Value Added Tax
Act No 14 of 2002
AN ACT TO PROVIDE FOR THE IMPOSIION AND COLLECTION OF A VALUE ADDED TAX ON GOODSANDSERVICESSUPPLIEDINSRILANKAOR
IMPORTED INTO SRI LANKA :TO PROVIDE FOR THE ABOLITION OF THE NATIONAL SECURITY LEVY AND THE GOODS AND SERVICES TAX :ANDTO
PROVIDE FOR THE MATTERS CONNECTED THEREWITH OR INCIDENTAL THERETO.
BE it enacted by the Parliament of the Democratic Socialist Republic of Sri Lanka as follows :-
14 of 2002 [ 26th July , 2002 ]
[ Gazette No - 1267-5-2002]
[ Gazette No - 1310-10-2003]
7 of 2003 [ 27th February , 2003 ]
13 of 2004 [ 18th November , 2004 ]
6 of 2005 [ 30th March , 2005 ]
[26th July , 2002 ]
Short title and date of operation
1.This Act may be cited as the Value Added Tax Act No. 14 of 2002 and shall come into operation on August 1,2002
IMPOSITION OF VALUE ADDED TAX
imposition of Value Added Tax[ 2,7 of 2003][ 2,13 of 2004][ 2,6 of 2005]
2.(1) Subject to the provisions of this Act, a tax, to be known as the Value Added Tax(hereinafter referred to as"the
tax") shall be charged
(a)at the lime of supply, on every taxable supply of goodsorservices,madeinataxableperiod,bya
registered person in the course of the carrying on or carrying out, of a taxable activity by such personinSri
(b)on the importation of goods into Sri Lanka, by any person.
and on the value of such goods or services supplied or the goods imported, as the case maybe,subjecttothe
provisions of section 2A, at the following rates:
(i) for any taxable period commencing on or after August 1, 2002, but prior to January 1,2004.
(A)at the rate of ten per centum (of which the Tax Fraction is 1/11) onthevalueofgoodsand
services referred to in the Second Schedule, which are chargeable with the tax other thanzerorated
(B) at the rate of twenty per centum (of which the Tax Fraction is 1/6) on the valueofallother
taxable goods and services which are chargeable with the tax other than zero rated supplies.
(ii)for any taxable period commencing on or after January 1, 2004 and ending on or before
(a) November 18, 2004 in respect of goods specified in the Third Schedule and
(b) December 31, 2004 in respect of goods for which the Third Schedule does not apply.".
at the rate of fifteen per centum (of which the Tax Fraction is 3/23 on the value of such goods and services
supplied or imported, as the case may be other than such goods and services chargeable with tax at zeroper
(iii) for the period commencing on November 19, 2004 and ending on or beforeDecember31,2004and
for any taxable period commencing on or after January 1, 2005 at the rate of five percentum(BasicRate)
(of which tax fraction is 1/21) on the value of such goods supplied or imported as referred to in theThird
Schedule other than such goods chargeable with tax at zero per centum
(iv)for any taxable period commencing on or after January 1, 2005 attherateofeighteenpercentum
(Luxury Rate) (of which Tax Fraction is 9/59, on the value of suchgoodsorservicessuppliedorgoods
imported as referred to in the Fourth Schedule other than such goods or services chargeable with tax at zero
per centum and
(v) for any taxable period commencing on or after January 1, 2005attherateoffifteenpercentum
(Standard rate) (of which the Tax Fraction is 3/23) on the value of such goods or services supplied or goods
imported other than in respect of the following:-
(a) goods or services chargeable with tax at zero per centum and
(b) goods or services specified in the Third Schedule or the Fourth Schedule of this Act.
The Tax Fraction referred to above shall be applied to ascertion the amound of tax charged in the case ofa
tax inclusive consideration:
Provided,however the Commissioner-General shall not collect the tax under subsection(1)where the tax is-
(a) recovered in respect of any garments sold locally,whicharereferredtointheprovisoto
subsection (I) of section 22
(b) deferred by the Director-General of Customs in respect of supplies referred to insub-paragraph
(iv) of paragraph (a) of the second proviso to subsection (3) of section 2:
Provided further the tax payable on any taxable supply made on or after January1,2004,beingasupply
under in agreement which is not subject to review not being a hire purchase agreement, enteredintoonor
before December 31, 2003, and where such supply has been specifically identified within such agreement shall
be computed at the tax rate prevailing at the time ofenteringintosuchagreementnotwithstandingthe
provisions of subsection (9) of section 5.
(2) Notwithstanding the provisions of subsection (1) the Commissioner-General shall defer the payment of tax due"
(a)on any tea supplied prior to January 1, 2005 by any manufacturer of tea, registered with the Sri Lanka
Tea Board established by the Sri Lanka Tea Board Law, No. 14 of 1975. to any registered broker forsaleat
the Colombo Tea Auction and where such tea is purchased by any exporter of tea registered with the Sri Lanka
Tea Board established by the Sri Lanka Tea Board Law, No. 14 of1975,untilsuchtimesuchteabroker
furnishes the reconciliation on the disposal of such tea, as stipulated by the Commissioner-General
(b) on the supply of any taxable goods or services by a registered person toanyotherpersonwhohas
entered into an agreement as a contractor to supply any goods orservicestoanyGovernmentdepartment,
utilizing funds provided by any foreign government or donor agency approved by the Minister,havingregard
to the interest of the national economy, where the value of such goods orservicesexceedsrupeestwenty
thousand, for a period of three months, from the end of the month inwhichsuchgoodsorserviceswere
purchased by such contractor.
The registered person to whom a deferment is granted under paragraph (b) shall not berequiredtoaccount
for the output tax on such supplies until he recovers the tax due on such supplies
(c) (i) on the supply with the approval of the Textile Quota BoardestablishedbytheTextileQuota
Board Act, No. 33 of 1996, of any goods manufactured in Sri Lanka by such supplier to be utilizedfor
the purpose of manufacture of garments for export either by manufactures who are registeredwiththe
Textile Quota Board or through Export Trading House registered with the BoardofInvestmentofSri
(ii)on the supply of finished garments manufactured in Sri Lanka by such supplier with theapproval
of the Textile Quota Board established by the Textile Quota Board Act, No. 33 of 1996, to beexported
through Export Trading Houses registered with the Board on Investment of Sri Lanka under section 17 of
the Board on Investment of Sri Lanka Law No.4 of 1978, until suchtimeastheactivitiesofsuch
garment manufacturers are monitored by the Textile Quota Board and the Textile QuotaBoardfurnishes
the reconciliation on thedisposalofsuchgoodsonaquarterlybasisasstipulatedbythe
Commissioner-General to the satisfaction of the Commissioner-General, that such finished goods arein
fact exported by the recipient of the supplies.
(d) on the supply with the approval of the Export Development Board, established by the SriLankaExport
Development Act, No. 40 of 1979 with the concurrence of the MinistryoftheMinisterinchargeofthe
subject of Finance of any goods manufactured in Sri Lanka by such suppliers to be utilized forthepurpose
of manufacture of goods other than the goods referred to in paragraph (c) of this subsection by manufactures
who are registered with the Export Development Board as exporters, until such time as the activities of such
manufacturers are monitored by the Export Development BoardwiththeapprovaloftheMinistryofthe
Minister in charge of the subject of Finance and the Export Development Board, furnishes thereconciliation
on the disposal of such goods ona quarterlybasisasstipulatedbytheCommissioner-Generaltothe
satisfaction of the Commissioner-General, that such furnished goods are in fact exported by the recipient of
(3) The tax on the importation of goods, shall be charged,levied and collected as if it is a customs duty andasif
all goods imported into Sri Lanka are dutiable and liable to customs duty :
Provided however, no tax shall be charged on
(a) any goods which entered into a customs bonded area:
(b)any fabric imported by any person for the purpose of manufacture of garments forexport,whohasentered
into an agreement with the Board of investment of Sri Lanka under section 17 of the Board ofInvestmentofSri
Lanka Law No. 4 of 1978 for the manufacture of garments for export under such agreement, and the transfer of such
fabric with or without value addition with the approval of theDirector-GeneralofCustomsortheBoardof
Investment of Sri Lanka, to any other person for the purposes of such manufacture of garments for export
(c)any fabric imported by any person, who has registered with theBoardofInvestmentofSriLankaasa
Trading House for the purpose of manufacture of garmentsforexportthroughothergarmentmanufacturersas
approved by (he Board of Investment of Sri Lanka and transfer of such fabric with the approval oftheDirector-
General of Customs or the Board of I lives [me in of Sri Lanka to such garment manufacturers for the purposesof
manufacture of garments for export
(d)any fibre, yarn, grey cloth, finished cloth, chemicals and dyes used for the manufacture of fabricimported
by any Fabric manufacturer who has entered into an agreement with the Board ofInvestmentofSriLankaunder
section 17 of the Board of Investment of Sri Lanka Law. No. 4 of 1978 for the purpose of such manufacture
(e)any ship imported on or before December 31, 2002
(f)any fabric or accessories imported by any person for the purpose of manufacture of garments for export,who
has registered with the Textile Quota Board established under the Textile Quota Board Act, No.33of1996,with
the approval of the Textile Quota Board and under the supervision of the Director-General of Customs or the Board
of Investment as the case may be.
Provided further, the Director-General of Customs may, defer the payment of the tax due on
(a) (i)any goods imported, including any goods received from a customs bondedarea,byaregistered
person who imports or receives such goods to be used by such person for the purpose of manufacture and
export of the goods so manufactured
(ii)any goods imported by any registered person referred to in subsection (7) ofsection22which
are product related goods during such project implementation period ,
(iii)any goods being any plant, ormachineryimportedforanyinfrastructureprojectfunded
mainly by a foreign government or any regional or multilateral agencyincludingtheUnitedNations
Organisation and its affiliates dining the implementation period ,
(iv)any purchase of fabric manufactured by a person who hasenteredintoanagreementwiththe
Board of Investment of Sri Lanka under section 17 of the Board of Investment of Sri Lanka Law forthe
manufacture of fabric by another person who has entered into an agreement with the Board of Investment
of Sri Lanka under section 17 of the Board of Investment of SriLankaLawNo4of1978forthe
manufacture of garments for export under such agreement and utilizes such fabric forthemanufacture
of garments for export,
for a period of sixty days or such other period not exceeding ninety days from the dateofimportationreceipt
oil purchase oil such goods, as may be determined by the Minister by notification published in the Gazette
(b) any goods being plant, machinery or other equipmentofhighvalueoranygoodstobeusedas
exhibition materials or as materials in any technical demonstration temporarily imported into Sri Lankaand
re-exported within twelve months, for a period upto the date of such re-export,
(c) any ship imported on or after January 1, 2003, for a period upto thirty six months, from thedateof
such import and such deferred amount shall be settled in quarterly installmentsbeforetheexpirationof
such period of thirty six months.
The deferment of the payment of tax shall be subject to a furnishing of a bank guarantee or a corporate guarantee
which covers the amount of tax due on the goods imported, received or purchased. In the caseofsuchdeferment
under paragraph (b) no guarantee shallberequiredwheresuchgoodshavebeenimportedbyaGovernment
institution to be re-exported within one month from the date of importation.
Minister may vary the rates by Order. [3, 6 of 2005]
2A.(1)The Minister may by Order vary the rates specifiedinsection2insofarasthesamerelatestothe
increasing or reducing of the rates previously specified, and to such extent as it relates to theimpositionof
Value Added Tax specified under the aforesaid section.
(2) The Order made by the Minister under subsection (1) shallbein'operationimmediatelyupontheMinister
affixing his signature thereto.
(3) Every such Order shall as soon as convenient be published in the Gazette.
(4) Every such Order shall as soon as convenient thereafter be approved by a Resolution of Parliament.
(5) Where any such Order is not approved by Parliament it shall be deemed to be rescinded with effect fromthedate
of such Resolution".
Tax not be charged on wholesale or retai1 supply of goods. [ 3,13 of 2004]
3 .Notwithstanding the provisions of section 2, the tax shall not be charged on the wholesale or retail supply ofgoods,
(a) a manufacturer of such goods or
(b) an importer of such goods or
(c) a supplier who is unable to satisfy the Commissioner-General, as to the source from which the goodssuppliedby
him, were acquiredor
[4, 6 of 2005]
(d) any person, where such goods consists of tea purchased on or after August 1,2002 but prior to January 1, 2005at
an auction as is referred to in paragraph (a) of subsection (2) of section 2 for sale within Sri Lanka.
Provided however, such tax shall be charged on such wholesale or retail supply of goods, if-
(a) any registered person makes an application to that effect to the Commissioner-General
(b)any other person makes an application to that effect to the Commissioner-General and obtains aregistration
as provided for in sections 10 or 12.
time of supply,
4.(1) The supply of goods shall be deemed to have taken place atthetimeoftheoccurrenceofanyoneofthe
following whichever, occurs earlier :-
(a)the issue of an invoice by the supplier in respect of the goods or
(b)a payment for the goods including any advance payment received by the supplieror
(c)a payment for the goods is due to the supplier in respect of such supply or
(d)the delivery of the goods have been effected.
(2) Notwithstanding the provisions of paragraph (d) of subsection (I), where aninvoiceisissuedinrespectof
goods delivered, within ten days from the date of delivery-of such goods, the time of supply of suchgoods,shallbe
deemed to be the time at which the invoice was issued.
(3) The supply of services shall be deemed to have taken place,atthetime,oftheoccuranceatanyofthe
following whichever occurs earlier -
(a)the service was performedor
(b)a payment is received for the services rendered or for future services : or
(c)a payment is due for the services rendered or for future services : or
(d)an invoice is issued in respect of the services rendered
(4) Notwithstanding the piovisions of paragraph (a) of subsection (3), where aninvoiceisissuedinrespectof
services supplied within ten days from the date of performance of such service shall be deemed to be the time atwhich
the invoice was issued
(5) Not withstanding the provisions of subsections (1 )and (3), a supply shall be deemed to take place
(a)where a supply is made under an agreement entered into, on orafterApril1.1998,otherthanahire
purchase agreement, which provides for periodical payments, when the paymentisdueorwhenthepaymeniis
recieved, whichever is earlier , and
(b)where goods are supplied under a hire purchase agreement at the time the agreement is entered into
(6) Where the Commissioner General directs any registered person to account for the taxonapaymentbasisunder
section 23. the time of supply of goods or services supplied by such person shall be the time at which thepaymentin
respect of such supply is received
(7) Where the time of supply falls wilhin any taxable period or portion of a taxable period ending on or beforeJuly
31, 2002. under the Goods and Services Tax Act, No. 34 of 1946 and any event referred to in this section-takesplace
under this Act in relation to the same supply, such event shall not be considered as a time of supply.
Value or supply of goods or services
5.(1) The value of a taxable supply of goods or services shall be such amount where the supply is
(a)for a consideration in money, be such consideration less any tax chargeableunderthisActwhichamount
shall not be less than (lie open market value :
(b)not for a moderation in money or not wholly in consideration of money, be theopenmarketvalueofsuch
(2) Subject to the provisions of subsection (3), where a supply of goods or services is made by aregisteredperson
for an amount which is less than the open market value to a person not being a registeredpersonthevalueofsuch
supply, shall be the open market value of the supply
(3) Where a supply of goods or services is made by an employer, to his employee as a benefitfromempioynicnt,the
consideration in money for the supply shall be the open market value of such supply or where the open marketvalueof
such supply cannot be ascertained, the consideration in money of such supply shall he the costofasimilarbenefit
enjoyed by any other employee, as may be determined by the Assessor.
(4) Where a supply of services is made under any lottery. or any taxable activity of entering into ornegotiatinga
waging con tract or any business oflike nature, the value of such supply shall be the total amount of moneyreceivable
in respect of such supply less the consideration of the prizes or winnings awarded in such lottery, wageringcontract,
or any business of like nature as the case may be.
(5) Where a supply of goods or services"
(i)is made by a person at the time of cancellation of the registration under section 16 or
(ii) is made to any person who makes a supply which is exempted under section 8 or
(iii)made by any person, not being a registered person or being a registered person who hadnotoptedto
charge tax under the proviso to section 3, who carries on or carries out any wholesale or retail trade or
(iv) is appropriated by the supplier lor his personal use or arty other purpose other than the making ofa
the value of such supply shall be not less than the open market value.
(6) The value of the supply of goods underahirepurchaseagreementshallbethecashpricedeterminedin
accordance with the provisions of the Consumer Credit Act, No. 29 of` 1982, and shall not be less than the openmarket
Provided however in the case of a hire purchase agreement
(a)where the cash price of any goods supplied under a hire purchase agreement includes the tax charged, bythe
supplier on the seller of such goods lo be supplied under such agreement for which the seller cannot claiminput
tax credit being a person who is not registered under ink Act, the cash price and the market value of suchgoods
shall be adjusted for the purposes of charging the tax by deducting [he lax so charged on the seller
(b)under which second hand goods, which have been ins circulation for a period overoneyear,aresupplied,
the cash price and the market-value of such goods for the purposesofchargingthetaxshallbethevalue
specified in the hire purchase agreement less any charge made for such hire purchase facilityincludedinsuch
(7) The value of supply of land and improvements thereon, shall be the value of such supply less thevalueofland
at the time of supply and the value of any improvements on the land as at March 31, 1998 which shall not beIessthan
the open matket value of such supply excluding the value of.such land at the timeofsupplyandthevalueofany
improvements on such land as at March 31, 1998
(8) Where goods or services are supplied either on the issue of a ticket or by the depositofmoneythevalueof
such supply shall be the amount paid for such ticket less the tax payable under this Act or the amountdepositedless
the tax payable under this Act not being any amount which is refundable as the case may be
(9) The value of a supply, under any non reviewable agreement not being a hire purchase agreement entered intoprior
to April 1, 1998, shall be the total amount payable or paid under such agreement lot any taxable periodandshallbe
considered as a Tax inclusive consideration
(10)Where any goods supplied under a lease agreement is subsequently transferred to the lessee at the terminationof
such agreement for a consideration not exceeding ten per centum of the total consideration of the lease agreement, such
consideration shall be deemed to be a lease rental recovered under such agreement
Further where such consideration is more than ten per centum of the total consideration oftheleaseagreementsuch
supply shall be deemed to be a separate supply
(11)where the consideration in respect of a supply of goods or services relates to ataxablesupplyandasupply
which is not taxable the consideration for such taxable supply shall be deemed to be such part of the considerationas
is attributed lo such taxable supply and shall not be less than the open market value of such taxable supply
(12)Where goods are manufactured or produced or :t service is provided, by using othergoods,whetherprovidedby
the supplier or any other person, such other goods shall be deemed to be used in the manufacture or productionorthe
provision of service as the case may be, and the value of the supply of the goods so manufactured or producedandthe
supply of services to connection with such manufacture or production or the supply of the serviceshallbetheopen
market value or the sum received as consideration for such supply, whichever is higher:
Provided however, where if is proved to the satisfaction of an Assessor that the supply of goods,andthesuppiyof
services are two separate supplies, each such .suppiy shall be treated as a separate suppiy by such Assessor
The value of goods imported [5, 6 of 2005]
6.(1) The value of goods imported, shall be the aggregate of-
(a)the value of the goods determined for the purpose of custom duty increased by five per centum and
(b)the amount of any custom duty payable in respect of such goods with the additionofanysurcharge,cess,
any Port and Airport Development Levy payable under the Finance Act, No.11 of 2002, and any excisedutypayable
under the Excise (Special Provisions) Act, No.13 of 1989 on such goods.".
Zero Rating [ 3,13 of 2004]
7. (1) A suppiy of
(a)goods shall be zero rated where the supplier of such goods has exported such goods and
(b)services shall be zero rated where the supply of such services are directly connected with
(i) any movable or immovable property outside Sri Lanka
(ii)the repair of any foreign ship, aircraft oranymerchantshipregisteredinSriLanka,orthe
refurbishment of marine cargo containers
(iia) any goods imported into Sri Lanka for the purpose of re-export under entreport trade :
iii) a copyright, patent, licence, trade mark or similar intellectual" property right, to theextentthat
such right is for use outside Sri Lanka
(iv)the international transportation (including transshipment) of goods or passengers as are specifiedby
(he Commissoner-Genera! by a Notification published in the Gazette.
(v) computer software development, in respect of softwaredevelopedbythedeveloperforusewholly
outside Sri Lanka, and for which payment is received in foreign currency through a bankif,andonlyif,
documentary evidence is produced to the satisfaction of theCommissioner-Generalofthesupplyofsuch
(vi)client support services provided* on or after April 1. 2001 over the internet or the telephonebyan
enterprise set up exclusively for the provision of such services to one or more identifiedclientsoutside
Sri Lanka, for which payment is received in foreign currency, through a bank :
[6, 6 of 2005]
(vii) the provision of services to overseas buyers by a garmentbuyingofficeregisteredwiththe
Ministry of Industries under the supervision of the Textile Quota Board established under the TextileQuota
Board Act No.33 of 1996, where payment for such service is received in foreign currency, through aBankin
Sri Lanka insofar as such services are identified by the Commissioner-General asbeingservicesessential
for facilitating the export of garments to such overseas buyers.
(c)any other service, being a service not referred to in paragraph (b), provided by any person in Sri Lankato
another person outside Sri Lanka to be consumed or utilised outside Sri Lanka shall be zero ratedprovidedthat
payment for such service in full has been received from outside Sri Lanka through a bank in Sri Lanka.
(2) Where a registered person supplies itny goods or services which is zero rated
(a)no lax shall be charged in respect of such supply
(b)the supply shall in all other respects be treated as a taxable supply and accordingly the rate at whichtax
is charged on the supply shall be zero
Supplies and Importation exempted from Tax
8.No Tax shall be charged on the supply of goods or servicesandtheimportationofgoodsspecifiedinthefirst
schedule to this Act as such supplies and imports are not taxable unless zero rated under section 7.
Goods or services supplied in Sri Lanka
9.For the purposes of this Act goods or services shall be deemed to be supplied in Sri Lanka where the suppliercarriers
on or carries out a taxable activity in Sri Lanka and the goods are in Sri Lanka at the time of supply or theservices
are performed in Sri Lanka BY THE SUPPLIER OF HIS AGENT.
Persons making supplies in the course of a taxable activity to be registered.
l0. (1)Every person who, on or after August 1, 2002 carries on or carries out any taxable activity in SriLankashall
be required to be registered under this Act, if-
(a)at the end of any taxable period of one month or three months, as the case may be, the totalvalueofhis
taxable supplies of goods or services or goods and services made in Sri Lanka in that taxable period of one month
or three months, as the case may be has exceeded five hundred thousand rupees or
(b)in the twelve months period then ending, the total value of his taxable supplies ofgoodsorservicesor
goods and services made in Sri Lanka has exceeded one million and eight hundred thousand rupees or
(c)at any time, there are reasonable grounds to believe that the total value of histaxablesuppliesinSri
Lanka of goods or services or goods and services in the succeeding one month or three months taxableperiod,as
the case may be, is likely to exceed five hundred thousand rupees or in the succeeding twelvemonthsperiodis
likely to exceed one million and eight hundred thousand rupees :
Provided however, where the Commissoncr-General is of opinion that the supply of goodsrelatetoasingleisolated
transaction, the value of such supply may be exeludcd in calculating thetotalvalueoftaxablesuppliesforthe
purposes of this section.
(2) Every person who is required to be registered under subsection (I), shall make anapplicationforregistration
in the specified form to the Commissioner-General not later than fifteen days from the date on which is so liable to be
For the purpose of this section the total value of taxable supplies shall not include the supplies of any wholesaleor
retail trading activity excluded from the payment of tax under section 3.
importers of goods to notify commissioner General. [ 3,7 of 2003]
11. (1) Every person who is an importer of goods into Sri Lanka shall notifytheCommissioner-Generalnotlaterthan
fourteen days prior to the clearing of such goods that he has imported such goods andobtainfromtheCommissioner-
General an identification number for the clearing of such goods
Provided however, any importer who imports into Sri Lanka goods under the Passengers Baggage(Exemptions)Regulations
made under section 107 of the Customs Ordinance or a person who is registeredundersection10orsection12,or
paragraph (c) of section 14, or be deemed to be registered under subsection (2) of section 77 orisdeemedtobea
registered person under subsection (I) of section 80 of the Goods and Services Tax Act. No. 34 of1996shallnotbe
liable to not the Commissioner-General.
(2) Every importer referred to in subsection (I) shall make an application in the specified form to the Commissioner-
12. Notwithstanding the provisions of sections 3 and 10.any person whosuppliesgoodsorservicesandcarriesonor
carries out a taxable activity or imports any taxable goods may make anapplicationinthespecifiedformlothe
Commissioner-General for registration under this Act :
Provided however, the Commissioner-General may after affording the applicant-an opportunity of being heard, andhaving
regard to the nature of the business carried on or carried out by such applicant, the valueofthetaxablesupplies
made by such applicant in the two proceeding taxable periods and the probability that the value of his taxable supplies
will not exceed the value referred to in section 10. refuse lo register such applicant.
Commissioner-General to call for information
13. For the purpose of registering a person under section 14,The Commissioner-General may callforanyinformationfrom
such Person at any time relating to any taxable activity carried on or carried out by such person.
Registered person.[ 4,7 of 2003]
14, (1) The Commissioner-General shall-
(a)where an application has been made by any person for registration under section 10
(b)where an application for registration under section 12 has been madeandsuchapplicationhasnotbeen
refused by the Commissioner-General or
(c)where an application for registration, has not been made but the Commissioner-General is ofopinionhaving
regard to the nature of the activities carried on or carried out by such person, that such person is requiredto
tie registered under this Act, and after affording such person anopportunityofbeingheard,registersuch
person with effect from such date as may be determined by him.
(2) Any person registered under subsection (1)or deemed to be registeredundersubsection(2)ofsection80or
deemed to be registered under section 75 of the Goods and Services Tax Act No. 34 of 1996 on AUGUST 1, 2002andwhere
such person is carrying on or carrying out a taxable activity shall be a registered person under this Act
Certificate of Registration
15. (1) The Commissioner General shall, issue to a person registered under this Act upon such registration undersection
(a)a tax registration number :and
(b)a Certificate of registration
(2) The Certificate of registration shall set out the name and other relevant details of the registeredperson,the
date on which registration comes into effect, and the tax registration number of such person
(3) The person to whom a Certificate of registration is issued under subsection (1) shall, displaysuchcertificate
at a conspicuous place in the place where he carries on or carries out the taxable activity. Copies of such certificate
may be displayed in the event of there being more than one place of business
(4) Every registered person who makes an exempt supply specified in the 1st Schedule shall display the categoriesof
such goods and services supplied by him as given in the First Schedule at each such place of supply
(5) Where any person fails to comply with the piovisions of subsection (3) or (4) the Commissioner General may
(a)Impose on such person a penalty of a sum not exceeding fifty thousand rupees and give notice inwritingto
such person on he imposition of such penalty
(b)by notice in writing require such person
(i) to pay such penalty and
(ii)to comply with the provisions of subsections (3) or (4) as the case may be,
within such period as may be specified in such notice
(6) The Commissioner-General may reduce, or annulanypenaltyimposedonartypersonunderparagraph(c)of
subsection (5) if such person proves to the satisfaction of the Commissioner-General that his failuretocomplywith
the provisions of subsection (3) or (4) was due to circumstances beyondhiscontrolandthathehassubsequently
complied with such provisions.
Cancellation of Registration
16. (1) A registered person may make an application to have his registration cancelled at any time after the lapseofa
period of twelve months following the date of registration, either under this Act or under the Goods andServicesTax
Act, No. 34 or 1996 where such registered person has ceased to carry on or carry out a taxable activityorthetotal
value of his supplies during any taxable period within such period docs not exceed the value set out in section 10.
(2) The Commissioner-General
(a)shall on receipt of an application made under subsection (1)
(b)may at any time
and upon being satisfied that the applicant or any registered person as the case may be, hasceasedtocarryonor
carry out a taxable activity or that the total value of his taxable supplies does not exceed the value referredtoin
section 10. or the facilities under the Customs Ordinance in respect of him have been suspended by the Director-General
of Customs or that the continuation of such registration may impede the protection of revenue, cancel his registration.
(3) The Commissiner-General may refuse to cancel the registration of any person where he is of the opinion thatsuch
person has not ceased to carry on or carry out a taxable activity or that it is necessaryandexpedienttocontinue
with his registration for the protection of revenue
(4) Where the Commissioner-General cancels the registration of a Registered person he shallinformsuchpersonof
the date of cancellation of the registration by registered post
(5) With effect from the date of cancellation of the registration, any goods or services thenformingpartofthe
assets of a taxable activity carried on or carried out by that person shall be deemed to be supplied by that personin
the course of carrying on or carrying out a taxable activity at a time immediately priort to the date of cancellation.,
unless the taxable activity (inclusive of all such assets) is carried on or carried out byanotherpersonwhoisa
Registered person to return certificate on cancellation.
17. (1) Where the registration of a registered person has been cancelled by the commissioner General, such personshall-
(a)return to the Commisioner-General the certificate of registration issued tohimnotlaterthanfourteen
days from the last date of the last taxable period during which the registration was valid
(b)not display in any place where such taxable activity iscarriedonorcarriedoutthecertificateof
registration or a copy thereof
(c)not, issue any Tax Invoice,tax debit note or tax credit note as the case may be,
(2) Where any person fails to comply with the provisions of subsection (t), the Commissioner-General may
(a)impose on such person a penalty of a sum not exceeding fifty thousand rupees, and give notice in writingto
such person of the imposition of such penalty
(b)by notice in writing require such person
(i) to pay such penalty and
(ii)compiy with the provisions of subsection (1) within such period as may be specified in such notice
(3) The Commissioner-General may reduce, or annulanypenaltyimposedonanypersonunderparagraph(a)of'
subsection (2) if such person proves to the satisfaction of the Commissioner-General that his failuretocomplywith
she provisions of subsection (1) was due to circumstances beyond his control and that he has subsequently complied with
Liability not affected by cancellation of Registration
18. Notwithstanding the cancellation of registration under section 16, a registered person, shall beliableforanyact
done or omitted to be done while he remained a registered person in respect of the taxable supplies made by such person
under this Act or under the Goods and Services Tax Act. No. 34 of 1996.
Registered person to notify certain changes
19. Every registered person shall notify the Commissioner-General in writing of any change-
(a) in the name, address and place at which any taxable activity is earned on or carried out by such person
(b) in the nature of the taxable activity carried on or carried out by such person
(c) in the person authorized to sign returns and other documents and
(d) in ownership of the taxable activity.
not later than fourteen days after the occurance of the change.
Tax Invoice. [ 5,7 of 2003]
20. (1) A registered person who makes a taxable supply shall issue to the person to whom such supply is made, ifhehas
made a written request within fourteen days from the time of supply stating that he is a registered personunderthis
Act or is deemed to be a registered person under this Act, and requires that a tax invoice beissued,ataxinvoice
shall be issued not later than twenty eight days after the time of such supply
Provided however where a request has been made by a person registered or deemed to he registered under thisActafter
the receipt of the first supply such person shall not be required tomakeanyfurtherrequestinrespectofany
(2) The tax invoice shall set out-
(a)The name, address and the registration number of the supplier
(b)the name and address of the person to whom the supply was made
(c)the date on which the tax invoice was issued and its serial number
(d)the date of supply and the description of goods or services
(e)the quntity or volume of the supply
(f)the value of the supply,the tax charged and the consideration for the supply:and
(g)the words "TAX INVOICE" at a conspicuous place in such invoice.
Any tax invoice not issued within the period specified in subsection (I) and which does not conform totheprovisions
of subsection (2) shall not be a valid tax invoice. Any valid tax invoice issued under the Goods and Services TaxAct,
No. 34 of 1996 prior to August 1, 2002 or thereafter shall he deemed to be a tax invoice issued under this Act.
(3) Where goods have been imported into Sri Lanka the customs goods declaration or any otherdocumentauthenticated
by the Director-General of Customs shall be treated as a tax invoice under this Act.
Any customs goods declaration or any other document authenticated by the Director-Genera! of Customs andissuedunder
the Goods and Services Tax Act, No. 34 of 1996 prior to August 1, 2002 shall also be treated as a tax invoice.
(4) The original of the tax invoice shall be issued to the person to whom thesupplywasmadeandtheduplicate
ofsuch invoice shall be retained by the person who makes such supply for a period of five years after the expiry of the
taxable period in which such invoice was issued.
(5) It shall not be lawful to issue more than one tax invoice for each supply. If a registered person claims tohave
lost the original tax invoice the person who makes the supply, may issue tosuchregisteredpersonacopyclearly
marked "copy only".
[7, 6 of 2005]
(6) (a)Notwithstanding the provisions of subsection (2). where a registered person makes a taxable supplyandthe
recipient of such supply is not a registered person suchsuppliershallissueaninvoicegivingthetotal
consideration of such supply including the tax charged. Where the supplier has not kept adequate records onsuch
supplies covered by such invoices all such supplies shall be considered as supplies made under the standardrate
of tax. An invoice issued under this paragraph shall not be considered as a tax invoice for the purposes ofthis
Provided however a tax invoice shall be issued by such registered person who makes suchtaxablesupplytoany
Government institution, Provincial Council, Local Government institution, oranypubliccorporation,forany
taxable supply made to such institution, Councilor such corporation, as the case maybe,whetherornotsuch
institution, Councilor corporation is registered under this Act.
(b)Notwithstanding the provisions of subsection (2), though Value Added Tax is deferred, there shall beissued
by every registered person, on supplies made under paragraphs (a) or (c) of subsection (2) of section2,atax
invoice along with the Value Added Tax component shown as 'Suspended Value Added Tax' . An invoiceissuedunder
this paragraph shall not be considered as a tax invoice for the purposes of this Act.
(7) Any person who contravenes the provisions of subsection (1) shall be guilty of an offence and shall he liableon
conviction after summary trial before a Magistrate, to a finenotlessthanrupeestwenty-fivethousandandnot
exceeding rupees two hundred and fifty thousand and thereafter in the eventoftheoffencebeingcontinuedtobe
committed, after conviction to a fine of rupees five hundred for each day on which the offence is socontinuedtobe
(8) Where any person convicted of an offence under subsection (7) continues to commit such offencebeyondaperiod
of fourteen days from the date of his conviction, the court may, upon an application lor closure of the businessbeing
made by the Commissioner-General or-any officer authorized inthatbehalfbytheCommissioner-General,orderthe
closure of such business.
(9) In any case where such person fails to comply with the closure order issued under subsection (8), theMagistrate
shall forthwith order the fiscal of the court requiring and authorizing such fiscal before adatespecifiedinsuch
order not being a dale earlier than three or later than seven clear days from the date of issue of such order toclose
such business. Such order shall be suflicient authority for the said fiscal or any police officer authorized by himin
that behalf to enter the premises in which the business is carried on or carried out with such assistants as the fiscal
or such police officer shall deem necessary to close such business.
RETURNS AND CALCULATION OF TAX
Returns and information to be furnished. [ 5,13 of 2004]
[8, 6 of 2005]
(1) Every registered person shall furnish, to the Commissioner-General not later than the fifteenth day of themonth
not later than the twentieth day of the month after the expiry of each taxable period ofeachtaxableperiod.Every
such return shall be in the specified form and shall contain al! such particulars as may be required to be setoutin
such form :
Provided however, a return for the period of two months commencing from August 1, 2002, shall befurnishednotlater
than the last day of October, 2002 by any person who has been allocated with a taxable period of three months.
(2) An Assessor may, by notice in writing, require any person who is not a registered person but, in his judgmentis
a person chargeable with tax, to furnish, a return in the specified form within the time specified in such notice.
(3) Any return due under subsections (1) or (3) of section 21 of Goods and Services Tax Act, No. 34 of 1996forany
taxable period commencing prior to August 1, 2002 shall be deemed to be a return due under this Act.
(4) For the purposes of obtaining full information in respect of the supply of goods or services made by anyperson,
an Assessor may give notice in writing to such person requiring him
(a)to produce for examination or transmit to the Assessor, within theperiodspecifiedinsuchnoticeany
books of accounts whether contained in a manual, mechanical or electronic format orcombinationthereof,trade
lists, stock lists, registers, invoices, cheques, bank statements, paying-in slips, accounts,auditors'reports
or other documents in his possession as may be specified in order to verify the entries in such books,documents
(b)to sttend in person or by an authorised representative at such place and on such date and atsuchtimeas
may be specified in the notice for the purpose of being examined regarding the taxableactivitycarriedonor
carried out by that person
(5) For the purpose of this Act a Deputy Commissioner may give notice in writing to any person requiring him
(a)to produce or transmit to such Deputy Commissioner within the period specified in such notice anybooksof
accounts whether contained in a manual, mechanical or electronic format or combinationthereof,tradelists,
stock lists, registers invoices, cheques, bank statements, paying in-slips, accounts, auditors reportsorother
documents in his possession as may be specified in such notice .
(b)to attend in person or by an authorized represevtative at such place and on such date and atsuchtimeas
may be specified in such notice so that he may be examined on any such matter as may be specified in such notice
(6) A person who attends in compliance with a notice given under subsection (5) may be allowed bytheCommissioner-
General any reasonable expenses,necessarily incurred by him in so attending
(7) A Deputy Commissioner or an Assessor with the approval of a Deputy Commissioner mayretaininhiscustodyas
long as such retention is necessary for the purpose of this Act any books of accounts whethercontainedinamanual
mechanical or electronic format or combination thereof, trade lists, stock lists, registers,invoices,cheques,bank
statements, paying in slips, accounts, auditors,reports or other documents in his possession asmaybespecifiedin
order to verify the entries in such books, documents and accounts
(8) An Assessor may give notice in writing to any person where he thinks, it is necessary, requiringhimtofinish
within the time specified in such notice
(a)fuller or further returns or
(b)fuller or further information relating to any matter which in the opinion of the Assessorhenecessaryor
relevant for the assessment to tax payable by such person.
(9) A return, statement or form purporting to be furnished under this Act by or on behalf ofanypersonshallfor
all purposes be deemed to have been furnished by that person or by his authority,asthecasemaybe,unlessthe
contrary is proved, and any person signing such return, statement or form shallbedeemedtobecognizantofall
matters contained therein.
(10)Where any person fails to comply with the provisions of subsection (I), or fails to comply with therequirements
of a notice given to such person by an Assessor under subsection (2) directing him to furnish within the time specified
in such notice, a return containing such particulars as the Assessor may require, the Commissioner-General may
(a)impose on such person a penalty of a sum not exceeding fifty thousand rupees, and give notice in writingto
such person of the imposition of such penalty
(b)by notice in writing require such person
(i) to pay such penalty and
(ii)to furnish the return he is required to furnish under subsection (1)ifsuchreturnhasnotbeen
furnished or to comply with the requirements or the noticegiventohimundersubsection(2)ifsuch
requirements have not been complied with as the case may be, within such period as may be specified insuch
(11)The Commissioner-General may reduce orannualanypenaltyimposedonanypersonunderparagraph(a)of
subsection (10) if such person proves to the satisfaction of the Commissioner-General that his failure tocomplywith
the provisions of subsection (1) or the direction under subsection (2) as the case maybewasduetocircumstances
beyond his control and that he has subsequently complied with such provsions or directions.
[ 6,7 of 2003]
(12)Except where the Commissioner-General imposes a penalty under subsection (10) every personwhocontravenesthe
provisions of subsection (1) or subsection (2), shall be guilty of an offence under this Act andshallbeliableon
conviction after summary trial before a Magistrate to a fine not exceeding fifty thousand rupees or to animprisonment
of either discription for a term not exceeding six months or to both such fine and imprisonment
Credit for input tax against output tax. [ 7,7 of 2003][ 6,13 of 2004]
22. (1) A Registered personshall, in respect of any taxable supply made by him, account for and pay the tax byreference
to such taxable period at such time and in such manner as may be specified in this Act.
Provided however the amount of tax, due on the supply of any garmcnts within such percentage as is permittedforsale
locally by the Board of Investment of Sri Lanka, under any agreement entered into by amanufacturerofgarmentsfor
export under section 17 of the Board of Investment of Sri Lanka Law No.4 of 1978 or by any othergarmentmanufacturer
who manufactures garments for export under the supervision of the Department of Customs shall be twenty five rupees for
each such garment supplied within Sri Lanka
Provided further that no other tax or levy including any duty under the Customs Ordinance shall be charged or collected
on such sale of garments, where the amount specified in the preceding proviso has been paid on such sale.
(2) Subject to the provisions of this Act, a registered person shall be entitledatendofeachsuchperiodto
credit for so much of his input tax as is allowable under this Act, and then to deduct such amount from any outputtax
that is due form him : Provided however, any person adopting a payment basis of accounting, shall be entitled loclaim
credit on so much of his input lax as is allowable under this Act, only in respect of a supply for which the payment,of
the tax has been made by such person.
[9, 6 of 2005]
(3) Where a supply of goods or services received by a registered person, or goods imported by suchpersonareused
or are to be used partly (or the purposes of a taxable activity carried on or carried out by such person onwhichtax
can be levied and partly for other purposes, the tax on such supplies and importation shall be apportionedsohowever
that only so much of the lax on such supplies or importation as is referable to his taxable activity on whichtaxcan
be levied shall be counted as his input tax.
Provided however, in the case of a person providing leasing facilities under the Finance Leasing Act, No. 56of2000.
the input lax on goods supplied under a finance leasing agreement entered into on or after July 1, 2003butpriorto
January 1, 2004 shall be counted at the rate of ten per centum or less, even if the tax charged on such goodsismore
than ten per centum :
Provided further, that any person who accounts for the out put tax on all or part of his taxable supplies attherate
of ten per centum shall be entitled to deduct as input tax in relation to such supplies as is allowable under thisAct
only at the rate of ten per centum even where such person has paid the input tax at a higher rate than the rate often
per centum on the value of such supplies received by him, other than in the case of a lorry, motor coach or wagon.
Provided further, that any person who accounts for the output tax at the rate of five per centum shall not beentitled
to deduct any input tax in relation to such supply other than in the case of amotorvehicleusedforpurposesof
transportation of machinery for production :
Provided further, any input tax paid at the rate of eighteen per centum by any person which is allowable under this Act
shall be restricted to fifteen per centum.
For the purpose of this subsection "
"lorry" and "motor coach" shall have the respective meanings as assigned to them intheMotorTrafficAct(Chapter
"wagon" shall have the same meaning as assigned to it in the Finance Act No. 16 of 1995.".
(4) Where an unregistered person leases out his land and buildings in terms of a tenancy agreementtoaregistered
person, such registered person shall, notwithstanding that the unregistered person is not entitled to claimanyinput
tax in respect of any expenses incurred in connection with the services provided on such land and buildings byanother
registered person, be entitled to claim such amount of input tax as determinedbytheCommissioner-Generalforthe
expenses incurred by him on such services provided on suchlandandbuildingsforthedurationofsuchtenancy
agreement if such registered person provides sufficient evidence to the satisfactionoftheCommissioner-Generalto
enable him to determine the amount of such input tax which such registered person is entitled to claim.
Provided that where any residue of any excess input tax refundable on or after AugustI,2002undertheGoodsand
.Services Act, No, 34 of 1996 is outstanding on August 1. 2002. such excess shall not be deducted from anyoutputtax
due for any taxable period under this Act, but shall accordingly be refunded under the Goods and Services Tax, Act. No.
34 of 1996.
(5) Where any return is furnished under subsection (1) or (2) of section 21 and if at the end of thetaxableperiod
to which such return relates the amount of the input tax allowable under this Act exceeds the amount of the output tax,
the excess of the input tax shall not be refunded but shall be set off against the output tax of the succeeding taxable
period and so on. Any residue of such excess as has not been so set off in the period of six months from the end of the
taxable period in which such excess first arose, shall, subject to the provisions of subsection (3) of section58,be
refundedand where it is not so refunded the Commissioner-General shall pay interest, at suchrateprescribedunder
section 59 on such amount for the period commencing on the expiration of one month from the end of thetaxableperiod
in which such refund became due and ending on the date of the refund subjecttotheprovisionsoftheprovisoto
section 59 :
Provided that where any residue of any excess input tax refundable on orafterAugust1,2002undertheGoodsand
Services Tax Act, No. 34 of 1996 is outstanding on August 1. 2002, such excess shall not be deductedfromanyoutput
tax due for any taxable period under this Act, but shall accordingly be refunded under the Goods and Services TaxAct,
No. 34 of 1996:
Provided however, that where in a taxable period
(a) there is an excess of input tax in any taxable period, in the case of a registered person whohasentered
into an agreement with the Board of Investment of Sri Lanka and thattaxableperiodfallswithintheperiod
referred to in item (xxvii) of the Schedule to the Goods and Services Tax Act, No. 34 of 1996 or item (xx) of the
First Schedule to this Act or, within the project implementation period as stipulated in anyagreementreferred
to in item (xxvii) of the Schedule to the Goods and Services Tax Act No. 34 of 1996 or Item(xx)oftheFirst
Schedule to this Act or up to the commencement of commercial activities which ever is earlier
(b)there is an excess of input tax and that taxable period fallsbeforethetaxableperiod,inwhichthe
making of taxable supplies commenced as undertaken by such personinthecaseofapersonreferredtoin
(c)there is an excess of input tax including the tax deferred under section 2. inthecaseofaregistered
person the value of whose zero rated supplies for the taxable period was more than fifty per centum of histotal
taxable supplies for that taxable period. the excess of the input tax inclusive of any excess inputlawbrought
forward from a proceeding taxable period .
(d)any registered person who has obtained a deferment tax under section 2 in any taxable periodandnotmade
any zero rated supplies or made zero rated supplies of fifty per centum or less of the total taxable supplies for
such taxable period, the excess of input tax not exceeding the amount of such deffered Tax under section 2
such part of the excess or such excess as the case may be including any excess brought forward fromanytaxable
period under this Act or the Goods and Services tax. Act, No 34 of 1996 for anytaxableperiodorpartofa
taxable period ending on or before July 31, 2002 shall be refunded, subject to the provisions of section58not
latter than one month after the end of the taxable period or from the date of the reciept of the return forsuch
taxable period, in which the excess arose whichever is latter.
Provided further, in case of a registered person who imports goods for re-salewithoutprocessing,theexcess
input tax representing the tax paid under subsection (3) of section 2 shall not be refunded butsuchinputtax
including any excess input tax as at July 31,2002, under the Goods and Services Tax Act, No. 34 of 1996 shallbe
In the event of a failure to pay such refund within such period interest on such refund shall be payable from the
date-on which the refund becomes due to the date of payment thereof at suchrateasmaybeprescribedunder
section 59 subject to the provisions of the proviso to that section.
(6) Any input tax attributable to the supply of goods or services recieved shall notbedeductedundersubsection
(2) in respect of the following --
(i)if the supply is in respect of motor vehicles other than motor cycles, bicycles, motor coachesprovidedby
an employer for the transportation of his employees,motorvehiclesusedforexcursiontours,orforthe
transportation of tourists or transportation of goods or hiring cars, or motor vehicle forming part of anystock
in trade of any taxable activity
(ii) if the supply of goods or services received is not connected with the taxable activity
(iii)if the supply of goods or services received is not supported by -
(a) a valid tax invoiceor
(b) a customs goods declaration or other authenticated document issued by the Director-General ofCustoms
under this Act or under the Goods and Services Tax Act, No. 34 of 1996,
and received within twelve months from the end of the relevant taxableperiodinrespectofwhichsuchtax
invoice was issued or from the date of importation of goods, as the case may be
(iv) if the input tax on such tax invoice or customs goods declaration, as the case may be,hasnotbeen
deducted from the output tax for any taxable period ending before the lapse of six months from thelastdayof
the taxable period in which such tax invoice or customs goods declaration was received :"
Provided however, notwithstanding the provisions of subsection (3) andparagraph(ii)ofsubsection(5)any
registered person who has obtained a licence undertheElectricityAct,(Chapter205)andengagesinthe
distribution of electricity may be allowed input taxonthepurchaseofelectricityforsuchdistribution
notwithstanding the exemption under items (xxvi) of the Schedule to the Goods and Services TaxAct.No.34of
1996 or under item (xviii) of the First Schedule to this Act.
Provided further, where input tax disal1owed in respect of any motor vehicle referred to in paragraph (i) maybe
allowed up to a limit of fifty percent of such input tax for any taxable period commencing on or after January 1,
2003, subject to the provisions of subsection (3), where such vehicle is partly or whollyusedinanytaxable
(7) Where any person have proved to the satisfaction of the Commissioner-General that such person hascommencedany
business of any project in Sri Lanka, and undertakes to commence the making of taxablesupplies,hemayextendthe
period on the basis of an application made by such registered person to that effect:
Provided that any person, who is already registered for an existing business or project shall inform theCommissioner-
General of such fact and request that such registration be extendedtoincludeanynewbusinessorproject.The
provisions of this subsection shall thereupon apply to such new business or project.'"and
(8) Notwithstanding the provisions of section 33 any refund in excess of the amountdueoranyexcessamountof
input tax claimed under this Act or the Goods or Service tax Act No.34 of 1996 shall be assessed by an Assessor tothe
registered person to whom the refund has been made on making such claim as the case may be andsuchamountshallbe
deemed to be a tax in default on the first day of the taxable period in which theexcessofinputtaxfirstarose
resulting in such refund or claim in excess as the case may be.
For the purpose of this subsection,input tax claimed in a return by any person
(a) who has not commenced any economical operation within or on completion of the project implementation period
reffered to in item (xxvii) or item (xxviii) of the Schedule to the Goods and Services tax Act No.34 of1996or
item (xix) or (xx) of the First Schedule to this Act as the case may be
(b)who has obtained approval under subsection (7) or subsection (6) of section 22 oftheGoodsandServices
Tax Act, No. 34 of 1996 and has not commenced business of making taxable supplies as statedintheundertaking
given by such person prior to obtaining such approval.
shall be deemed to be an excess amount of input tax claimed by such person
(9) Notwithstanding the provisions of the first proviso and second proviso to subsection (3), anyregisteredperson
who, for any taxable period commencing from January 1,2004, makes a taxable supply, other than any zero rated supply or
a supply which has continuously been taxed at the rate of ten per centum, shall be entitledtodeductasinputtax
seventy five per centum of such input tax paid at the rate of twenty per centum on the value of such suppliesreceived
by him :
Provided that where the input tax is related to a taxable period prior to January 1. 2004, anyregisteredpersonwho
has made any taxable supply which was liable to tax at the rate of twenty per centum, shall not be subject to the above
23. Every Registered person shall account for tax on an invoice basis:
Provided however the Commissioner-General may direct such person toaccountfortaxonapaymentbasisonsuch
conditions as may be specified by him on an application made in that behalf by a registered person.
24. In ascertaining the amount oftaxpayableinanytaxableperiod,thereshallbedeductedanamountoftax
corresponding to any bad debt incurred in the taxable activity of a registered person on a debtcreatedonorafter
April I, 1998 and which has become bad during such taxable period. The amount of tax deductable shallnotexceedthe
amount paid as tax in a pievious taxable period in respect of the bad debt which is to be written off:
Provided that any amount written off as bad debt before or after the commencementofthisActisreceivedinany
taxable period by that person on account of the bad debt so written off notwithstanding the piovisions ofsection33,
the amount received shall be treated as a taxable supply during the taxable period under thisActoftheGoodsand
Services Tax Act No 11 of 1096 in which it was receivcd and shall be liable to Tax:
Provided further that where any amount of tax corresponding to a bad debt has been deducted by any person,theamount
so deducted shall be an output tax for the corresponding period of the person in respectofwhomthebaddebtwas
incurred if he is a registered person.
Adjustment of tax by credii or debit notes 1310-10-20031310-10-2003
25. (1)Where a registered person, has issued a tax invoiceandaccountedforanincorrectamountoftaxby
undercharging or overcharging tax on a supply made to another person, he shall beentitledtoissuetosuchother
person a tax debit note or a tax credit note, as the case may be. for the purpose of adjusting theamountoftaxso
undercharged or overcharged.
(2) Upon the issue of the tax debit note or tax credit note as the case maybe,inrespectofasupplyandin
relation to the period in which such note was issued
(a)the supplier shall pay as output tax such amount of the tax that was chargeable in respect of the supplyas
is in excess of the amount that was accounted for or deduct as input tax such amountaswasaccountedforas
output tax as exceeds the amount of tax chargeable and
(b)the person to whom the supply was made shall if such person is a registered person pay asoutputtaxsuch
amount of the tax that was deducted by him as input tax as exceedstheproperamountthatshouldhavebeen
deducted or deduct as input tax such amount as was deductible as exceeds the actual amount deductedbyhim,as
the ease may be.
(3) The tax debit note or tax credit note referred to in subsection (1) shall be in the specified form
CHAPTER III A
IMPOSITION OF VALUE ADDED TAX ON THE SUPPLY OF FINANCIAL SERVICES BY SPECIFIED INSTITUTIONS
Charge of value added tax on the supply of financial services by specified institution or any person.[8,7of2003][
8,13 of 2004]
25A.(1)Notwithstanding the provisions of Chapter I, II. III and item (xi) of the FirstScheduletothisAct,a
Value Added Tax (hereinafter in this Chapter referred to as"thetax")shallbechargedinaccordancewiththe
provisions of this Chapter on the supply of financial services in Sri Lanka
(i)by any specified institution during the period commencing January 1,2003 and ending on June 30, 2003and
(ii) by any person on or after July 1. 2003,
where such specified institution or person carries on the business of supplying such financial services.
(2) Every specified institution. carrying on the business of supplying any financial service in Sri Lanka,shallbe
required to be registered where the value of such supply for a period of three monthsexceedsfivehundredthousand
rupees or for a period of twelve months one million eight hundred thousand rupees, as the case may be.
(3) Every specified institution, required to be registered undersubsection(2),shallmakeanapplicationfor
registration in the specified form to the Commissioner-General not later than ten days from the date of commencement of
Provided however any institution registered under this Act and which is a specified institution within themeaningof
this Chapter, shall be deemed for all purposes to be a registered specified institution.
(4) The Commissioner-General shall upon such registration issue, to such registered specified institution
(a)a tax registration numberand
(b)a certificate of registration:
Provided however any institution deemed toberegisteredunderthisChapter,shallnotbeissuedwithatax
registration number and a certificate of registration, under this Chapter.
Monthly taxable period. [ 8,7 of 2003]
25B.The taxable period of every registered specified institution shall be one month and areturnintheformspecified
shall be furnished for each month before the end of the following month.
Calculation of tax. [ 8,7 of 2003][ 9,13 of 2004]
25C.(1)Every registered specified institution under this Chapter shall be liable to tax for each taxable periodon
its total value addition of such institution which includes the net profits or loss, as the case may be, before payment
of income tax on such profit computed in accordance with accepted accounting standards, subject toanadjustmentfor
economic depreciation, determined by the Minister having regard to the interest of economy by orderpublishedinthe
Gazette, and the emoluments payable to all the employees of such institution:
Provided however where the amount of profits for each taxable period cannot be accurately ascertained, such amountmay
be estimated on the basis of available information. The estimated amounts shallbeadjustedtoreflecttheactual
amount on half yearly basis.
Emoluments paid to all the employees shall include-
(a) in the ease of "specified employees" under Chapter XIV of the Inland Revenue Act, No. 38 of 2000, the gross
remuneration payable to such employees , and reflected in the pay sheet maintained under paragraph (a) of section
110 of the Inland Revenue Act, No. 38 of 2000and
(b)in the case of an employee other than a "specified employee" the gross remuneration paidtosuchemployee
reflected in the pay sheet maintained under subsection (2).
(2),Every registered specified institution shall maintain a paysheetinrespecteveryemployee,otherthana
specified employee, in the' manner set out by the Commissioner-General under section 110 of the Inland Revenue Act, No.
38 of 2000.
(3) The amount of tax payable for each month 'shall be ten per centum of the value additions specified insubsection
(4) Notwithstanding anything contained in subsection (1) any person to whom thisChapterapplies,mayinwriting
communicate to the Commissioner-General, his intention to calculate subject to the provisions ofsubsection(5),the
tax to which he is liable in respect of any month commencing on or after July 1. 2003. The provisions of subsection (5)
shall however be applicable for the period subsequent to the communication inwritingtotheCommissioner-General
which communication shall not be revocable.
(5) For the purpose of calculating the tax, the value addition attributable to"(a) exempt supplies, other thanthe
exempt supplies under item (xi) of the First Schedule but taxable under this Chapter
(b)zero rated supplies
(c)taxable supplies on which tax has been paid or is payable intermsofthisAct,otherthanthevalue
addition in relation to supplies taxable under this Chapter
(d)the profit or income on interest arising or accrued from inter company transactions of a group ofcompanies
relating to any loan, advance or credit, other than any profit or income arising to a company in that group which
is a "specified institution" within the meaning of this Chapter or a person not registered with the CentralBank
of Sri Lanka, but providing services similar to the services provided by a finance company
(e)the profit or income on interest arising or accrued to any approved provident fund includingtheEmployees
Trust Fund or a Pension Fund or any thrift, savings or building society or welfare fundtowhichcontributions
are made by employees only or any approved gratuity fund, or theinterestincome(notbeingprofitsfroma
business) arising or accruing to any person other than a "specifiedinstitution"withinthemeaningofthis
Chapter or a person not registered with the Central Bank of Sri Lanka, butprovidingservicessimilartothe
services provided by a finance company
(f)the dividend income arising to any person, other than such income arisingtoany"specifiedinstitution"
within the meaning of this Chapter or to a person notregisteredwiththeCentralBankofSriLanka,but
providing services similar to the services provided by a finance company
(g)(i) during any taxable period commencing on or after July 1, 2002 and endingpriortoJanuary1,
2004, the profit or income arising to any person from the sale of company shares owned by such person orto
any person who is instrumental in the purchase and sale of such shares by otherpersons,otherthansuch
profits and income arising to any "specified institution" within the meaning of this Chapter or a person not
registered with the Central Bank of Sri Lanka, but providing services similar to such services provided by a
[10, 6 of 2005]
(ii)for any taxable period commencing on or after January 1,2004 and ending prior to January 1,2005the
profits or income arising to any person from the sale of shares in any company owned by suchpersonorto
any person who is instrumental in the purchase and sale of such shares by persons otherthanstockbrokers,
other than profits and income arising to any "specified institution" within the meaning of this Chapter or a
person not registered with the Central Bank of Sri Lanka, but providing services similartosuchservices
provided by a finance company
[10, 6 of 2005]
(gg) for the taxable period commencing on or after January 1,2005, the profits orincomearisingtoany
person from the sale of company shares owned by such person or to any person who is instrumental in thepurchase
and sale of such shares by otherpersons,otherthansuchprofitsandincomearisingtoany"specified
institution" within, the meaning of this Chapter or a person not registered with the Central Bank ofSriLanka,
but providing services similar to such services provided by a finance company
(h)the profits or income from the exchange of currency other than such profits or incomearisingoraccruing
to any person primarily engaged in the business of exchange of currency or any "specified institution" within the
meaning of this Chapter or a person not registered with the Central Bank of SriLanka,butprovidingservices
similar to such services provided by a finance company,
shall be treated as zero.
(6) Notwithstanding the provisions of subsection (2) of Section 25A, no tax shall be charged from anypersonliable
to such tax, if the value addition calculated in accordance with the provisions of this section does not in respectof
any calendar month exceed seventy five thousand rupees.
(7) For the purposes of this section "group of companies" means a parent company and all its subsidiarieswherethe
parent company which has one or more subsidiaries, and such subsidiaries are controlled by the parent company either by
controlling the composition of the board of directors of such subsidiary or by holding more than half in nominalvalue
of the equity share capital of such subsidiary.
(8) Notwithstanding the provisions of subsection (3) the amount of tax payable for each month commencing on orafter
January 1,2004 shall be fifteen per centum of the value addition specified in subsection (1).
Tax credit. [ 8,7 of 2003] [ 10,13 of 2004]
25D.Where any registered specified institution has paid any tax under any other provision ofthisAct,otherthanthis
Chapter, a tax credit shall be allowed on an amount equal , to suchtaxpaidagainstthetaxpayableunderthis
Chapter, where in the opinion of the Commissioner-General thereisnomaterialdifferenceintherecognitionof
receipts of such "institution for the, calculation of profits for the purposes of this ,Chapter and for the purposes of
the calculation of taxable supplies under any other provisions of this Act:
Provided however -
(i) for any taxable period commencing on or after January 1, 2003 and ending prior to January 1, 2004,"
(a)fifty per centum of any such tax calculated at the standard rate and paid to theCommissioner-General
after deducting credit for input tax by any person and''
(b) twenty five per centum of any such tax paid, in respect of the supply ofleasingfacilitiesbyany
person registered under the Finance Leasing Act, No. 56 of 2000.
under any other provision of this Act. other than this Chapter, in relation totaxcalculatedasprovidedin
section 22, shall be deducted against the tax payable under this Chapterand
(ii) for any taxable period commencing on or after January 1, 2004, the taxcalculatedandpaidtothe
Commissioner-General after deducting credit for input tax by any person subject to a limitationoftwentyfive
per centum of any such tax, in respect of the supply of leasing facilities by anypersonregisteredunderthe
Finance Leasing Act, No. 56 of 2000, under any other provision this Act, other than this Chapter, in relationto
tax calculated as provided in section 22, shall be deducted against the tax payable under this Chapter.
Provided further, the preceding provisions of this section shall not apply to a registered person wherethetax
payable by such person under this Chapter, is calculated subject to the provisions of subsection (5)ofsection
Chapters IV to XVI to be applicable to registered specified institutions under this Chapter, [ 8,7 of 2003]
25E,The provisions of Chapters IV to XVI shall, mutatis mutandis, be applicable in respect of the taxchargedunder
Interpretation. [ 8,7 of 2003][ 11,13 of 2004]
25F.For the purposes of this Chapter supply of financial services means -
(a) the operation of any current, deposit or savings account
(b)the exchange of currency
(c) the issue, payment. collection or transfer of ownership of any note, orderforpayment,chequeorletterof
(d) the issue, allotment, transfer of ownership, drawing, acceptance or endorsement ofanydebt.security,being'
any interest in or right to be paid money owing by any person other than the transfer of non-performingloansofa
licensed Commercial Bank to any other person in terms of a re-structuring schemeofsuchbankasapprovedbythe
Central Bank of Sri Lanka with the concurrence of the Minister
(e) the issue, allotment, transfer of ownership of any equity security or a participatory security
(f) underwriting or sub-underwriting the issue of any equity security, debt security or participatory security
(g) the provision of any loan, advance or credit
(h) the provision -
(a)of the facility of instalment creditfinancein,ahire'purchaseconditional,saleorcreditsale
agreement for which facility a separate charge is made and disclosed to the person to whom the supply is made
(b)goods under any hire purchase agreement or conditional sale or hire purchase agreement while have beenused
in Sri Lanka for a period not less than twelve months as al the dale of such agreement
specified institution means -
(a)a licensed commercial bank within the meaning of the Banking Act. No. 30 of 1988
(b)a finance company registered under the Finance Companies Act, No. 78 of 1988
(c)a licensed specialized bank within the meaning of the Banking Act. No. 30 of 1988. ".
Provisions of this Chapter to apply to a person supplying financial services. [ 12,13 of 2004]
25G . Where any person carries on the business of supplyingfinancialservices,theprecedingprovisionsofthis
Chapter, shall mutatis mutandis apply, to and in relation to the supply of such services madebysuchpersononor
after July 1. 2003.
PAYMENT OF TAX
Payment of Tax [ 9,7 of 2003][ 13,13 of 2004]
26. [11, 6 of 2005]
(1)The tax in respect of any taxable period shall be paid not later than the twentieth dayofthemonthallowing
the end of that taxable period Any tax not so paid shall be deemed to be in default and the person by whom such taxis
payable or where any tax is payable by more than one person each such person shall be deemed to be a defaulter forthe
purposes of this Act
(2) The Commisioner-General may differ the due date for the payment of any tax assessed under paragraph(a)or(b)
of subsection (1) of 28 or subsection (1) of section 31,under an appeal against such assessment where-
(a)a request in writing has been made to the Commissioner-General for a defermentand
(b)it has been proved to the satisfaction of the Commissioner-General that the tax due on the allegedsupplies
on which the assessment has been made has not been charged by such person:
Provided however such deferred tax or part thereof shall become payable on the settlement of the appealorwithdrawal
of the deferment by the Commissioner-General and shall be deemed to be tax in default from theoriginalduedateof
Penalty for default [ 10,7 of 2003]
27. (1) Where any tax is in default the defaulter shall in addition to such tax in default pay as penalty-
(a)a sum equivalent to ten per centum of the amount in default and
(b)where the amount in default is not paid before the last day of the month succeeding the month in whichsuch
tax has begun to be in default a further sum equivalent to two per centum of the amount in default in respectof
each period ending on the last day of each succeeding month or part of such period during which it is in default.
Provided however that the total amount payable as penalty under this subsectionshallinnocaseexceedone
hundred per centum of the tax in default and any such amount may be waived or reduced if the Commissioner-General
is satisfied that by reason of any special circumstances in which the default occurredwaiverorreductionof
such amount would be just and equitable
(2) Where upon the final determination of an appeal under Chapter VI any tax in default towhichanysumorsums
under subsection (I) has or have been added is reduced, then such sum orsumsshallbecalculatedonthetaxso
[ 10,7 of 2003]
(3) Where any penalty payable under this section is outstanding on November 6,2002
(a)such penalty shall be waived in full where the tax payable in default hasbeenfullypaidonorbefore
November 6, 2002
(b)where a portion of the tax in default has been paid on or before November 6, 2002,suchpenaltyreferable
to the amount of the tax in default paid shall be waived.
ASSESMENT OF TAX
Power of Assessor to assessment [ 11,7 of 2003]
28. (1) Where-
(a)any registered person who in the opinion of the Assessor is chargeable with tax, fails to furnishareturn
for any taxable period or
(b)any registered person, who is chargeahle with tax furnishes a return in respect of anytaxableperiodbut
fails to pay tax for that taxable period , or
(c)any person requests the Commisioner-General in writing to make analterationoradditiontoanyreturn
furnished by such person for any taxable period
the Assessor shall assess the amount of the tax, which such person, in the judgment of theAssessor,oughtto