Corporate Tax News Issue 58 - April 2021

Annual Budget 2021

The Annual Budget for the Year 2021, passed by a majority, contained many promising tax proposals to the investor community. These proposals are spread among many industries, including dairy, fabric, tourism, agricultural products, information technology, renewable energy and recycling.

Renewable and sustainable energy

The country is joining the worldwide movement towards reaching a reduced carbon footprint. All persons in their own capacities have contributed to this by becoming involved in many recycling/re-use projects, and renewable energy projects.

A temporary concessionary income tax rate of 14% was in force until 31 March 2021 for persons who had entered into Standardised Power Purchase Agreements with the Ceylon Electricity Board to provide electricity which is generated using renewable resources. To further bridge the gap, it is proposed to grant a 7 year tax holiday to renewable energy projects and a 10 year tax holiday for investments made in selected recycling sites that encourage recycling and re-use of construction materials.

In addition, the country’s tallest residential vertical garden set forth the trend for sustainable high rise. To provide further positive encouragement, it was proposed that investments made in the housing market through the Sri Lanka Real Estate Investment Trust (SLREIT) would be exempt from Capital Gains Tax and dividend income. This exemption appears to apply to foreign investors as well, although subject to restrictions associated to property ownership of foreigners.

Information technology

It was also proposed that the total earnings generated from carrying on business in information technology and enabling services will be exempt from income tax

Dairy market

One of the key world players in the dairy market has become established in Sri Lanka. Together with the local farmers, it has created an advanced dairy culture within the country. In order to inspire further investments in the industry and encourage companies to process rather than import milk powder, it has been proposed to provide strategic investment tax concessions for capital investments over USD 25 million. However, this concession is restricted for a period of 5 years, where benefits of the concession could reasonably be reaped.

An accelerated capital allowances deduction within 2 years has also been proposed, provided capital investments are made using the latest technology related to collecting liquid milk from local dairy farmers, while enhancing and promoting milk-related production and liquid milk respectively. The Budget has therefore attempted to improve productivity, maximising the utilisation of local resources, while encouraging more foreign investors to enter the industry as these concessions and allowances are delivered to all eligible persons regardless of residency.


Most of the proposals are in the process of being discussed with a view to implementation. It is believed that the concessions and special tax benefits proposed to be delivered to the target industries, together with the general income tax concession of up to 10 years granted under a strategic development law for investments which exceeds USD 10 million in certain selected industries, and individual income tax exemptions such as on dividend income received by non-residents, are not mere tax savings but rather encouragements for further investment.

Sarah Afker

Bishma Eliyadura