rate for their profit and income from such source. 7. Capital Allowances Rate Revision Asset type/criteria The rate of capital allowances will be revised as follows. Plant, machinery or equipment the present rates of 33 1/3%, 50% and 100% will be revised as 20% (5 equal installments) Buildings the present rate of 10% will be reduced to 5% (20 equal installments) 8. Capital Gain Tax A capital gain tax will be imposed at the rate of 10% on the gain realized from disposal of immovable properties effective from 01.04.2017. 9. Value Added Tax 8.1 Threshold & Rates The rate change of 15% effective 01.11.2016 amended as per Value Added Tax Amendment Act passed in October will continue. Threshold will be Rs. 3 million per quarter or Rs. 12 million per annum for any taxable activity other than wholesale or retail Trade effective from 01.04.2016. Threshold for wholesale & Retail activity will be Rs. 12.5 Million per quarter as per Amendment Act effective from 01.11.2016. Some of the existing exemptions removed and new exemptions have been introduced. 8.2 As per the Budget Proposal SVAT system will be terminated. 10. Nation Building Tax As per Amendment Act passed in September 2016, 9.1 NBT rate will be continued at 2%. 9.2 Threshold applicable will be Rs. 3Mn per quarter including turnover of operating a hotel, guest house, restaurant or other similar business, providing educational services, supply of labour for which threshold was Rs. 25Mn per quarter effective 01.04.2016. As per Budget Proposals, certain exemptions have been removed and new exemptions have been proposed. Main changes are; 4
Removal of Current Exemptions The services of a travel agent in respect of inbound tours, if such person is registered with the Ceylon Tourist Board. Services being construction services including the services of sub contractors. New Exemptions Printed books, magazines, journals or periodicals other than news papers, identified under HS Code Nos 4901.10, 4901.91, 4901.99, 4901.99.10, 4902.10.10, 4902.90.10 Solar panel modules and accessories under specific HS Codes 11. Economic Service Charge According to Budget Proposal, the present threshold will be reduced from Rs. 50Mn per quarter to Rs. 12.5Mn per quarter; Rate will be.5%; Maximum liability currently at Rs.250 Million will be removed. Changes effective from 01.04.2017 12. Revision to Time bar Provisions Assessments The present period to issue assessments of 18 months will be reduced to 09 months. Appeals The present period of 24 months to hear an appeal by the Commissioner General will be reduced to 06 months. The present period of 24 months to hear an appeal at the Tax Appeal Commission will be reduced to 06 months. We have given only some of the main proposal which in our opinion relate to our clients. In case you need any further clarification do not hesitate to contact us. Disclaimer: The information contained herein is of a general nature and is not intended to address the specific circumstances of any particular individual or entity. Although we have endeavored to provide main proposals contained in the budget in a summary as accurately as possible, there can be no guarantee that such information may not be subject to change. Clients are advised not to act upon such information without proper professional advice after a thorough examination of the particular situation.