Capital Gains Taxation in Sri Lanka
In Sri Lanka, capital gains taxation is governed by the Inland Revenue Act No. 24 of 2017, specifically Section 10. This legislation outlines the framework for defining, calculating, and taxing capital gains.
Definition of Capital Gains
Capital gains in Sri Lanka refer to the profit or gain realized from the disposal of capital assets. These assets include:
- Real estate properties
- Stocks and shares
- Bonds and debentures
- Business assets
Calculation of Taxable Capital Gains
Taxable capital gains are calculated as the difference between the selling price of the asset and its acquisition cost. The formula is:
Capital Gain = Selling Price - Acquisition Cost - Expenses
Adjustments or deductions may be allowed in the calculation of the gain, such as expenses related to the sale (e.g., brokerage fees, legal fees) and any improvements made to the asset during ownership.
Tax Rates
Capital gains in Sri Lanka are taxed at a flat rate of 10%. However, certain exemptions or preferential tax treatment may apply under specific provisions of the Inland Revenue Act.
Legal Framework
The following articles of the Inland Revenue Act outline the taxation of capital gains:
- Section 10: Chargeable Income
- Section 10(1)(e): Gains or profits from the disposal of capital assets
Policy Objectives
The capital gains tax system in Sri Lanka aims to:
- Ensure that individuals and businesses contribute their fair share of tax on profits realized from investments and asset disposals.
- Promote investment and economic growth by providing incentives for capital formation.
- Generate revenue for the government to fund public services and infrastructure.
Conclusion
Sri Lanka's capital gains tax system is designed to balance the need for revenue generation with the promotion of investment and economic growth. By adhering to the legal framework outlined in the Inland Revenue Act, taxpayers can accurately calculate their taxable capital gains and fulfill their tax obligations.
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