Tax bonanza for companies filing for listings before December 2021

• Budget announces 50% tax concession for companies listing before Dec. 2021 
• Investments in Sri Lanka Real Estate Investment Trusts exempted from capital gain tax; dividends free from income tax

The government proposed to provide 50 percent tax concession on corporate income tax for three years to companies seeking listings on the Colombo Stock Exchange (CSE) before December 31, 2021 and maintain a rate of 14 percent in the subsequent two years in order to develop the country’s capital market, which nearly stalled during the last five years. 

Widely applicable corporate income tax was brought down to 24 percent from 28 percent effective from January 1, 2020 as part of broader tax concessions afforded to companies by the new government that came in to power after Gotabaya Rajapaksa winning the presidency in November last year. 

Keeping those broader tax concessions on both individual and corporate incomes was a hallmark of the budget presented yesterday by Prime Minister Mahinda Rajapaksa in his capacity as the Finance Minister. 

Economic analysts say that it broadly re-assured the government’s commitment to maintain a stable tax policy at least in the medium term without any surprises as it gives the much needed predictability for business planning—a feature which was long absent in Sri Lankan budgets and 
tax policy. 

The lack of tax surprises in the 2021 budget and maintaining the direction taken last November demonstrates that the government largely banks on economic recovery, which is set to continue through 2021 to generate the much needed revenue to its sustenance and certain welfare and capital expenditure projects. 

The government also proposed a slew of reforms into tax administration, which if becomes fruitful, could enable to collect lot more tax revenue at current rates. 

Higher taxes for the sake of short term revenues, at a time of an economic malaise brought in by the once in a century pandemic is counterproductive as higher taxes are an additional burden on businesses and the consumers.

Meanwhile, in a slew of other proposals to popularise new investment instruments into the capital market, the government proposed to exempt investments in Sri Lanka Real Estate Investment Trusts (SLREIT) from the capital gains tax and dividends thereof to be made free from income tax, and also to reduce the stamp duty up to 
0.75 percent.

REITS are a kind of mutual fund, where the funds pooled are invested in variety of real estates such as apartments, commercial buildings, office towers, hotels, warehouses etc. to generate a steady income stream by way of dividends without having to buy, manage or finance any such property types by the 
investor himself.