Courtesy Hiru News

In a bid to enhance tax compliance and streamline the taxation process, Sri Lanka’s proposed 2024 Budget includes several stringent measures targeting individuals and entities that fall short in fulfilling their tax obligations. The outlined provisions aim to strengthen the tax system, improve clarity, and ensure the timely submission of required documentation. Here are key highlights from the tax-related proposals:

1. Prosecution for Non-Submission of Tax Returns:

A special penal provision is set to be introduced to prosecute individuals and entities failing to submit required tax returns and information as mandated by tax officials. This measure underscores the government’s commitment to enforcing tax compliance.

2. Clarity Enhancement in Specific Sections:
Amendments will be made to Section 18, 67, and 163 to enhance the clarity of these sections’ application. The move is aimed at reducing ambiguity in the interpretation and application of these tax-related provisions.

3. Strict Submission Deadlines for Documentary Evidence:

To expedite tax audits and administrative reviews, the proposed budget introduces strict timelines for the submission of documentary evidence. Failure to submit required documentation within a reasonable period (6 months from the original date of the call for evidence for cases in Sri Lanka and 9 months for others) will result in the exclusion of such evidence during hearings at the Tax Appeals Commission.

4. Mandatory Tax Identification Number (TIN) Submission:

The budget proposes making the submission of a copy of the Certificate of the Taxpayer Identification Number (TIN) mandatory for various transactions, including opening a bank current account, obtaining building plan approval, registering a motor vehicle, renewing a license, and registering land or titles to land. Guidelines for compliance will be issued by the Commissioner General.

5. Income Tax Treatment on Salary Arrears:

Effective January 1, 2024, the existing tax treatment on salary arrears will be revised to alleviate excessive tax liabilities for employees. The change seeks to provide relief to individuals receiving salary arrears and ensure a fair and balanced taxation approach.

6. Value Added Tax (VAT) Amendments:

Tax Invoice Format Specification: The Commissioner General will be empowered to specify the format of the tax invoice, introducing a standardized approach to documentation.

Uniform Return Filing Frequency: An amendment will define the expression “taxable period” in section 83 of the VAT Act, ensuring a uniform return filing frequency for all taxpayers.

VAT Rate Increase: A gazette notification will be issued to implement a VAT rate increase, effective from January 1, 2024.

Encouragement for POS Machines: Registered persons will be encouraged to utilize Point of Sale (POS) machines for automated invoicing and sales recording, supporting VAT collection for goods or services.