Incentives/Changes in Incentives relevant for BOI enterprises

Proposed in Budget Proposals 2014

Further to the tax incentives granted for BOI enterprises with the budget proposals 2012 and
2013, the Inland Revenue (Amendment) Act No 8 of 2012, the budget proposals 2014 has
introduced the following concessions for the selected enterprises in different sectors.

Exemption of Corporate Income Tax

Reduced Corporate Income Tax Rates
Permissible Deductions
Revisions to Exemptions
Revision of VAT, NBT , PAL and Cess impose on Imports & exports in support of domestic
production and local value additions
Amendments to Strategic Development Projects Act No 14 of 2008.

Exemption of Corporate Income Tax

1. Royalty income from international brands
A tax exemption for a specific period of time would be granted to royalty income derived by any
establishment which acquires any internationally recognized intellectual property and earn
income in foreign currency.
Total cost of acquisition will be allowed as a deduction for income tax purpose.
2.

Relocation of International Head Quarters or Regional Head office to Sri Lanka

A tax holiday for a specific period has been proposed for relocation and expenses connected with
the incorporation of such Head Quarters to be made tax deductible. It is also proposed to grant
relief from VAT and NBT on receipt s in foreign currency.

3. Services under section 13(ddd)

Currently services provided by a person or partnership in or outside Sri Lanka to a person
outside Sri Lanka are exempted from income tax if the income from such services is remitted to
Sri Lanka. No change has been proposed to this concession but it was proposed that such
services must be utilized outside Sri Lanka.

Reduced Corporate Income Tax Rates (Concessionary rates)

1. For Export Related services
It is proposed a concessionary rate of 12% to profits derived from the supply of certain services
to exporters of goods or services and to the foreign principals, provided that the services
essentially related to manufacture of goods or provision of service and payments for said service
should be received in foreign currency in Sri Lanka. (currently only services provided to garment
exporters are taxed at the reduced rate of 12%.)
2. For qualified export Profit
Under the section 51 and 52 of the IR Act, the concessionary tax rate of 12% granted for
qualified export profits which was to expire on 31st March 2014 and 2015 will be
extended.(sections 51 and 52 cover profit and income from an undertaking engaged in the
export of nontraditional goods, performance of any ship repair, ship breaking, repair and
refurbishment of marine cargo and containers, the provision of computer software, computer
programs or such other services as specified by the Minister by gazette).
4. For International Services
It is proposed to reduce the corporate tax rate by 50% for a five years, for entities established by
professionals to provide international services in BPOs engaged in Human Resource
Management, Finance & Accounting, Law and Procurement etc..(to encourage professional to
set up partnerships to provide international services.)
5. Services provided to Shipping Industry
Service related to Shipping Industry to be taxed at 12%, in par with export income.

Permissible Deductions
1. Cost of Skill Development
It has been proposed to deduct up to a ceiling of 10% of the income tax payable, as per the cost
incurred for training of trainees in the shipping industry by local ship operators or shipping
agents for foreign ships.

2. Research & Innovation expenditure and the cost of purchasing IPP

For the apparel sector, triple deductions will be provided for the cost of research and innovation
done within the business and the cost of purchasing international intellectual property rights
and the cost of operations in relation to such rights will be recognized for tax deduction.
Exemption or Revision of VAT
1. Copper cables used for the infrastructure development in the Telecommunication Industry , if
not available in Sri Lanka in adequate quantities and quality , will be exempted from VAT at the
point of Import.
2. Supply of gully bowsers, semi-trailers for road tractors and any machinery or equipment used for
garbage disposal activities.
3. Frozen Bait (0511.91.90), Fish Hooks/Rods/Reels and Fishing tackles ( 9507.10, 9507.20,
9507.30, & 9507.30) will be exempted from VAT at the point of Import or supply.
4. Marine Propulsion Engines under HS Codes 8407.21, 8407.29 will be exempted from VAT at the
point of Import or supply.
5. Ties and Bows under HS codes 6215.10, 6215.20 & 6215.90 will be exempted from VAT at the
point of Import or supply.
6. Designer Pens under HS code 9608.30 will be exempted from VAT at the point of Import or
supply.

Restriction of VAT Exemptions

1. VAT will be imposed on import of Agricultural Tractors or road tractors for semi trailers
under HS codes Nos. 8701.10.10, 8701.10.90, 8701.20.10, 870190.10,8701.90.20 (VAT
exempted before)
2. VAT will be imposed on import of Machinery and equipment for the tea and rubber industry
under HS codes Nos. 8438.80.40, 8429.10 (VAT exempted before)

Exemption or Revision of NBT

1.

NBT will be exempted on retail trade of goods at duty free shops for payment in foreign
currency.
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2. NBT will be exempted for Services provided in any airport for payments in foreign currency.
3. NBT exemption on the turnover on the sale of tractors will be restricted to locally manufactured
tractors only.

Import/ Export Cess

1. High rates of import Cess will be imposed on import of dairy products in order to encourage
domestic production.
2. Export Cess applicable for tea,(HS Code 09.01.11.10) rubber , coconut, cinnamon (HS Code
09.06.11.10) and pepper (HS Code 09.04.11.10) exports in primary form will be further
strengthen , and export Cess will be introduced to Clove (HS Code 09.0710.10) Nutmeg &
Cardamoms (HS Code 09.08.11.10) to encourage domestic value addition.
3. Revised import cess on wide range of Cut flowers, Foliage, Vegetables, Mushrooms and truffles,
Yams, Nut & fruits, Fruit juices, coffee, pepper, vanilla and cinnamon to encourage domestic
production.

Revisions of Customs Duty

1. In order facilitate fishing industry, custom duty on Frozen bait (HS code0511.91.90) has been
reduced from 15 % to 7.5% w.e.f. 22nd November 2013.
2. Tax on Fishing Boat imports will be increased (HS Code 89.02) to encourage local production
(custom duty 15% will be 25%?)

Telecommunication Levy
Telecommunication levy was introduced in 2011, aggregating a number of indirect taxes that were
imposed on the telecommunication industry. The levy is imposed on the gross turnover of a
company.
The concessions introduced in 2013 for services provided through internet/broad band, to
facilitate IT and BPO sector would remain at 10% even though the telecommunication levy is being
proposed to increase from 20% to 25%.

Amendments to Companies Act No 7 of 2007

(i) The provisions will be incorporated to the Companies Act to expand the present
requirement in obtaining the certificate issued by the Commissioner General of Inland
Revenue as part of the annual return under the Companies Act, in obtaining a tax
clearance certificate by a company before effecting the liquidation or any change such
as amalgamation, merger, re-structuring etc.
(ii) The present provisions in the Ninth Schedule to the Companies Act which sets out the
present preferential claims of default tax of one year will be expanded to 5 years with
the commencement of liquidation.