Taxation under Sri Lankan Tax Law
This domain tests the Inland Revenue Act No. 24 of 2017 as amended, plus VAT, the Social Security Contribution Levy and the administration rules that decide when tax is due. Expect a computation followed by a compliance question on returns, instalments or withholding.
The structure to apply
- Year of assessment: 1 April to 31 March.
- Residence: drives whether you tax worldwide or Sri Lanka-source income; check the statutory day-count and citizenship tests rather than assuming.
- Heads of income: employment, business, investment, and other sources - each with its own deduction rules.
- Computation: assessable income less qualifying payments and reliefs gives taxable income; apply capital allowances for depreciable assets because accounting depreciation is not deductible.
- Rates: the standard corporate rate is 30%, with a concessionary rate for specified sectors; VAT is charged at 18% following the 2024 increase.
- Administration: self-assessment, quarterly instalments, withholding as a credit or final tax, and penalties for late filing.
Worked example
A company has business profit LKR 5,000,000 and interest income LKR 300,000. Qualifying payments LKR 400,000; brought-forward loss LKR 200,000; capital allowances LKR 800,000. Assessable income = 5,300,000; less qualifying payments = 4,900,000; less loss relief = 4,700,000; less capital allowances = LKR 3,900,000 taxable income. At 30% the tax is LKR 1,170,000. Note the sequencing: capital allowances are a statutory deduction, not part of the accounting profit, and a loss cannot be deducted twice.
Traps that cost marks
Deducting accounting depreciation; claiming a loss brought forward beyond the statutory limit; ignoring withholding tax already suffered as a credit; applying the concessionary rate without checking the qualifying conditions; forgetting VAT registration and the 18% output tax on taxable supplies.