Sri Lanka: Tax and financial measures associated with COVID-19

Tax measures

Extension of due dates The Department of Inland Revenue of Sri Lanka has extended the due dates for tax payments and submission of tax returns. Further, validity periods of certificates and clearances has also been extended as follows:

• Original due date of 31st March, 2020 for the submission of transfer pricing disclosure form (TPDF) for the year of assessment 2018/2019 has been allowed up to 31st May, 2020.
• Making the Value Added Tax (VAT) payments including VAT on Financial Services for the months of February and March 2020 has been allowed up to 31st May, 2020.
• VAT deferment facility at the point of Customs/BOI
  • The validity of the extension letters issued with regard to Credit Vouchers due against the VAT deferred under deferment facility:
  • If the expiry date before 30th April 2020, expiry date has been extended by one month from the respective expiring date.
• The period of validity of the issued Temporary VAT registration certificate
  • If the expiry date is before 30th April 2020, the period has been extended till 30th April 2020.
• Original due date of 31st March, 2020 for the submission of VAT Return for the month of February 2020 has been allowed till 31st May, 2020.
• Due date of 15th April, 2020 for the payment of Compounded Stamp Duty and submission of return for the quarter ended 31st March 2020, has been allowed till 31st May, 2020.
• The validity period of the temporary tax clearance certificate relating to liquor licenses,
  • If expire date is before 30th June 2020, the valid date has been extended up to 30th June 2020
• Making Withholding Tax (WHT) Payments for the months of February and March 2020 has been allowed till 31st May, 2020.

Introduction of online tax payment system The Department of Inland Revenue has introduced an Alternative Tax Payment System (ATPS) for making tax payments through Online Fund Transfer Facility, with the collaboration of specific banks.

Business support

The Central Bank of Sri Lanka has introduced a wide range of fiscal and financial concessions for business activities including self – employment businesses and individuals who have been affected by COVID – 19. Eligible Businesses / Sectors

• Tourism, direct and indirect export-related businesses including apparel, IT, tea, spices, plantation and related logistic suppliers.
• Small and Medium Enterprises (SMEs) engaged in business sectors such as manufacturing, services, agriculture (including processing), construction, value addition and trading businesses including authorised domestic pharmaceutical suppliers with turnover below Rs. 1 bn.
• Self-employment businesses and individuals who have lost their jobs or income.
• Foreign currency earners (individuals and corporates) who have to repay loans in foreign currency.

However, this facility is not applicable for import facilities other than pharmaceutical drugs, medical equipment, food, fertilizer and essential raw materials and machinery and equipment. Concessions for Existing Performing Loans

• A six-month debt moratorium on the leasing rentals of all three-wheelers, school vans, lorries, small goods transport vehicles and buses and related assets such as motor bikes and taxies operated by the self-employed / owners.
• A debt moratorium until 30.05.2020 on personal loans granted to all private sector nonexecutive employees.
• A three-month debt moratorium for all personal loans and leasing where the granted amount is less than Rs. 1 million.
• A six-month debt moratorium for affected industries in small & medium enterprises, tourism, apparel, plantation, IT and related logistic service providers.
• A six-month debt moratorium for all other eligible businesses/sectors.
• Permanent Overdraft facilities falling due for settlement or maturing or are reviewed during the period up to 25.03.2020 shall be extended up to 30.09.2020 at 13% interest rate.
• Eligible trade finance facilities falling due for settlement or maturing or were under review during the period up to 25.03.2020 shall be extended up to 30.09.2020.
• Pawing facilities falling due for settlement or maturing during the period up to 25.03.2020 shall be extended up to 30.09.2020.

Concessions for Existing Non – Performing Loans

• The penal interest charged up to 25.03.2020 shall be waived off by the concerned financial institutions.
• Rescheduling of loans and advances according to the amount of repayments.
• Suspension of recovery actions.

Working Capital and Investment Loans Financial institutions may grant an additional loan or a new loan facility in Rupees for working capital or investment purposes subject to the following conditions; Working Capital Loans

• Eligibility – Performing and non performing borrowers
• Limit for banks – Rs. 25 million or 2 months working capital requirement whichever is higher
• Limit for other financial institutions – Rs. 10 million or 2 months working capital requirement whichever is higher
• Repayment period – 02 Years
• Interest rate for Licensed banks – 4%
• Interest rate for other financial institutions – 7%
• Moratorium period – 25.03.2020 to 30.09.2020

Investment loans

• Eligibility – Performing borrowers
• Limit for banks – Rs. 300 million per bank per borrower to expand business activities.
• Repayment period – 05 Years
• Interest rate for Licensed banks – Maximum of AWPLR plus 1.5%
• Moratorium period – 25.03.2020 to 30.09.2020

Discontinuation of Charges Financial institutions shall discontinue charging for cheque returns, stop payments, late payment fee on all credit cards and other credit facilities during the period up to 30.09.2020.

Management of exchange rates

The Government has taken the following measures to improve the exchange rates by restricting the outward remittances and stimulating the inward remittances. Restrictions on outward remittances

• Making payments through Outward Investment Accounts (OIA) for the purpose of making investments overseas by persons resident in Sri Lanka under general permission has been suspended for a period of three months from 02nd April 2020, excluding the following:
  • Investments to be financed out of a foreign currency loan obtained by the inverter from a person outside Sri Lanka or
  • Investments to be made to fulfill the regulatory requirement in that country provided that, the Head of Department of Foreign Exchange is satisfied with the fulfilment of such requirement;
• Outward remittances on transactions through Business Foreign Currency Accounts (BFCA) or Personal Foreign Currency Accounts (PFCA) held by persons resident in Sri Lanka has been suspended other than the remittances on current transactions for a period of three months 02nd April 202
• Annual migration allowance of USD 30,000 for emigrants through Capital Transactions Rupee Accounts has been suspended for a period of three months from 02nd April 2020 for emigrants who have already claimed the initial allowance of USD 100,000.
• The initial migration allowance of USD 100,000 for the emigrants, has been restricted up to a maximum of USD 30,000 for a period of three months from 02nd April 202

Concessions for inward remittances A Special Deposit Account (SDA) has been introduced to support the national effort to manage the challenges faced due to COVID-19 outbreak. Features of the SDA Eligible Persons:

• Sri Lankan individuals resident in or outside Sri Lanka
• Dual Citizens
• Citizens of other States with Sri Lankan origin
• Non-nationals resident in or outside Sri Lanka
• Funds, corporate bodies, associations incorporated/registered outside Sri Lanka
• Any other well-wishers

Minimum Deposit: No prescribed limit Type of Deposit: Fixed deposits only Minimum Tenure: Six months SDAs can be opened:

• with an Authorized Dealer in Sri Lanka
• only with inward remittances through banking system during the six months period from 08th April, 2020.
• by transferring funds received during the above mentioned period to an Inward Investment Account (IIA) or an account in the Offshore Banking Unit (OBU).
• either in foreign currency or Sri Lanka Rupees.
• as a joint account.

Acceptable foreign currencies United States Dollars (USD), Euro, Sterling Pound, Australian Dollars, Singapore Dollars, Swedish Kroner, Swiss Franc, Canadian Dollars, Hong Kong Dollars, Japanese Yen, Danish Kroner, Norwegian Kroner, Chinese Renminbi and New Zealand Dollars. Interest Rate: Higher interest paid at maturity

• 6 months deposits – 1 percentage point per annum above the normal rate
• 12 months deposits – 2 percentage points per annum above the normal rate

Repatriation of Funds: freely convertible and remittable outside Sri Lanka upon maturity Exemption: Any procedural requirements specified in the Foreign Exchange Regulations are not applicableClick here to learn more.