Sri Lanka: ECONOMIC SERVICE CHARGE (ESC)
Information about doing business in Sri Lanka from HLB
A new tax was introduced called ESC from 1st April 2004, which could be set off against Income Tax of the same year, with the provision to carry forward the un utilized balance for the next two years.
Every person or Partnership in every business, profession or vocation other than trading, which has been operating for three years or more, whose aggregate Turnover (excluding sale proceeds of capital assets & VAT) is Rs.50 million in the relevant year is liable, and ESC Payable is limited to Rs.50.mn in that year. The relevant year refers to the turnover of the previous year. Trading become liable even below three year rule.
For clarity, the table below states the rates applicable.
Any profits tax at specified rates 0.5%
Exempt Profits /BOI Co. approved under sec.17 0.25%
Trading (w.e.f.1st April 2005) 0.5%
Any other Turnover 1.0%
Presently the following rates are applicable
Basic Raw Material 2.5%
Semi Processed Raw Materials 6%
All Intermediate Products 15%
Motor Vehicles & finished Products 28%
Absolutely essential items & items not manufactured in Sri Lanka are exempt. Duty Free imports are granted for machinery to acquire new technology where new Companies invest over Rs. 5 mn and existing Companies invest over Rs. 2 million.
In terms of section 57 (1) of the Inland Revenue Act, a Non- Resident Company is liable to pay remittance tax at 10% on total remittances for that year, from year of assessment 2003/04.
i. Social Responsibility
LevyUnder the Finance Act No 5 of 2005 a Fund was established for the National Action Plan for Children. For this purpose a Social Responsibility Levy of .25% on all Tax payable is charged w.e.f.2005/06 except on GST,VAT & ESC.
ii. Capital Gain Tax
Capital Gain arising on a transaction was treated as a different source of Income in Sri Lanka upto 31st March 2002 and was withdrawn since then.
Non Citizen Employees
Non Citizen Employees are deemed to be non-residents for a period of 3 years from the commencement of employment in Sri Lanka. In this period they will be liable on Employment income at concessionary rate of 15% and if they continue to be employed for a further 2 year period the 15% tax continues. Any other income in Sri Lanka is taxed at normal rates.