Economic Service Charge ACT

Arrangement of Sections

1. Short title.

PART I

Imposition of an Economic Service Charge

2. Imposition of an Economic Service Charge.

3. Service charge to be deducted from relevant income tax.

4. Remaining portion of the service charge not to be refunded.

5. Notice of chargeability.

6. Date on which service charge is to be paid.

7. Furnishing of returns.

8. Maintenance of records.

9. Assessor to make assessment in certain cases.

10. Service charge not paid deemed to be in default.

10A. Turnover from Islamic Financial Transaction to be chargeable to Tax.

10B. The use of electronic communications or electronic records.

11. Certain provisions of the Inland Revenue Act to apply.

12. Regulations.

13. Interpretation.

PART II

Amendment of part I of the Finance Act, No. 11 of 2004

14. Amendment of Part I of Act No. 11 of 2004.

15. Part I of the Finance Act No. 11 of 2004 not to apply.

16. Sinhala text to prevail in case of inconsistency.

SCHEDULES

13 of 2006,

15 of 2007,

11 of 2008,

16 of 2009,

11 of 2011,

23 of 2011,

11 of 2012,

6 of 2013,

9 of 2014,

13 of 2015.

AN ACT to impose an Economic Service Charge on the relevant turnover of any person or partnership in respect of every quarter of every year of assessment commencing on or after April 1, 2006; to amend Part I of the Finance Act, No. 11 of 2004; and to provide for matters connected therewith or incidental thereto.

[Date of Commencement: 31st March, 2006]

[Note: Amendments made by s 3,4,5 of Act 13 of 2015 not incorporated as not in force.]

 

1. Short title.

This Act may be cited as the Economic Service Charge Act.

PART I

Imposition of an Economic Service Charge

2. Imposition of an Economic Service Charge.

(1) An Economic Service Charge (hereinafter referred to as “the service charge”) shall, subject to the provisions of this Act, be charged from every person and every partnership for every quarter of every year of assessment commencing on or after April, 1, 2006 (hereinafter in this Act referred to as “a relevant quarter”) in respect of every part of the relevant turnover of such person or partnership for that relevant quarter, at the appropriate rate specified in the Schedule I, Schedule II or Schedule III as the case may be, of this Act:

[S 2(1) am by s 2(1) of the Act 11 of 2012.]

Provided that notwithstanding anything to the contrary in this Act and the rates specified in the Schedule to this Act, the rate of the Economic Service Charge, chargeable in respect of the turnover arising on or after April 1, 2008 from the export of any articles or goods, shall not exceed 0.25 per centum.

[S 2(1) proviso ins by s 2 of Act 11 of 2008; am by s 2(2) of Act 11 of 2011.]

(2) Notwithstanding the provisions of subsection (1), the service charge shall not be charged from any person or partnership for any relevant quarter, in circumstances wherein the relevant turnover of such person or partnership for that relevant quarter—

(a) commencing before March 31, 2007, does not exceed ten million;

[S 2(2)(a) subs by s 2(1) of Act 11 of 2011.]

(b) commencing on or after April 1, 2007, but before April 1, 2011, does not exceed rupees seven million five hundred thousand;

[S 2(2)(b) subs by s 2(1) of Act 11 of 2011.]

(c) commencing on or after April 1, 2011, but before April 1, 2012, does not exceed rupees twenty-five million;

[S 2(2)(c) ins by s 2(2) of Act 11 of 2012.]

(d) commencing on or after April 1, 2012, does not exceed rupees fifty million,

[S 2(2)(d) ins by s 2(2) of Act 11 of 2012.]

Provided that the service charge chargeable from any person or partnership shall in no case exceed—

(i) rupees fifteen million for any relevant quarter ending on or before March 31, 2009 ; and

(ii) rupees thirty million for any relevant quarter commencing on or after April 1, 2009.

[S 2(2) proviso subs by s 2(1) of Act 16 of 2009.]

(3) In this section—

(a) “relevant turnover” in relation to any person or partnership and to any relevant quarter means the aggregate turnover for that relevant quarter of every trade, business, profession or vocation carried on or exercised by such person or partnership, as the case may be, in Sri Lanka whether directly or through an agent or more than one agent:

Provided that, in relation to any relevant quarter commencing on or after April 1, 2012, where such part of the taxable income as consists of profits from any trade, business, profession or vocation assessed under the provisions of Inland Revenue Act, No. 10 of 2006 for the year of assessment which ended immediately prior to the commencement of the year of assessment to which such quarter belongs, is more than zero, the relevant turnover for such quarter other than any turnover, the profits from which are exempt from income tax shall be deemed to be zero.

[S 2(3)(a) proviso ins by s 2(3)(a) of Act 11 of 2012; am by s 2(1) of Act 6 of 2013.]

(b) “turnover” in relation to any trade, business, profession or vocation and to any relevant quarter means the total amount receivable, whether actually received or not, from every transaction entered into in that relevant quarter in the course of such trade, business, profession or vocation carried on or exercised by such person or partnership—

(a) after deducting therefrom—

(i) any sum included in such total amount being a sum which represents the value added tax in respect of that transaction, provided that the person or partnership who or which carries on or exercises such trade, business, profession or vocation is at the time of such transaction registered under section 10 of the Value Added Tax Act, No. 14 of 2002;

(ii) any sum included in such total amount being the proceeds from the disposal of any capital asset;

[S 2(3)(b)(a)(ii) am by s 2(2)(b) of Act 16 of 2009.]

(iii) the amount of any bad debt incurred by that trade, business, profession or vocation during that relevant quarter, being an amount which had been included in the relevant turnover of such trade, business, profession or vocation of that or any previous relevant quarter; and

(iv) the proceeds of sale of any foreign currency denominated sovereign bond issued by the Government of Sri Lanka to any licensed commercial bank or to any non-resident person (effective from October 21, 2008);

[S 2(3)(b)(a)(iv) ins by s 2(2)(c) of Act 16 of 2009.]

(v) the proceeds of sale—

(a) of any Treasury Bill issued under the Local Treasury Bills Ordinance; or

(b) of any Treasury Bond issued under the Registered Stocks and Securities Ordinance,

purchased out of the funds drawn from any Treasury Bond Investment External Rupees Account (effective from June 1, 2008);

[S 2(3)(b)(a)(v) ins by s 2(2)(c) of Act 16 of 2009.]

(vi) receipts from the export of any article or goods, effected on or after January 1, 2009 but on or before December 31, 2009;

[S 2(3)(b)(a)(vi) ins by s 2(2)(c) of Act 16 of 2009.]

(vii) receipts from the supply, effected on or after January 1, 2009 but on or before December 31, 2009, by the manufacturer of any article or goods to any exporter for export without further processing or manufacture by the exporter;

[S 2(3)(b)(a)(vii) ins by s 2(2)(c) of Act 16 of 2009.]

(viii) receipts from any operations, effected on or after January 1, 2009 but on or before December 31, 2009, of any—

(a) hotel;

(b) inbound tour operation; or

(c) inbound tour agent,

being a hotel, operator or agent as the case may be, approved by the Sri Lanka Tourism Development Authority established under Tourism Act, No. 38 of 2005;

[S 2(3)(b)(a)(viii) ins by s 2(2)(c) of Act 16 of 2009; am by s 2(3)(b)(i) of Act 11 of 2012.]

(ix) proceeds from the sale of any clay roof tile or prottery product by any manufacturer or such product;

[S 2(3)(b)(a)(ix) ins by s 2(3)(b)(ii) of Act 11 of 2012; am by s 2(2) of Act 6 of 2013.]

(x) funds voted by Parliament from the Consolidated Fund or any loan arranged by the Government of Sri Lanka, for the provision of any service, free of charge by any public corporation on behalf of the Government; and

[S 2(3)(b)(a)(x) ins by s 2(3) of Act 6 of 2013.]

(xi) proceeds from the sale of any organic fertilizer by the manufacturer of such product; and

[S 2(3)(b)(a)(xi) ins by s 2(3) of Act 6 of 2013.]

(b) after adding thereto, any sum received during that relevant quarter on account of any bad debt written off or allowed in any previous quarter:

Provided that—

(a) in the case of a bank, the receipts of such bank by way of, or on account of, interest, discounts, dividend, exchange, service charges, commissions, brokerage or any other income derived by the bank in the course of its business shall be deemed to form part of the turnover of such bank.

For the purposes of this paragraph—

“Bank” shall be deemed to include a financial institution or pawn broker; and

“Financial institution” means any person corporate or unincorporated, whose business or part of whose business consists in the acceptance of money by way of deposit or loan in the form of debenture or bond or in any other form and the payment of interest thereon, whether such acceptance is on its own behalf or on behalf of any other person; and

[S 2(3)(b)(b)(a) am by s 2(2)(d) of Act 16 of 2009.]

(b) in the case of a person carrying on insurance business, insurance premia received, or receivable, in respect of—

(i) life insurance; and

(ii) insurance against damages or destruction by strike, riot, civil commotion, or acts of terrorism and paid into the Consolidated Fund,

shall be deemed not to form part of the turnover of such person.

3. Service charge to be deducted from relevant income tax.

(1) The amount of any service charge paid by any person for any relevant quarter shall be deducted from the income tax if any, payable by that person for the year of assessment of which that relevant quarter is a quarter (hereinafter referred to as the “first - mentioned year of assessment”).

(2) The amount of any service charge paid by any partnership for any relevant quarter shall be apportioned among the partners of such partnership in the ratio in which such partners share the profits or losses of such partnership for the year of assessment of which that relevant quarter is a quarter. The amount of the service charge so apportioned to any partner, shall be deducted from the income tax, if any payable by such partner for the year of assessment of which that relevant quarter is a quarter (hereinafter referred to as the “first - mentioned year of assessment”).

(3) The balance, if any, of the amount levied as Economic Service Charge after the deduction in accordance with subsections (1) or (2) as the case may be, apportioned to each year of assessment within the period of four years immediately succeeding the first mentioned year of assessment and the amount so apportioned to any such year of assessment shall be deducted to the extent, it can be so deducted from the income tax payable by such person or partner of such partnership for that year of assessment:

[S 3(3) subs by s 3(1) of Act 15 of 2007; am by s 3 of Act 11 of 2008.]

Provided that, where there remains as at March 31, 2006, any amount of the economic service charge paid in accordance with the provisions of Part I of the Finance Act, No. 11 of 2004 after its deduction in accordance with the provisions of that Act from the relevant income tax payable for any relevant year of assessment commencing before April 1, 2006—

(a) if such amount includes any part of the economic service charge paid for the year of assessment ended on March 31, 2005 such part may be apportioned to each year of assessment falling within the three years of assessment immediately succeeding the year of assessment which ended on March 31, 2006; or

(b) if such amount includes any part of the economic service charge paid for the year of assessment ended on March 31, 2006, such part may be apportioned to each year of assessment falling within the four years of assessment immediately succeeding the year of assessment which ended on March 31, 2006,

and the parts of the economic service charge so apportioned, shall be deducted to the extent it can be so deducted from the income tax payable by such person or such partnership for each such year of assessment.

[S 3(3) proviso ins by s 3 of Act 11 of 2008.]

(3A) Where an insurer engaged in carrying on both long term insurance business and general insurance business segregates such business into long term insurance business and general insurance business to be carried on by two separate companies, as required by section 53 of the Regulation of Insurance Industry (Amendment) Act, No. 3 of 2011, the balance, if any, as at the date of such segregation of the amount levied as service charge after the deduction in accordance with subsection (1), (2) or (3) shall notwithstanding anything to the contrary in any other provisions of this Act, but subject to the preceding provisions of this section, be deducted from income tax payable by the company that is carrying on the general insurance business after such segregation as if the same company were continuing to carry on the business.

[S 3(3A) ins by s 2 of Act 9 of 2014.]

(3B) Where any commercial bank or specialized bank licensed under the Banking Act, No. 30 of 1988, finance company licensed under the Finance Business Act, No. 42 of 2011 or leasing company registered under the Finance Leasing Act, No. 56 of 2000, acquires or merges with the business of any other bank, finance company or leasing company under the Financial Sector Consolidation Process of the Central Bank of Sri Lanka and there remains any balance of service charge paid by such banks, finance companies or leasing companies after the deduction from the income tax payable in that year of acquisition or merger and which is entitled to be carried forward and deducted from income tax payable by such banks, finance companies or leasing companies, then such balance shall be deductible from the income tax payable by such bank, finance company or leasing company that acquired the business or with which the other bank, finance company or leasing company merged, as if the same bank, finance company or leasing company were continuing to carry on the business.

[S 3(3B) ins by s 2 of Act 13 of 2015.]

(4) In no circumstances shall—

(a) the aggregate deduction of the amount of the service charge paid by any person or paid by any partnership and apportioned to any partner, as the case may be, from the income tax payable by such person or such partner of such partnership, as the case may be, exceed the amount of such service charge;

(b) The remaining portion, if any, of the balance referred to in subsection (3) after its deduction in accordance with that subsection, be deducted from any income tax payable for any year of assessment succeeding the fourth year of assessment immediately succeeding the first mentioned year of assessment.

[S 3(6) re-numbered as s 3(4) by s 3(2) of Act 15 of 2007;
S 3(4)(b) subs by s 3(3) of Act 15 of 2007.]

(5) …

[S 3(5) rep by s 3(1) of Act 15 of 2007.]

4. Remaining portion of the service charge not to be refunded.

Notwithstanding anything to the contrary in any law, the remaining portion of the service charge referred to in sub-paragraph (b) of subsection (4) of section 3, shall not be refunded.

[S 4 am by s 4 of Act 15 of 2007.]

5. Notice of chargeability.

Every person and every partnership chargeable or likely to be chargeable with the service charge for any relevant quarter shall, by communication in writing addressed to the Commissioner General, give notice of such chargeability or likely chargeability, before the fifteenth day of the last month of that relevant quarter. Such communication shall disclose the income tax file number or the personal identification number as the case may be, assigned by the Commissioner-General, to such person or partnership.

6. Date on which service charge is to be paid.

The service charge which any person or partnership is chargeable with for any relevant quarter shall, notwithstanding that no assessment has been made on such person or partnership by an Assessor, be paid to the Commissioner-General on or before the twentieth day of the month immediately succeeding the end of that relevant quarter.

7. Furnishing of returns.

(1) Every person and partnership chargeable with the service charge for any relevant quarter ending on or before March 31, 2011 shall, whether or not required by an Assessor in that behalf, furnish to an Assessor, on or before the twentieth day of the month immediately succeeding the end of that relevant quarter, a return in such form and containing such particulars as may be specified by the Commissioner General, of his or its, as the case may be relevant turnover. The return shall also show the basis of the calculation of the service charge and other details, if any specified by the Commissioner General under this section.

[S 7 re-numbered as s 7(1) by s 3(1) and am by s 3(2) of Act 11 of 2011.]

(2) Every person and partnership chargeable with the service charge for any relevant quarter commencing on or after April 1, 2011 shall, whether or not requested by an Assessor to do so, furnish to an Assessor, on or before the twentieth day of April of each year, a return for the year of assessment ending on March 31 of that year, in such form and containing such particulars as may be specified by the Commissioner-General, of the relevant turnover of such person or partnership, as the case may be. The return shall also indicate the basis of the calculation of the service charge and other details, if any, specified by the Commissioner-General in relation to this section.

[S 7(2) ins by s 3(3) of Act 11 of 2011.]

8. Maintenance of records.

Every person and partnership chargeable with the service charge shall maintain a record of the transactions of every trade, business, profession or vocation carried on or exercised by such person or partnership, in such manner as would facilitate the reconciliation of the return of relevant turnover furnished by such person or partnership under section 7 of this Act, with such record.

9. Assessor to make assessment in certain cases.

(1) Where in the opinion of an Assessor, any person or partnership who or which being chargeable with the service charge for any relevant quarter—

(a) has not paid the service charge; or

(b) has paid an amount less than the proper amount which such person or such partnership ought to have paid as service charge for such relevant quarter,

such Assessor may, assess the amount of the service charge which, in his opinion, ought to have been paid by such person or partnership as the service charge for that relevant quarter and shall by notice in writing require such person or partnership to forthwith pay—

(i) the amount of the service charge so assessed for that relevant quarter, if that person or that partnership has not paid any service charge for that relevant quarter; or

This section of the article is only available for our subscribers. Please click here to subscribe to a subscription plan to view this part of the article.


Recent Updates

LAW COMMISSION (AMENDMENT) ACT, NO. 19 OF 2016


VALUE ADDED TAX (AMENDMENT) ACT, NO. 20 OF 2016


PORTS AND AIRPORTS DEVELOPMENT LEVY (AMENDMENT) ACT, NO. 21 OF 2016


NATION BUILDING TAX (AMENDMENT) ACT, NO. 22 OF 2016


IMMIGRANTS AND EMIGRANTS (AMENDMENT) ACT, No. 7 OF 2015


LAW COMMISSION (AMENDMENT) ACT, NO. 19 OF 2016


VALUE ADDED TAX (AMENDMENT) ACT, NO. 20 OF 2016


PORTS AND AIRPORTS DEVELOPMENT LEVY (AMENDMENT) ACT, NO. 21 OF 2016


NATION BUILDING TAX (AMENDMENT) ACT, NO. 22 OF 2016


IMMIGRANTS AND EMIGRANTS (AMENDMENT) ACT, No. 7 OF 2015


LAW COMMISSION (AMENDMENT) ACT, NO. 19 OF 2016


VALUE ADDED TAX (AMENDMENT) ACT, NO. 20 OF 2016


PORTS AND AIRPORTS DEVELOPMENT LEVY (AMENDMENT) ACT, NO. 21 OF 2016


NATION BUILDING TAX (AMENDMENT) ACT, NO. 22 OF 2016


IMMIGRANTS AND EMIGRANTS (AMENDMENT) ACT, No. 7 OF 2015


LAW COMMISSION (AMENDMENT) ACT, NO. 19 OF 2016


VALUE ADDED TAX (AMENDMENT) ACT, NO. 20 OF 2016


PORTS AND AIRPORTS DEVELOPMENT LEVY (AMENDMENT) ACT, NO. 21 OF 2016


NATION BUILDING TAX (AMENDMENT) ACT, NO. 22 OF 2016


IMMIGRANTS AND EMIGRANTS (AMENDMENT) ACT, No. 7 OF 2015


LAW COMMISSION (AMENDMENT) ACT, NO. 19 OF 2016


VALUE ADDED TAX (AMENDMENT) ACT, NO. 20 OF 2016


PORTS AND AIRPORTS DEVELOPMENT LEVY (AMENDMENT) ACT, NO. 21 OF 2016


NATION BUILDING TAX (AMENDMENT) ACT, NO. 22 OF 2016


IMMIGRANTS AND EMIGRANTS (AMENDMENT) ACT, No. 7 OF 2015


LAW COMMISSION (AMENDMENT) ACT, NO. 19 OF 2016


VALUE ADDED TAX (AMENDMENT) ACT, NO. 20 OF 2016


PORTS AND AIRPORTS DEVELOPMENT LEVY (AMENDMENT) ACT, NO. 21 OF 2016


NATION BUILDING TAX (AMENDMENT) ACT, NO. 22 OF 2016


IMMIGRANTS AND EMIGRANTS (AMENDMENT) ACT, No. 7 OF 2015


LAW COMMISSION (AMENDMENT) ACT, NO. 19 OF 2016


VALUE ADDED TAX (AMENDMENT) ACT, NO. 20 OF 2016


PORTS AND AIRPORTS DEVELOPMENT LEVY (AMENDMENT) ACT, NO. 21 OF 2016


NATION BUILDING TAX (AMENDMENT) ACT, NO. 22 OF 2016


IMMIGRANTS AND EMIGRANTS (AMENDMENT) ACT, No. 7 OF 2015


LAW COMMISSION (AMENDMENT) ACT, NO. 19 OF 2016


VALUE ADDED TAX (AMENDMENT) ACT, NO. 20 OF 2016


PORTS AND AIRPORTS DEVELOPMENT LEVY (AMENDMENT) ACT, NO. 21 OF 2016


NATION BUILDING TAX (AMENDMENT) ACT, NO. 22 OF 2016


IMMIGRANTS AND EMIGRANTS (AMENDMENT) ACT, No. 7 OF 2015