CORPORATE INCOME TAX
Resident and Nonresident companies are liable to corporate income tax at 35%. This is similar to the rates seen in other fast developing Asian economies and is the result of reductions introduced in recent years by the government. Nonresident companies are those with their head, office located overseas, or are controlled from abroad. Such companies pay an additional tax of 1/3 of remittances abroad or 1/9 of taxable profits, whichever is less. Remittances exclude dividends for this purpose. 
PERSONAL INCOME TAX

Resident- Resident individuals pay personal income tax on a sliding rate scale up to a maximum of 35% of income. The first slab of Rs.100,000 per annum is exempt.

Non-citizens- Non-citizens of Sri Lanka who are employed in qualifying BOI enterprises are eligible for a flat concessionary tax at 15% of Sri Lanka-source income. This benefit, except in the case of BOI approved flagship projects, is restricted to the expatriate's first five years of employment.

INDIRECT TAXES
Sri Lankan indirect taxes comprise turnover tax, excise duties and stamp duty. Turnover tax is a multi stage tax applied on the manufacture, sales and import of goods and on services. The rates vary between 2% to 20%, depending upon the type of commodity or service. The tax is generally payable every quarter. Manufacturers have the benefit of a system of credits on turnover taxes paid at the time of import and on local procurement of inputs. The government has announced its intention of replacing the turnover tax with a more simple goods and services tax (GST) shortly. After coming power the new government (UNP) goods and services tax (GST) changing over as value added tax (VAT).

NATIONAL SECURITY LEVY
A National Security levy of 2% is levied on all imported capital goods. Exemptions from this levy will be granted on

• imports used in the manufacture of exports, including consumables 

• articles brought into the country for temporary use, for repair and re-export or for display at exhibitions or for repair and reimported. 

• Items of plant and machinery shipped abroad for repair and reimported.

• gold imports for sale at Duty Free shops 

All other imported or manufactured articles are subject to a National Security Levy of 4.5%. Exported articles are not subject to the levy. BOI Approved ventures are subject to this levy as described above.

DIVIDENDS
Dividends declared out of tax exempt profits during the tax holiday period and one year thereafter are tax free in the hands of shareholders. A withholding tax of 15% on dividends applies to all companies other than quoted public companies. This can be credited against the individual income tax of the shareholders. Quoted public companies have to deduct the 15% withholding tax on dividends paid to nonresident shareholders. Resident companies pay an Advance Company Tax (ACT) of 27% of gross dividend at the time of declaring a dividend. The ACT can be set off against the tax liability of the company up to 50% of income tax payable. Any excess can be carried forward to the following year.

TAX TREATIES
Double Tax Relief Agreements signed between Sri Lanka and other countries provide for reduced tax rates on dividends, interest and royalties. Recently concluded agreements include special provisions to ensure that foreign investors receive the benefits arising from the various tax incentives. The countries having tax treaties with Sri Lanka are the following: 

Australia, Bangladesh, Belgium, Canada, Czechoslovakia, Denmark, Finland, France, Germany, India, Italy, Japan, Korea, Malaysia, Netherlands, Norway, Pakistan, Poland, Romania, Singapore, Sweden, Switzerland, Thailand, The United Kingdom, USA and Yugoslavia.

Goods and Services Tax 
A value-added tax called the "Goods and Services Tax" (GST) with an input tax credit mechanism was implemented in Sri Lanka on April 1, 1998. The GST is applicable on most goods and services imported, produced or sold locally. The GST replaced a turnover tax system, which granted a wide range of exemptions, and had cascading effects as it was charged on each point of sale with no input tax credit mechanism. Theturnover tax system was a three-band tax system with rates of 7, 12 and 18 percent. The GST has two rates: a standard 12.5% for most goods and services and a zero rate for a limited number of goods and services. A range of essential goods such   as certain food items and petroleum products, public transport services and health care are completely exempt from GST. Goods and services supplied to diplomatic missions have been granted GST exemptions only on a case-by-case, negotiated basis.

Importers and distributors, manufacturers and service centers are liable for GST. All exports from Sri Lanka, and passenger and cargo airline services and shipping services are zero-rated. No GST is payable on zero-rated goods and services but suppliers of zero-rated products may be able to recover GST paid on inputs used. Suppliers of GST-exempted goods cannot recover any of the GST applied on their own expenses. Suppliers of standard rate goods and services have to charge GST on sales to customers, who in turn will be able to deduct the amount of tax from the amount they collect and owe to the government, if such supplies are used in their businesses. Customers who consume goods and services for non-business purposes cannot claim the deduction. GST is not due on raw material imports to businesses located within free trade zones.

When goods are imported to Sri Lanka, GST is payable at the same rate as on a supply of those goods in Sri Lanka. GST must be paid at the point of import. Exporters (who were exempted from turnover tax on imports and exports) are required to pay GST on inputs (both imported and locally obtained) but are eligible to receive a refund. In the case of imported inputs, GST must be paid within 60 days of import. GST refunds are granted only after exporters submit proof that the goods made from the inputs were exported, and processing time is at least one month. Exporters, complaining that this system creates cash flow problems and is cumbersome and time consuming, have requested exemptions from paying GST on inputs.

Implementation of the new system has generated controversy. Numerous reports of fraud and abuse have circulated in the local media, such as the charging of GST on exempted food items, and double-charging of GST to unsuspecting and confused consumers. In response, the Inland Revenue Department has started a consumer awareness program to educate consumers about GST. Various suppliers of goods and services who enjoyed exemptions under the turnover tax system have condemned the GST’s comprehensiveness and are making efforts
to have exemptions reinstated or to receive a zero-rating for their products. The GST is the most important tax source for the government. However, the current 12.5 percent GST rate is well below the revenue neutral tax rate of around 17 percent, which is a major cause for concern. GST collections fell below targets in 1998.

Products made in Sri Lanka for export, raw materials imported for export production, items imported duty free under Section 19 A of the Customs of ordinance and items sold to BOI firms are exempt from  turnover tax.

Excise duties apply on liquor, tobacco and some types of luxury or semiluxury goods. Stamp duty is levied on a variety of instruments: the transfer of property, issue and transfer of shares and on some types of financial instruments.