INLAND REVENUE

GUIDE TO FILL THE ECONOMIC SERVICE CHARGE (ESC)

RETURN (FORM) NO. ESC 20

Economic Service Charge was imposed up to March 31, 2006 under the
provisions of the Finance Act No. 11 of 2004, subsequently amended by the Amendment
Act No. 7 of 2005.
Effective from April 1, 2006, ESC is imposed under the provisions of the
Economic Service Charge Act No. 13 of 2006.

(1) SCOPE
ESC is payable by every person (individuals, company or body of persons) and
every partnership excluding co-operative societies, non resident persons carrying on
business as an owner or chatterer of an aircraft or ship and any local authority or
government institution.

(2) CHARGEABILITY

ESC is payable for every quarter of every year of assessment commencing on or

after April, 1, 2006. Effective from the Quarter commencing on April 1, 2006. ESC is
imposed on quarterly basis of the current quarter.

(3) TAX BASE

The ESC is payable for any quarter at the rate specified in item 5, on every part of
the relevant turnover (i.e. the aggregate turnover) for that relevant quarter of every trade,
business, profession or vocation carried on or exercised by such person or partnership in
Sri Lanka, whether directly or through one or more agents and the commercial operations
of which (not being any trade or business which deals in the wholesale or retail of goods,
not manufactured or produced by it) had commenced 3 years prior to the first day of the
relevant quarter.

(4) PERIOD OF LIABILITY AND LIMITS

¾ Liability arises for the current quarter , if the aggregate turnover from every trade,
business, profession or vocation for that Quarter is Rs. 10 Million (Rs.
10,000,000/=) or more.
¾ Maximum amount of ESC payable for a Quarter is Rs. 15 Million (Rs, 15,000,000/-)

(5) RATES

Type of Turnover Rate

From the Business of Distributor* 0.1%

(“* Distributor” in relation to any manufacturer or producer
or any goods in Sri Lanka means any person or partnership
appointed by such manufacturer or producer for the sale in
the wholesale market, of such goods, at such price as may
be determined by such manufacturer or producer, from
time to time.)
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From any Trade , Business, Profession or Vocation the Profits 0.25%

and Income which are exempt from Income Tax
(including BOI Companies)
From Trade, Business, Profession or Vocation the Profits and 0.5%
Income which are liable to tax
* at a reduced rate specified in Fifth Schedule to the
Inland Revenue Act;
[

* at a rate equivalent to the reduced rates specified in Fifth Schedule

to the Inland Revenue Act in a case of a BOI Company
From wholesale of retail trade other than manufactured or produced 0.5%
by the seller, (Except the Business of a Distributor)

From primary conversion of any Tea, Rubber or Coconut 0.5%

plantation other than produces of alcoholic beverage
Others 1%
(6) DEFINITIONS
Liable Turnover
General Definition:
Amounts received or receivable for any quarter from every trade, business
Profession or vocation carried on or exercised by a person or partnership in Sri Lanka,
whether directly or through one or more agents and the commercial operations of which
(not being any trade or business which deals in the wholesale or retail supply of goods,
not manufactured or produced by it) had commenced 36 months prior to the first day of
that quarter.
The following turnover should be disregarded
• The output VAT (if registered for VAT)
• Proceeds from the disposal of capital assets
• Bad debts, incurred (However, bad debts previously written off and
recovered subsequently to be taken into account.)
SPECIAL DEFINITION
(a) Insurance business:
The insurance premium received or receivable in respect of
ƒ Life Insurance or
ƒ Insurance against damages or destruction by strike, riot, civil
commotion or acts of terrorism and paid into the considered fund shall
be deemed not to be included in the turnover of such insurance
business.
(b) Bank :
In the case of a Bank, the receipts of such Bank by way of interest,
discounts dividends, exchange, service charges, commission, brokerages
and any other income derived in the course of its business should be
deemed to be included on the turnover.
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(c) Definition by Regulations:
Regulations have been made in the case of a freight forwarder to treat the
gross commission as the turn over without subjecting to a chargeability
threshold.
(d) Distributor
Any person or partnership appointed by the manufacturer (or Producer)
for the sale in the wholesale market at such price as determined by such
manufacturer (or Producer), from time to time.
If you are a Freight Forwarder or a Distributor or if you have
obtained the approval to prepare accounts on December basis, please
consult the Deputy Commissioner (ESC) for relevant guidance.
(7) CALCULATION OF ESC
(a) If the total turnover has not exceeded 10 million or turnover not liable to ESC,
please enter that turnover amount in the cage No. 02 of page 2 of the ESC
return. (Turnover not liable for ESC)
(

(b) ESC is computed on the Turnover, from any trade business, profession or vocation
of the Current Quarter
ESC should be calculated at the rate given under item (5) on the liable turnover.
Example (1)
“A” is a businessman. Following turnover were reported for the quarter ended
30.06.2006.
Sale of Garments =Rs. 10 million
(Not manufactured by him)
Export of Garments =Rs. 25 million
Sale of capital assets =Rs. 5 million.
Sale of Copra produced by him =Rs. 10 million

Total ESC payable for the quarter ended 30.06.2006 is as follows:

On the sale of garments - Rs. 10,000,000 x 0.5% = Rs. 50,000
(since the transaction is of a buying & selling business)
On the export of Garment - Rs. 25,000,000 x 0.5% = Rs. 125,000
(since the profit and income are chargeable at a lower rate)
On the sale of Copra – Rs. 10,000,000 x 0.5% = Rs. 50,000
(since it is a primary conversion of coconuts)
Sale of Capital Assets = Nil
Total ESC payable = Rs. 225,000
Example (II)
“B” is a trader and a appointed distributor of the Company C Ltd. Following receipts
were reported by B for the quarter ended 30.06.06
a. Sale of goods in wholesale market which were = Rs. 30,000,000
manufactured & price fixed by C Ltd
b. Turnover from his Grocery = Rs. 10,000,000
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ESC Liability as follows:

Detail of turnover Amount Rate ESC liability
a. Turnover of Distributor Rs. 30,000,000 0.1% Rs. 30,000
b. Turnover from Grocery Rs. 10,000,000 0.5% Rs. 50,000
Total Liability Rs. 80,000
(8) PAYMENT AND RETURN
Payment
o On quarterly basis
o On or before the 20th day after the end of every quarter
i.e. For the quarter ended 30th June 2006, payments should be made on or
before 20th July 2006.
Payments can be made at any of the following branches of Bank of Ceylon
using ESC Remittance forms attached with the Returns.
i. Metropolitan Branch located at the Inland Revenue Building, Colombo 02
ii. Negombo Super Grade Branch
iii. Kandy Super Grade Branch
iv. Kurunegala Super Grade Branch
v. Rathnapura Super Grade Branch
vi. Kalutara Super Grade Branch
vii. Galle Super Grade Branch
viii. Matara Super Grade Branch
ix. Anuradhapura Super Grade Branch
If you need additional Remittance forms yon can obtain at respective Banks,
ESC Branch and the Tax Payer Service Unit.
You are kindly requested not to make the payments to any other Bank other than the
above branches of the Bank of Ceylon.
Set off against Income tax
ESC paid for any quarter of an year of assessment can be set off against any
income tax payable for that year of Assessment.

FURNISHING RETURN

Return
o On quarterly basis
o On or before the 20th day after the end of every quarter
i.e. For the quarter ended 30th June 2006 return should be furnished on or
before 20th July 2006.
If you need any help or advice please contact the following telephone numbers.

2324796, 2327872, 2380207

If you require a translation of this Guide either in Sinhala or Tamil please write to the
Deputy Commissioner of Economic Service Charge at the address given on the first page
of the return.