All about tax deadlines

Late payments and filings can lead to cumulative penalties, so timely submissions are crucial

Being proactive and diligent in tax compliance ultimately builds credibility, mitigates financial risks, and fosters a stable environment for sustained growth and development. Failing to adhere to tax deadlines in Sri Lanka can result in significant financial, legal, and reputational consequences for individuals and businesses

Income tax

In Sri Lanka, income tax deadlines are primarily governed by the Inland Revenue Act, No. 24 of 2017 (as amended). Below are the key deadlines for individuals and entities to note:

1. Income tax return filing: 30 November of the following year is the deadline to file the Income Tax Return as per sections 93 and 94 of the IRA, this is the deadline for filing income tax returns for the preceding assessment year (1 April to 31 March).

2. Quarterly income tax payments: Taxpayers are required to make estimated tax payments on a quarterly basis. These payments are due on the following dates:

• 1st instalment: 15 August (for the first quarter: April to June)
• 2nd instalment: 15 November (for the second quarter: July to September)
• 3rd instalment: 15 February (for the third quarter: October to December)
• 4th instalment: 15 May (for the fourth quarter: January to March)

3. Self-assessment payment deadlines: Self-assessment taxpayers must pay their tax liabilities in the same quarterly intervals as above.

4. Tax payment on final assessment: Any balance tax due must be paid on or before 30 September before the return filing deadline (30 November).

5. Penalty for non-compliance: Late filing of returns or non-payment of taxes by the specified deadlines can result in penalties and interest: 

o Late filing penalty: As per section 178 of IRA, failure to file a tax return by the required date results in a penalty, which is the greater of:

• 5% of the tax due, plus 1% for each month or part thereof the delay continues; or
• Rs. 50,000, plus Rs. 10,000 for each month or part thereof the delay continues.
• Maximum penalty: Rs. 400,000.
• The penalty is treated as an addition to the tax liability and collected like the tax itself.

o Interest on late payments: 1.5% per month or part thereof on the outstanding amount. As per section 179 of the IRA, failure to pay tax within 14 days of the due date results in a 20% penalty on the unpaid amount, while failure to pay an instalment within 14 days incurs a 10% penalty. 

Value-Added Tax (VAT)

In Sri Lanka, Value-Added Tax (VAT) compliance is governed by the Value Added Tax Act, No. 14 of 2002 (as amended). Below are the key deadlines and requirements related to VAT:

1. VAT return filing: Deadline: 30th day of the following month: VAT returns must be submitted monthly (or quarterly, for certain small-scale taxpayers). For example, the VAT return for November is due by 30 December. 

2. VAT payment: Deadline: 20th day of the following month: Any VAT due for the period must be paid when filing the return. Late payments attract penalties and interest.

3. Submission of SVAT schedules (for Suspended VAT Scheme) Deadline: 25th day of the following month: Suppliers under the Simplified VAT (SVAT) Scheme must submit their SVAT schedules along with the VAT return.

4. Penalties for non-compliance

• Late filing of returns: A penalty of Rs. 50,000 per return.
• Late payment of VAT: Interest is charged at 2% per month or part thereof, up to a maximum of 100% of the unpaid tax.

5. VAT refund claims: Businesses eligible for VAT refunds must submit refund claims along with supporting documents. Refund processing times vary based on the accuracy and completeness of documentation.

6. VAT records and documentation

• Taxpayers must maintain proper VAT records, including: Tax invoices, credit notes, debit notes, import/export documentation, etc.
• These records must be retained for 5 years and be available for inspection by the Inland Revenue Department (IRD).

Additional notes:

• Threshold for VAT Registration: Rs. 60 million annual turnover (or Rs. 15 million per quarter).
• e-Filing: VAT returns and payments can be submitted electronically through the IRD’s online portal.

Social Security Contribution Levy (SSCL)

The Social Security Contribution Levy (SSCL) in Sri Lanka, introduced under the Social Security Contribution Levy Act, No. 25 of 2022, is a tax applicable to businesses meeting specific turnover thresholds. Below are the important deadlines and compliance details for SSCL:

1. SSCL payment and return filing deadlines

a. Payment deadline: SSCL is due on or before the 20th day of the following month for the turnover generated in the prior month. Example: SSCL for November must be paid by 20 December.

b. Return filing deadline: SSCL returns are filed quarterly. Due dates for quarterly returns: 

• 1st Quarter (April-June): 20 July
• 2nd Quarter (July-September): 20 October
• 3rd Quarter (October-December): 20 January
• 4th Quarter (January-March): 20 April

2. SSCL payment mechanism: The levy is calculated as 2.5% of the liable turnover. Payments must be made through the Inland Revenue Department’s (IRD) online portal or approved bank mechanisms.

3. Threshold for SSCL liability: Businesses with a turnover exceeding Rs. 60 million per annum (or Rs. 15 million per quarter) are subject to SSCL.

4. Penalties for non-compliance: Late payment penalty: Interest of 1.5% per month or part thereof is charged on unpaid SSCL amounts. Failure to file returns: A penalty of Rs. 50,000 per return is imposed for late filing.

5. Exemptions from SSCL: Certain goods and services are exempt from SSCL, including:

• Export turnover
• Turnover subject to VAT exemptions
• Certain financial services

Businesses must carefully review the exemptions to determine their actual SSCL liability.

6. Record-keeping requirements: Maintain detailed records of turnover, SSCL payments, and related documents for five years, as they may be inspected by the Inland Revenue Department.

Compliance notes

• Late payments and filings can lead to cumulative penalties, so timely submissions are crucial.
• SSCL compliance is often integrated with VAT processes; businesses already managing VAT will find similar administrative procedures for SSCL.

In Sri Lanka, apart from Income Tax, VAT, and SSCL, there are several other taxes with specific deadlines. Below is a summary of the main tax types and their respective deadlines:

1. PAYE (Pay-As-You-Earn Tax)/APIT (Advanced Personal Income Tax): Deadline: 15th day of the following month. Employers must deduct PAYE or APIT from employees’ salaries and remit it to the Inland Revenue Department (IRD) by the 15th of the subsequent month. Return should be furnished on or before 30th day of the month of April, of the following Assessment Year.

2. Withholding Tax (WHT) Deadline: 15th day of the following month. Tax withheld on interest, rent, dividends, or specified payments must be remitted to the IRD by this date. Filing of Returns: Quarterly WHT returns must be submitted within 30 days of the end of the quarter.

3. Stamp Duty: Payment deadline – stamp duty on specific instruments must be paid on or before the date of execution or as prescribed under the Stamp Duty Act. For financial institutions, remittance of collected stamp duty is typically due monthly.

4. Tourism Development Levy (TDL): Deadline: 20th day of the following month.

Tourism-related businesses must remit TDL collected from customers to the Sri Lanka Tourism Development Authority.

5. Telecommunication Levy: Deadline: 20th day of the following month.

Telecom operators must remit the levy to the Telecommunications Regulatory Commission of Sri Lanka.

6. Betting and Gaming Levy: Payment deadline: Annual license fees must be paid before commencement of operations for each financial year. Monthly payments on turnover are typically due by the 15th of the following month.

7. Customs duties: Deadline – Customs duties are payable immediately upon clearance of goods unless specific deferments are granted.

8. Transfer pricing disclosure: Deadline: 30 November of the following year.

Transfer pricing disclosure forms and documents are submitted with the corporate income tax return.

9. Other sector-specific levies

• Cess: Paid at the point of import or export, as prescribed.
• Ports and Airports Development Levy (PAL): Paid at the time of customs clearance for imports.

Compliance tips

• Electronic filing: Most taxes can be filed and paid online through the IRD e-Services portal.
• Penalties for non-compliance: Penalties and interest rates vary but are typically 1.5% per month for late payments and Rs. 50,000 or more for late filings.
• Documentation: Maintain all records for at least five years for audits or inspections.

Timely compliance with tax obligations is crucial for businesses and individuals in Sri Lanka to avoid penalties and maintain good standing with the Inland Revenue Department (IRD) and other regulatory authorities. The structured deadlines for various taxes such as Income Tax, VAT, SSCL, PAYE/APIT, and WHT emphasise the need for proper financial planning and efficient record-keeping.

Adhering to these deadlines not only ensures legal compliance but also contributes to the country’s fiscal stability and economic growth. Leveraging tools like the IRD’s e-Services portal for filing and payments can simplify the process and enhance accuracy. Businesses are encouraged to seek professional tax advisory services to navigate complex tax regulations and optimise their compliance strategies.

Being proactive and diligent in tax compliance ultimately builds credibility, mitigates financial risks, and fosters a stable environment for sustained growth and development.

Failing to adhere to tax deadlines in Sri Lanka can result in significant financial, legal, and reputational consequences for individuals and businesses. Below is an overview of the key repercussions for non-compliance with tax obligations:

1. Financial penalties and interest

• Late filing penalties: 

o Income Tax, VAT, SSCL, and other returns: A minimum penalty of Rs. 50,000 per return.

o Quarterly or annual returns for other taxes may also incur specific penalties for delayed submission.

• Late payment interest: 

o Income Tax, VAT, SSCL, WHT, and PAYE/APIT: Interest of 1.5% per month or part thereof on outstanding amounts, often capped at 100% of the total tax liability.

o This can lead to a doubling of the tax burden over time if not resolved.

2. Additional surcharges: A surcharge of up to 10% of the unpaid tax amount may apply in some cases for chronic or deliberate delays. Certain taxes, such as VAT, can attract cumulative penalties for delayed payments.

3. Legal actions:

• Prosecution and court proceedings: The Inland Revenue Department (IRD) has the authority to initiate legal action against non-compliant taxpayers. Convictions may result in fines or imprisonment depending on the severity of the offense.
• Seizure of assets: For prolonged non-payment, the IRD may take enforcement actions, including the seizure of property or freezing of bank accounts, to recover outstanding dues.

4. Loss of tax benefits

• Denial of tax credits or refunds: Non-compliance may disqualify businesses or individuals from claiming tax credits, deductions, or refunds to which they may otherwise be entitled.
• Forfeiture of tax reliefs: Delayed filings or payments may result in the revocation of incentives, exemptions, or concessions granted under tax laws.

5. Reputational damage

• Impact on business credibility: Non-compliance with tax obligations can harm a company’s reputation, affecting its ability to secure loans, attract investors, or bid for government contracts.
• Public disclosure of defaulters: The IRD may publish the names of chronic tax defaulters, leading to reputational harm.

6. Disruption to business operations

• Suspension of operations or licenses: Businesses in specific industries (e.g., betting, gaming, tourism) may face license suspensions or revocations due to non-compliance.
• Additional audits and scrutiny: Late filings or irregularities can trigger audits, increasing compliance costs and operational disruptions.

7. Increased future monitoring: Businesses and individuals who fail to comply may be subjected to closer scrutiny or monitoring by the IRD, resulting in additional administrative burdens.

Mitigation strategies

• Ensure deadlines are adhered to and set up reminders or use tax software to avoid oversights.
• Engage with tax consultants or Chartered Accountants to ensure compliance and optimise tax planning.
• In cases of genuine financial difficulty, taxpayers can request instalment payment plans or waivers for penalties, subject to approval.

Non-compliance with tax deadlines not only incurs financial losses but also poses serious risks to business continuity and personal financial stability. Therefore, adopting a disciplined approach to tax management is imperative for all taxpayers in Sri Lanka.

(The writer is Managing Director at A.G. Sarma Chartered Accountants.)