Impact & Agriculture as 14%. We see this as

Impacton business by the new act With the visionaccompanied with the V2025 A Country Enriched, the government motive is t moreexpansion in SME (Small & Medium Scale Business) & Agriculture sector.In the  Inland revenue act also they haveimposed lower tax rate for the SME’s & Agriculture as 14%.

We see this as agood motive since most of the business and GDP of Sri Lanka comes from SME’s. Theyhave included several other business also in this 14% layer such as Tourism,IT, Education, & Exports. Development in Tourism and Export industries  will help to increase foreign income whichwill help to show positive impact on countries current account and developmentin IT & Education will help for transforming Sri Lanka into the hub of theIndian Ocean, with a knowledge-based, highly competitive, social-marketeconomy.Most of other industriessuch as banking & finance, leasing, Insurance, trading businesses will bewill be taxed at 28%, it will be decent rate to be taxed.

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Tobacco & Liquorproducts will be taxed at highest rate of 40% which will help the government tofind more revenue since those products have high demand in Sri Lanka and theyare less sensitive to price level.Business losses can besettled against income from business or income from investment activities andit can be carried forward until six years. The current restriction on  utilization of losses up to 35%  of annual income has been withdrawn by thenew act and this will have positive impact on businesses.

Some business are tiedwith special rules with the new inland revenue act.(1)  Life Insurance  Thegains and profits liable to tax from the business of Life Assurance, whethermutual or proprietary, is the aggregate of the following, subject to the deductionof any unrelieved loss from business specified in the act:a) The surplus distributed to shareholders fromthe life insurance policyholders fund as certified by the Appointed Actuary,andb) The investment income of the shareholder fundless any expenses incurred in the production of such income.The surplus distributed to a life insurancepolicy holder who shares the profits of a person engaged in life insurancebusiness shall be deemed as profits from business of that person and be liableto tax accordingly.Current restriction on utilisation of lossesfrom Life Assurance business against profits from other sources has beenwithdrawn.Temporary concession has been granted via areduced rate of tax of 14% on the surplus distributed to life insurancepolicyholders who shares profits, for three years of assessment from thecommencement of the proposed act. (2)   Information Technology A company engaged predominantly in the businessof providing information technology services is eligible to claim a deductionequal to 135% of the total amount paid to its employees (other than adirector), where such payments are to be included in computing the taxableincome of such employees, subject to the following conditions:a) The company should have at least 50 employeesduring the whole of the year,b) Such employees are subject to tax under thePAYE tax schemeA company entitled for the above deduction shallnot be entitled to an enhanced depreciation allowance granted as temporaryconcessions for first three years of enactment.Furthermore, if the above deduction results in aloss, such loss cannot be carried forward and deducted in any succeeding yearof assessment. (3)   Banking Incomeor loss from the business of banking should be computed separately from otherbusiness activities.

For this purpose, the term “banking business” means “thebanking business of a financial institution”.The prevailing restriction on the claim ofdoubtful debts (i.e. up to a maximum of 1% on aggregate debts outstanding atthe end of a year of assessment) has been withdrawn.Furthermore, debts written off and doubtfuldebts can be claimed as long as the person has taken reasonable steps inpursuing payment and the person reasonably believes that such debt will not berecovered.In the event a bank opts to claim doubtful debtsbased on provisions made in line with regulations established by the CentralBank of Sri Lanka, the amount deductible will be limited to the extentspecified by the Commissioner General of Inland Revenue.

 (4)   Finance Leasing Financelease agreements to be considered loan granted by the lessor to the lessee.Accordingly, the current method of calculatingthe profits from the business of finance lease may change and the leasingbusiness would be subject to tax on profits derived from such operations beingthe lease interest less expenses.Current restriction on utilization of lossesfrom lease business against profits from other sources has been withdrawn. (Anon., n.

d.) Bibliography Anon., n.d. Online Available at: http://www.ft.lk/special-report/New-Inland-Revenue-Act–What-it-is-and-new-amendments/22-639300