[Sri Lanka] 35% decline in number of registered taxpayers

Sri Lanka’s tax base changed significantly from 2019 to 2020 with a decline of 33.5 per cent reported in the number of registered taxpayers, both corporate and individuals, in the country, Daily News reports.

The decline has been, in the main, attributed to major changes in tax policy introduced in December 2019; particularly the increase in thresholds for Value Added Tax (VAT) and the abolition of Pay As You Earn (PAYE) tax. 

On January 1, 2020, the mandatory PAYE Tax on employment receipts to any resident or non-resident person was removed and then replaced on April 1, 2020, by the Advance Personal Income Tax (APIT) which is an optional scheme, according to public finance.lk.

The tax-free threshold for personal income tax was also increased from Rs 500,000 per annum to Rs 3,000,000 per annum, removing a large number of taxpayers from Sri Lanka’s tax base. In addition, on January 1, 2020, the threshold for VAT registration was increased from Rs 12 million per annum to Rs 300 million per annum and an exemption for VAT was provided to the IT and enabling services.

Following the abolition of PAYE employees are expected to file their own income tax returns if their annual income is above the tax-free threshold. However, the increase in individual income tax files between 2019 and 2020 was just 11,607. A slight figure in comparison to the 485,055 decline in PAYE/APIT registered taxpayers.

Sri Lanka’s tax base changed significantly from 2019 to 2020 with a decline of 33.5 per cent reported in the number of registered taxpayers, both corporate and individuals, in the country, Daily News reports.

The decline has been, in the main, attributed to major changes in tax policy introduced in December 2019; particularly the increase in thresholds for Value Added Tax (VAT) and the abolition of Pay As You Earn (PAYE) tax. 

On January 1, 2020, the mandatory PAYE Tax on employment receipts to any resident or non-resident person was removed and then replaced on April 1, 2020, by the Advance Personal Income Tax (APIT) which is an optional scheme, according to public finance.lk.

The tax-free threshold for personal income tax was also increased from Rs 500,000 per annum to Rs 3,000,000 per annum, removing a large number of taxpayers from Sri Lanka’s tax base. In addition, on January 1, 2020, the threshold for VAT registration was increased from Rs 12 million per annum to Rs 300 million per annum and an exemption for VAT was provided to the IT and enabling services.

Following the abolition of PAYE employees are expected to file their own income tax returns if their annual income is above the tax-free threshold. However, the increase in individual income tax files between 2019 and 2020 was just 11,607. A slight figure in comparison to the 485,055 decline in PAYE/APIT registered taxpayers.