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Sri Lanka Implements Social Security Contribution Levy — Orbitax Tax News & Alerts

The Sri Lanka Inland Revenue Department has issued a Notice to Taxpayers on the implementation of the Social Security Contribution Levy Act, No. 25 of 2022. As previously reported, a 2.5% Social Security Contribution Levy was included as part of the 2022 Budget and was to apply from 1 April 2022. However, the legislation for the contribution, the Social Security Contribution Levy Act, was only recently approved in parliament and was certified on 20 September 2022. With the legislation approved and certified, the Social Security Contribution Levy will come into operation on 1 October 2022.

Some of the key points of the Social Security Contribution Levy include the following as explained in the Notice to Taxpayers:

  • The Social Security Contribution Levy (SSCL) will be imposed with effect from 1 October 2022, at the rate of 2.5%;
  • SSCL is payable by every person who:
    • imports any article;
    • carries on the business of manufacture of any article;
    • carries on the business of providing a service of any description; or
    • carries on the business of wholesale or retail sale of any article including the importation and sale of such article, other than a sale by manufacturers of an article as above;
  • Every taxable person, other than a taxable person who imports any article (see below on Customs collection), is required to register:
    • within 15 days from the operation date of the SSCL Act (i.e., by 15 October 2022) if their aggregate turnover in the previous 12 months exceeds LKR 120 million; or
    • within 15 days from the date on which their aggregate turnover for a quarter exceeds or is likely to exceed LKR 30 million;
  • For persons importing any article, the SSCL is collected directly by the Director-General of Customs at the time of import;
  • For other persons required to register, SSCL is payable on a self-assessment basis in three monthly installments for each quarter:
    • 1st installment for the first month should be paid on or before the 20th day of the second month of the relevant quarter;
    • 2nd installment for the second month should be paid on or before the 20th day of the third month of the relevant quarter; and
    • 3rd installment for the third month should be paid on or before the 20th day of the month immediately after the end of the relevant quarter;
  • The taxable amount/base for the SSCL is as follows:
    • import of any article (collected by Customs) - 100% of the import value;
    • manufacture of any article - 85% of the turnover;
    • provision of services:
      • financial services - 100% of the value addition attributable to the financial services by applying the attributable method referred to in Chapter IIIA of the Value Added Tax Act, No. 14 of 2002;
      • real estate (land) and improvements - 100% of the turnover, which is equal to the sale value minus the market value of the bare land to the date of sale; and
      • other services - 100% of the turnover;
    • wholesale and retail sale, including buy and sale, import and sale, and produce and sale (does not include manufacture and sale):
      • sale of any article by a registered distributor in relation to any manufacturer or producer of any goods in Sri Lanka - 25% of the turnover; and
      • wholesale or retail sale other than the above, including importation and sale - 50% of the turnover;
  • Registered persons must submit SSCL returns on a quarterly basis on or before the 20th day of the month following the end of the relevant quarter:
    • 1st quarter (January to March) - due by 20 April
    • 2nd quarter (April to June) - due by 20 July
    • 3rd quarter (July to September) - due by 20 October
    • 4th quarter (October to December) - due by 20 January

Note that once registered, SSCL should be paid irrespective of the turnover limit for registration. Registered persons may apply for the cancelation of registration if the registered person has ceased to carry on/out the relevant business or their aggregate turnover during each immediately preceding four quarters of the relevant quarter does not exceed LKR 120 million. Although the wording of this provision is somewhat unclear, it is assumed this means LKR 120 million aggregate turnover in total over four quarters and not in each of the four quarters.