Sri Lanka Colombo imposes a new service export tax

As of April, the government of Sri Lanka will introduce a 15% tax on income from the export of services, which will affect the freelancers and companies that work with foreign clients. The measure aims to increase tax revenues and reinforce currency flows, but also runs the risk of promoting informal transactions.

Colombo (Asianews) – As of April, Sri Lanka will introduce a new 15% tax on income from the export of services, which will affect technology professionals, financial advisors, accounting and software experts who work with foreign clients. Although the government intends to increase tax revenues to deal with the economic crisis, the tax could push professionals to seek alternative solutions, reducing the official currency flow to the country.

The measure, introduced in the Budget Law after its parliamentary approval, marks the end of a tax exemption that had been introduced in 2020. Although it was then progressively eliminated between 2022 and 2023, it had remained for external services.

The new fiscal legislation will affect self -employed, companies and youtubers with foreign exchange income, which will now have to register in the Tax Agency (IRD). According to Nihal Wijeardana, deputy commissioner of the department, “they will only be subject to the tax who provide services from Sri Lanka to foreign clients,” and adds that “self -employed must be aware that their income from multiple organizations is classified as business income”, but they have the right to deduce a part of the expenses incurred in the development of the activity.

The Fiscal Authority may control financial flows through the International Transactions Notification System (ITRS), a mechanism already used by the Central Bank of Sri Lanka (CBSL). Through this system, banks are obliged to inform about foreign exchange transactions, including those of self -employed, to control spending levels and detect possible evaders. An update of the regulations on May 21, 2024 also allowed the IRD to control a whole series of financial activities.

However, the introduction of the new tax has also generated concern among professionals in the sector. Menuka Tennakoon, Harshani Wick Ramsinghe and Ashen Kodippily, three computer engineers, expressed their fears to Asianews: “With the current economic crisis and the high cost of life, we cannot survive with our salary. We provide our services to foreign clients precisely to gain currencies, which we can save and use when we need them. If we need this tax system. remedy that resort to informal transaction methods, because we may not have many income after paying a copious tax. “

The adoption of unofficial payment channels, such as the Hawala system and the Undial – very popular in southern Asia to avoid bank records – thus run the risk of increasing tax evasion. Lawyers Achini Mendis and Dinuk Samarawickrama warned that “attempts to evade taxes through cash transactions are considered criminal crimes under several provisions of the Criminal Code. In addition, tax evasion does not prescribe and penalties are very high ».