Government exempts PAL on capital goods eyeing growth

The government has effected further changes to taxes and levies as the Finance Minister had ordered the exemption of Ports and Airports Development Levy—which is often referred to as the PAL—on a range of imported capital goods in a bid to provide the much-needed fillip to the construction and export-oriented manufacturing and services sectors. 

An order signed and issued by Prime Minister Mahinda Rajapaksa, in his capacity as the Finance Minister on December 06, gave this exemption on the importation of capital goods, which have earlier been charged at 10 percent or at a lesser rate of PAL. 

However, in the same order, the government raised the levy on goods and items, which were hitherto taxed at 2.5 percent to 5.0 percent and the items which were subjected to 5.0 percent PAL up to 7.5 percent effective from December 06.

As a result, the importation of plant, machinery or equipment by an enterprise qualified for a tax holiday under sections 16D or 17A of the Inland Revenue Act No.10 of 2006 for the purpose specified in the agreement entered into with the Board of Investment (BoI), and such enterprise engaged in construction activities under section 17 A of the Inland Revenue Act, has been exempted from PAL.  PAL will also be exempted from enterprises engaged in export-oriented manufacturing on importation of capital goods subject to certain conditions and the importation of medical equipment to be donated to a health institution and importation of goods cosigned to SriLankan Airlines Limited, Mihin Lanka Private Limited and Air Lanka Catering Services Limited. 

Meanwhile, the importation of samples in relation to business worth not more than Rs.50, 000 and the importation of project-related capital goods by an enterprise, which has entered into a BoI agreement under Section 17 of the law, for the use in any project of such enterprise having a capital investment of not less than US$ 50 million during project implementation or construction period and prior to commercial operations, will also be exempted from PAL under the new arrangement. 

However, the project should not have the Commercial Hub Regulation and Strategic Development Project status under its act in order to enjoy the exemption from the levy as such projects enjoy a different set of incentives. Further, the importation of capital goods to establish climate-controlled warehouse facilities/cold chain logistics infrastructure facilities will also enjoy the exemption subject to approval of the list of goods by the Secretary to the Finance Ministry prior to the commencement of commercial operations 
of the project. 

Meanwhile the sale of yachts and other vessels for pleasure or sports by an enterprise entered into a BoI agreement and engages in manufacturing of boats and charting such vessels and yachts for supply of services, will also enjoy the exemption. 

The order also suggests that the new administration goes by the old version of the Inland Revenue Act in 2006 as opposed to the one designed and passed in 2017 under the assistance from the International Monetary Fund (IMF).