View All - 2021 Acts Section No : Acts & Ordinances Finance Act Finance Act AN ACT TO ENABLE PERSONS TO VOLUNTARILY DISCLOSE UNDISCLOSED TAXABLE SUPPLIES, INCOME AND ASSETS REQUIRED TO BE DISCLOSED UNDER CERTAIN LAWS; TO PROVIDE FOR THE IMPOSITION OF A TAX ON THE TAXABLE SUPPLIES, INCOME AND ASSETS SO DISCLOSED; TO INDEMNIFY THE PERSONS WHO VOLUNTARILY DISCLOSE ANY SUCH TAXABLE SUPPLY, INCOME OR ASSET AGAINST LIABILITY FROM INVESTIGATION, PROSECUTION AND PENALTIES UNDER SPECIFIED LAWS; TO GRANT CERTAIN CONCESSIONS TO PERSONS WHO HAD ALREADY DISCLOSED TAXABLE SUPPLIES, INCOME AND ASSETS UNDER SPECIFIED LAWS; AND FOR MATTERS CONNECTED THEREWITH AND INCIDENTAL THERETO. BE it enacted by the Parliament of the Democratic Socialist Republic of Sri Lanka as follows:- [15th September , 2021 ] Short title 1. This Act may be cited as the Finance Act, No. 18 of 2021. PART I IMPOSING THE TAX ON VOLUNTARY DISCLOSURE Persons to whom this Part applies 2. (1) The provisions of this Part shall, subject to the provisions of subsection (2), apply to any person who has not disclosed any amount of taxable supply, income or asset which was required to be disclosed under the provisions of any law specified in Schedule I hereto (hereinafter in this Part referred to as "undisclosed taxable supply, income or asset"), in a Value Added Tax Return for any taxable period ended on or prior to March 31, 2020 or in a return of income for any year of assessment ended on or prior to March 31, 2020. (2) The provisions of this Part shall not apply to- (a) any person in relation to whom investigations or legal proceedings under the provisions of any law specified in Schedule II is pending, in relation to any undisclosed taxable supply, income or asset; (b) any person who has been convicted of an offence under the provisions of any law specified in Schedule II in relation to any undisclosed taxable supply, income or asset; or (c) any amount of undisclosed taxable supply, income or asset held by any person, in respect of which an assessment under the provisions of any respective law specified in Schedule I or Schedule IV has been made: Provided however, the provisions of paragraph (c) shall not apply to any amount of undisclosed taxable supply, income or asset which has not been taken into account in making an assessment referred to in that paragraph. (3) Every person referred to in subsection (1), not being a person referred to in paragraph (a), (b) or (c) of subsection (2), shall hereinafter in this Part referred to as the "person to whom this Part applies". Undisclosed taxable supplies, income or assets to be invested or deposited 3. (1) A person to whom this Part applies, shall invest or deposit an amount equivalent to the undisclosed taxable supply, income or asset, subject to the provisions of subsections (2) and (3). (2) If a person to whom this Part applies, intends to invest an amount equivalent to the undisclosed taxable supply, income or asset, he shall - (a) where he is able to immediately invest such amount, purchase- (i) shares issued by a resident company; (ii) treasury bills or treasury bonds issued by the Central Bank on behalf of the Government of Sri Lanka; (iii) any quoted debt securities issued by a resident company in Sri Lanka; or (iv) any movable or immovable property in Sri Lanka, on or after the date of commencement of this Act but prior to March 31, 2022; or (b) where he is unable to immediately invest such amount available in cash whether in Sri Lankan rupees or in foreign currency, he shall deposit such amount in a bank account, on or after the date of commencement of this Act but prior to March 31, 2022. (3) Notwithstanding the provisions of subsection (1), the provisions of subsection (2) shall not apply to a person to whom this Part applies who, prior to the date of commencement of this Act - (a) has utilized an amount equivalent to the undisclosed taxable supply, income or asset, to purchase- (i) shares issued by a resident company; (ii) treasury bills or treasury bonds issued by the Central Bank on behalf of the Government of Sri Lanka; (iii) any quoted debt securities issued by a resident company in Sri Lanka; or (iv) any movable or immovable property; or (b) has deposited an amount equivalent to the undisclosed taxable supply, income or asset in a bank account. Tax on Voluntary Disclosure 4. (1) A person to whom this Part applies shall be liable to pay a tax to be called the "Tax on Voluntary Disclosure" to the Commissioner-General prior to making the declaration under section 5 subject to the provisions of subsection (2). (2) Where a person to whom this Part applies intends to disclose - (a) any undisclosed taxable supply, income or asset other than immovable or movable property in the declaration made under subsection (1) of section 5, he is liable to pay the Tax on Voluntary Disclosure at the rate of one per centum of such amount or income, or on the cost of such asset invested or deposited under section 3; or (b) any immovable or movable property in the declaration made under subsection (1) of section 5, he is liable to pay Tax on Voluntary Disclosure at the rate of one per centum on the market value of such property on the date of the declaration. (3) Any amount of the Tax on Voluntary Disclosure paid by a person to whom this Part applies shall not be deemed to be a tax credit or an expenditure within the meaning of the Inland Revenue Act, No. 24 of 2017 and shall not be refundable. Disclosure of undisclosed taxable supply, income or asset 5. (1) Any person to whom this Part applies who has invested or deposited any undisclosed taxable supply, income or asset as specified in section 3 and has paid the Tax on Voluntary Disclosure as specified in section 4, shall on or prior to March 31, 2022, submit to the Commissioner-General a declaration (hereinafter in this Part referred to as the "declarant") in relation to any undisclosed taxable supply, income or asset, substantially in the relevant form specified in Part I or Part II of Schedule V hereto along with the documents to prove the ownership, date of acquisition and cost or market value of the asset, subject to the guidelines issued by the Commissioner-General under subsection (2). (2) For the effective implementation of the provisions of this Act, the Commissioner-General may issue necessary guidelines specifying the manner of payment and filing the declaration within one week of the date of coming into operation of this Act. (3) (a) Upon receipt of a declaration made under subsection (1), the Commissioner-General shall verify whether such declaration is in accordance with this Act. (b) Where the declaration is in accordance with this Act, the Commissioner-General shall accept the declaration in writing and inform of such acceptance to the declarant within thirty days of the date of receipt of the declaration. (c) If the declaration is not in accordance with the provisions of this Act, the Commissioner-General shall reject the declaration and inform the declarant in writing the reasons for his rejection within thirty days of the date of receipt of such declaration. (d) If the Commissioner-General fails to inform the declarant as specified in paragraph (b) and (c) within thirty days the declaration shall be deemed to have been accepted. (4) Any declarant whose declaration is rejected in terms of subsection (3), shall be entitled to submit a fresh declaration remedying any defects specified in the Commissioner-General’s decision under subsection (3) within thirty days of the receipt of the Commissioner- General’s decision. (5) Any declarant who provides false or incorrect information in the declaration made under subsection (1) shall not be entitled to the immunity granted under section 6, notwithstanding the acceptance of such declaration by the Commissioner-General under subsection (3). Immunity granted to declarants 6. (1) A declarant whose declaration has been accepted by the Commissioner-General under subsection (3) of section 5 and, who has paid the Tax on Voluntary Disclosure as specified in section 4, shall be entitled to enjoy the full immunity from liability to pay any tax, penalty or interest or from any investigation or prosecution - (a) under the provisions of any law specified in Schedule I hereto, other than the Value Added Tax Act, No. 14 of 2002, in relation to any year of assessment ending on or prior to March 31, 2020 in relation to the income or asset disclosed in the declaration made under subsection (1) of section 5; (b) under the provisions of the Value Added Tax Act, No. 14 of 2002 in relation to any year of any period ending on or prior to March 31, 2020 in relation to the amount of taxable supplies disclosed in the declaration made under subsection (1) of section 5, unless such tax has been collected by such declarant. (2) Subject to the provisions of subsection (5) of section 5, the Commissioner-General shall ensure that full immunity as specified above, be granted to any declarant referred to in subsection (1). Secrecy 7. (1) The Commissioner-General or any officer of the Department of Inland Revenue, shall preserve and aid in preserving official secrecy in respect of the identity of a declarant and any matter or thing contained in a declaration made under subsection (1) of section 5 of this Act. (2) All provisions of the Inland Revenue Act, No. 24 of 2017 applicable to the maintenance of official secrecy including punishment for the breach of such secrecy under section 100 of such Act, shall mutatis mutandis be applicable to a declaration made under this Act. Consequence of failure to comply with the provisions of this Act 8. Where any person to whom this Part applies fails to comply with the provisions of this Act, he shall be liable to be dealt with in terms of the provisions of the respective law specified in Schedule I or Schedule IV hereto. Avoidance of doubt 9. For the avoidance of doubt it is hereby declared that the provisions of this Part shall apply to any person to whom this Part applies, notwithstanding anything done or any amnesty granted under the provisions of Inland Revenue (Regulation of Amnesty) Act, No. 10 of 2004. PART II PROVISIONS TO WRITE OFF TAX ARREARS UNDER CERTAIN LAWS Persons to whom this Part applies 10. The provisions of this Part shall apply to any person who, is liable to pay any tax arrears under the provisions of any law specified in Schedule I, Schedule III or Schedule IV or, is liable to pay any penalty imposed under the provisions of any such law, for any year of assessment commencing prior to April 1, 2020 or for any period commencing prior to December 31, 2020 (hereinafter in this Part referred to as the "taxpayer"). Tax arrears to be written off in respect of certain taxes 11. Notwithstanding anything to the contrary in any law or any provision of any law specified in Schedule III hereto or Value Added Tax Act, No.14 of 2002, the Commissioner-General shall write off, subject to sections 14 and 15, any tax arrears under any law in Part A of Schedule III hereto or under the specific provisions of the Value Added Tax Act, No.14 of 2002 specified in Part B of Schedule III hereto, in respect of any period ending on or prior to December 31, 2020, in relation to a taxpayer. Tax arrears to be written off in respect of certain individuals 12. The Commissioner-General shall write off, subject to sections 14 and 15, any tax arrears payable under the provisions of any law specified in Schedule I other than Value Added Tax Act, No.14 of 2002, as at December 31, 2020, by any individual whose assessable income, calculated in terms of the provisions of the Inland Revenue Act, No. 24 of 2017, for the year of assessment ending on March 31, 2020, does not exceed rupees three million: Provided however, the provisions of this section shall not apply to any such individual, under the following circumstances: - (a) where the assessable income of the relevant individual exceeds rupees three million without deducting any loss including an unrelieved loss, in terms of the provisions of the Inland Revenue Act, No. 24 of 2017; (b) where the assessable income of the relevant individual exceeds rupees three million in aggregate with the income from final withholding payments, gains and profits exempted from income tax in terms of the provisions of the Inland Revenue Act, No. 24 of 2017; (c) where the annual gross turnover for the year of assessment ending on March 31, 2020, of a business or partnership of which the relevant individual is a partner, is not less than rupees five hundred million; or (d) where the assessable income of the relevant individual includes an income earned from conducting a business of betting and gaming or any business of liquor excluding such income which is merely incidental to another business. Penalty on tax in default to be written off 13. (1) The Commissioner-General shall write off any penalty or interest, calculated in terms of the provisions of any law specified in Schedule I or Schedule IV hereto, in relation to a taxpayer, in respect of which the payment due date was December 31, 2020 or a date prior to that date, if the taxpayer pays the full amount of the tax outstanding, under the provisions of said laws, on or prior to March 31, 2022. (2) Nothing in subsection (1) shall be read and construed as imposing a liability on the taxpayer to pay any tax, interest or penalty thereon, in respect of any tax arrears written off in terms of the provisions of the Inland Revenue Act, No. 24 of 2017 or the provisions of section 11 or 12 of this Act. Tax arrears in dispute not to be written off 14. Where there is any dispute in relation to any tax arrears referred to in section 11 or 12, in respect of which a decision is pending before or has been made by the Tax Appeals Commission or any court of law, before the commencement of this Act, under the provisions of any respective law specified in Schedule I or Schedule III hereto, on an assessment made in relation to a taxpayer, shall not be written off under the provisions of section 11 and 12, as the case may be. Tax refunds to be set off against the tax arrears written off 15. Any tax refund pending payment on the date of commencement of this Act duly claimed by a taxpayer, under the provisions of any law specified in Schedule I, Schedule III or Schedule IV hereto, for any period ending prior to December 31, 2020 shall be set off against any tax arrears written off under the provisions of section 11 or 12: Provided however, the provisions of this section shall have no application to any penalty imposed by law in a period subsequent to the period in which the refund is due. Commissioner-General to inform amounts set off against tax arrears 16. (1) The Commissioner-General shall communicate in writing, to every taxpayer, the amount of refund to be set off against the tax arrears in terms of section 15. (2) If such person is dissatisfied with the amounts of the refund to be set off against the tax arrears so written off, he shall within a period of fourteen days from the date of the communication of the Commissioner-General, make a written request to the Commissioner-General to not to set off the refunds against the tax arrears as specified by the Commissioner-General and shall settle the full amount of the tax arrears on or prior to March 31, 2022. (3) (a) The Commissioner-General may, upon a request made by the taxpayer under subsection (2), grant approval to such taxpayer to settle the tax arrears referred to in subsection (1) on or prior to March 31, 2022, in accordance with a suitable payment plan submitted along with the request under subsection (2). (b) The Commissioner-General shall write off any interest or penalty on such tax arrears, if the taxpayer acts in compliance with the payment plan approved under paragraph (a) on or prior to the dates approved by the Commissioner-General in such payment plan. (4) Where the taxpayer does not make a request under subsection (2) or does not settle the tax arrears according to the payment plan accepted by the Commissioner-General, the Commissioner-General shall proceed to set off the refunds against the tax arrears as specified in his communication under subsection (1). Proper records shall be maintained 17. The Commissioner-General shall maintain proper records with regard to the tax arrears and penalties written off under the provisions of sections 11, 12 and 13. Sinhala text to prevail in case of inconsistency 18. In the event of any inconsistency between the Sinhala and Tamil texts of this Act, the Sinhala text shall prevail. Interpretation 19. In this Act unless the context otherwise requires- "asset" means money or any immovable or movable property, including bank balances, financial instruments, shares, derivatives, treasury bills, fixed deposits, time deposits, bonds or other forms of deposits, money given by way of security or loans, cash, gem or gold in hand, any other monetary right but excluding any intangible asset unless such intangible asset has been purchased by the taxpayer from any other person; "bank account" means any bank account opened and maintained by a declarant in a bank licensed under the Banking Act, No. 30 of 1988; "Commissioner-General" shall have the same meaning as in the Inland Revenue Act, No. 24 of 2017; "Central Bank" means the Central Bank of Sri Lanka established under the Monetary Law Act (Chapter 422); "Final withholding payments" shall have the same meaning assigned to such payment as provided in section 88 of the Inland Revenue Act, No. 24 of 2017; "immovable property" includes any building in Sri Lanka or abroad whether constructed or under construction ; "income" means any gain, profit or receipt derived from any source whether in Sri Lanka or abroad; "loss" shall have the same meaning assigned to such expression under section 19 of the Inland Revenue Act, No. 24 of 2017; "money" includes local currency and foreign currency whether retained in Sri Lanka or abroad; "movable property" includes all forms of movable property in Sri Lanka or abroad including gold but does not include money; "person" shall have the same meaning assigned to such expression under the Inland Revenue Act, No. 24 of 2017; "return" means a return of income or Value Added Tax return that a person is required to file with the Department of Inland Revenue in terms of the respective law specified in Schedule I, including any certificate, declaration or any other attachment required to be furnished with the return; "resident company" means a company within the meaning of subsection (4) of section 69 of the Inland Revenue Act, No. 24 of 2017; "tax" in Part II shall include any tax, surcharge, levy, duty, charge or contribution payable or levied under the respective law specified in Schedule I, III or IV; "taxable supply" shall have the same meaning assigned to such expression under section 83 of the Value Added Tax Act, No.14 of 2002; "tax arrears" means a tax that remain unpaid after the payment due date in compliance with the respective law and includes a tax in default or other penalty imposed under any such law and withholding tax or tax deducted on employment income by an employer, that remain unpaid in accordance with the records of the Commissioner-General; "Tax Appeals Commission" means Tax Appeals Commission established under the Tax Appeals Commission Act, No. 23 of 2011; "unrelieved loss" shall have the same meaning assigned to such expression under section 19 of the Inland Revenue Act, No. 24 of 2017; "year of assessment" shall have the same meaning assigned to such expression under section 20 of the Inland Revenue Act, No. 24 of 2017. Schedules