Sales of Gems Sold at Auction Conducted by Gem and Jewelry Authority 2

• Gains and profits exempt for five years of assessment of any vocational education institution if its student intake has doubled in any year of assessment compared to the immediately preceding year of assessment. Time-limited exemptions. The following time-limited exemptions apply to gains and profits derived from business by new undertakings commencing after 1 April 2021, subject to stated conditions: • A 10-year tax exemption for an undertaking selling construction material recycled at a selected site used for construction services • A 5-year tax exemption for a business commenced by an individual who has completed vocational education from specified institutions • A 7-year tax exemption for a business commenced by a resident person that manufactures boats and ships in Sri Lanka and that derives gains and profits from the supply of such boats and ships • A 7-year tax exemption for any renewable energy project with the capacity to generate solar or wind power of not less than 100 megawatts that supplies power to the national grid • A 5-year tax exemption for an undertaking that commenced after 1 January 2021 by a resident person for the construction and installation of communication towers and related appliances using local labor and raw materials or for the provision of technical services for such construction and installation Tax incentives. Tax incentives are provided through enhanced capital allowances for new companies in addition to the normal capital allowances. The following are the enhanced capital allowances: • An enhanced capital allowance of 200% is granted for investment exceeding USD3 million in depreciable assets other than intangible assets in the Northern Province. • An enhanced capital allowance of 100% is granted for investment exceeding USD3 million but less than USD100 million in depreciable assets other than intangible assets in other provinces. • An enhanced capital allowance of 150% is granted for investment exceeding USD100 million in depreciable assets other than intangible assets in other provinces. • An enhanced capital allowance of 150% is granted for investment exceeding USD250 million in assets or shares of a stateowned company. • Annual capital allowances of 50% are granted within two years for milking machines with the latest technology for the manufacturing of liquid milk and related products. The enhanced capital allowance must be claimed in the year of assessment of the investment. Any unrelieved loss arising from the enhanced capital allowance must be claimed within 10 years. This period is extended to 25 years if the investment exceeds USD1 billion. The following temporary concessions apply for the three years of assessment after the effective date (1 April 2018) of the new Inland Revenue Act:

S RI L ANKA 1693 • An enhanced capital allowance of 200% is granted for an investment up to USD3 million in computers, data-handling equipment, specified plant and machinery, or buildings and structures in the Northern Province. • An enhanced capital allowance of 100% is granted for an investment up to USD3 million in computers, data-handling equipment, specified plant and machinery, or buildings and structures in other provinces. • Gains and profits (surplus) distributed to a policyholder of a life insurance company is subject to a reduced income tax rate of 14%. • A headquarters or regional head office, as specified by the

Commissioner General of Inland Revenue, established in Sri

Lanka on or after 1 October 2017 is exempt from income tax. • A company entering into a standardized power purchase agreement regarding renewable energy on or before 10 November 2016 with the Ceylon Electricity Board is subject to a reduced income tax rate of 14%. • R&D expenses are 100% deductible from business income.

This concession has been extended to the 2021-22 and 2022-23 years of assessment. • A company providing information technology services may claim an additional deduction in computing business income equal to 35% of the total amount of payments that are included in computing the taxable income of its employees other than company directors. The conditions for this deduction are 80% of gross income from the business of providing information technology services, at least 50 employees during the whole year and no entitlement to enhanced capital allowances. Any unrelieved losses resulting from the additional deduction may not be claimed in any succeeding years of assessment. • The cost of funds on loans provided by a bank or financial institution for startup capital of businesses started by persons after vocational training may be claimed as a deductible expense. Capital gains. Capital gains tax is re-imposed on gains from the realization of investment assets (capital assets held as part of an investment). In computing capital gains, the cost of an investment asset held as at 30 September 2017 is the market value of such asset at that time. Specific exclusions and exemptions, such as gains on sales of listed shares, are provided. In computing the capital gain, the consideration received is the amount received or receivable or the assessed value (value certified by a professional valuer) at the time of realization, whichever is higher. Administration. The normal fiscal year (year of assessment) runs from 1 April to 31 March. A company may select a different fiscal year if it obtains prior permission from the Department of Inland Revenue. Income tax is payable in four quarterly installments, which are due one and a half months after the end of each quarter. A company must file the final tax return by 30 November (self-assessment). Any balance of income tax due must be paid by 30 September following the end of the fiscal year. If a company fails to file a return, the Assistant Commissioner can issue a Default Assessment at any time. Filing a return after

a Default Assessment is issued is not considered to be a selfassessment. The Assistant Commissioner also has the power to issue an Advance Assessment, usually in advance of the due date of the return. The Assistant Commissioner also has the authority to revise a previously issued assessment or make an additional assessment. For a self-assessment return, an amended or additional assessment must be filed within 30 months from the date of filing of the self-assessment return. For any other assessments (default or advance), the amended or additional assessment must be filed within 30 months from the date on which the Assistant Commissioner issued the original assessment. In the case of fraud, no time limit applies for the issuance of an assessment. Separate sets of accounts must be maintained for different activities of a trade or business that are exempt or subject to tax at different tax rates. A refund claim for a year of assessment must be claimed in writing within four years after the date of payment or, if made on the Commissioner General’s initiative, within the specified time period. The Commissioner General may make a public ruling setting out the Commissioner General’s interpretation of the application of the Inland Revenue Act. A taxpayer may apply for a private ruling setting out the Commissioner General’s position with regard to a transaction entered into or proposed to be entered into by a taxpayer. A single return for all capital gains transactions in a calendar month must be filed and the payment must be made within 30 days after the end of the month. Effective from 1 April 2021, all companies must file the returns electronically (e-filing). The use of a Taxpayer Identification Number (TIN) is mandatory in all tax-related source documents or underlying documents of the taxpayer. The decision of the Commissioner General of Inland Revenue (CGIR) on the review of an assessment or other decision must be served on the taxpayer within six months after the date of acknowledgement of request. An aggrieved taxpayer may appeal to the Tax Appeal Commission within 30 days after the decision of the CGIR. Punitive provisions will be introduced against auditors, tax practitioners and tax advisors for specified charges. Tax relief measures for COVID-19 economic recovery. Income tax arrears of Small and Medium Enterprises (SMEs) arising from assessments made up to the 2018-2019 year of assessment