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| Sunday, 13 July 2003 |
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Income tax exemptions, incentives under the Inland Revenue Act by P. Guruge The tax incentives proposed in the budgets of 2002 and 2003 have been amalgamated in providing the necessary legal framework. . Export of non-traditional goods including deemed export of such non-traditional goods by a company (Section 21 A). Tax exemption is effective from 01.04.2002 for five years. - Tax exemption is available if 80 per cent of the production is either directly exported or considered as deemed exports or both. - Any new company commencing business on or after 01.04.2002 will qualify without any minimum investment requirement. - Any existing company should commence a new project on or after 01.04.2002 with a minimum investment of Rs. 2 1/2 million. - Exemption will be applicable only to the profits of the relevent specific undertaking or project. - Non-traditional goods will include specially processed coconut oil with effect from 01.01.2003. Effective from 01.04.2003, any goods other than black tea in bulk, crepe rubber, sheet rubber, scrap rubber, latex and fresh coconuts will be treated as non-traditional goods. . Projects in agriculture (cultivation of any plants and rearing of fish) agro-processing, manufacture of industrial and machine tools, electronic products, information technology and allied services carried on by a company (Section 21A). - Tax examption is effective from 01.04.2002 for five years. - Any new company commencing business on or after 01.04.2002 will qualify without any minimum investment requirement. - Any existing company should commence a new project on or after 01.04.2002 with a minimum investment of Rs. 2 1/2 million. This new project may be a combination of qualified activities including non-traditional exports or deemed exports. - Exemption will be applicable only to the profits of the relevant specific undertaking or project. Agro-processing will involve the processing of any agricultural product or fishery product. As a result of processing, there should be a change in character and quality of the original product. Manufacturing of any goods from a processed product may not qualify - e.g.: manufacturing of bakery products using flour. However, if the same project is involved in the manufacturing of flour from wheat and making bakery products, it may qualify. . Expansion of any project involving manufacture and export non-traditional goods including deemed export of such goods (Section 21 F). - Tax exemption will be applicable with effect from 01.10.2002. - This exemption will be applicable to existing companies engaged in the manufacture of non-traditional products and export of such goods, or deemed export of such goods (not less than 80 per cent of such products). - The minimum investment requirement will be Rs. 10 million subject to the maximum limit of Rs. 100 million and the investment to be completed by 31.03.2004. - The investment should result in the expansion of the production capacity. Mere acquisition of an asset may not be sufficient. - The two-year tax hiliday will be applicable to the total qualified export profits (or deemed export profits) of the company including the profits from expansion. . Expansion of any project involving manufacture of any goods other than non-traditional goods for export (Section 21 G). - Tax exemption will be applicable with effect from 01.04.2003. - This exemption will also be applicable only to existing companies already engaged in manufacturing any goods including goods for the local market. The minimum investment will be Rs. 10 million and expansion to be completed by 31.03.2004. - This exemption will be for two years and will be granted on the incremental profits, which means the excess of profits for the year over the average profits of the last three years. . Companies engaged in designated projects (Section 21 A). - Tax exemption is effective from 01.04.2002 for five years. - The following activities will qualify. Manufacture of ceramics, glassware or other mineral on rubber-based products. Products of any Export Production Village. Provision of refrigerated transport or cold room storage services. Management of any offshore company or maintaining a 'back office' in relation to any activity in a foreign country. - Any new company commencing business on or after 01.04.2002 will qualify without any minimum investment requirement. - Any existing company should commence a new project on or after 01.04.2002 with a minimum investment of Rs. 2 1/2 million. However, this investment limit is not applicable to any Export Production Village Company. - Tax exemption will be available to the profits from the above mentioned designated projects. . Large-scale projects carried on by companies (Section 21 A). - Tax exemption is effective from 01.04.2002 for five years. - Large scale project entails any project with an investment exceeding Rs. 250 million. The Minister will prescribe the guidelines for such projects. The relevant company should submit such proposals to the Minister for his consideration. The project need not be in any specific area. . Acquisition by a company for rehabilitation of non-performing or under-performing industries (Section 21 E) - Tax exemption will be effective from 01.04.2003. - Approval of the relevant proposal by the Minister is required. A complete report including the settlement of statutory liabilities should be submitted to the Minister of Finance. Adequacy of investment and other matters will be considered for approval. - The rehabilitation should be completed by 31.03.2004. - Acquiring company will be eligible to a three year tax exemption period. . New undertaking (a company) engaged in research and development activities. (Section 21 D) - Tax exemption will be effective from 01.04.2003 for five years. - Minimum investment is Rs. 2 million and it should be a new company. Only the research work defined below will qualify "any systematic or intensive study carried out in the field of science or technology with the object of using results thereof for the production or improvement of materials, devices, products, produce or process". Quality control of products or routine testing materials, devices, products or produce; research in the social sciences of humanities, routine data collection, efficiency surveys, management studies, and market research or sales promotion are excluded. . Small-scale infrastructure projects carried on by companies (Section 21 C) - Tax exemption will be effective from 01.04.2002 for five years. - Minimum investment is Rs. 10 million and this should be invested within one year after commencement of the undertaking. However, the maximum investment should not exceed Rs. 50 million. The qualified areas are power generation, tourism and recreation warehousing and cold storage, garbage collection and / or disposal and construction and hospitals. - The relevant undertaking may be carried out by a new or existing company. The undertaking should have commenced on or after 01.04.2002. . Large-scale infrastructure projects carried on by companies (Section 21 B) The qualified areas are power generation, transmission and distribution, development of highways, seaports, airports, rail transport, water services, industrial estates and other specified projects. Other projects should obtain prior approval from the Minister of Finance. - The relevant undertaking may be carried out by a new or existing company. The undertaking should have commenced on or after 01.04.2002. . New venture capital companies (Section 21 H) - Tax exemption for five years from the year of commercial operation will be effective from 01.04.2003. The company should have commenced commercial operations on or after 01.04.2003. Commercial operations are deemed to have commenced in the year in which issued equity capital raised reached Rs. 100 million. However, such commencement after 31.03.2008 will not qualify. - The exemption will be applicable to: investments for the financing of seed capital or start-up or early stage financing in - projects of a pioneering nature, projects in information technology, projects connected with the rehabilitation of non-performing or under-performing industries and projects approved by the Minister of Finance.Such investment should not be in associate companies. Only the equity investment will be considered. Note - There is no prior approval or submission of a proposal required for these exemptions unless such requirement is specifically mentioned. However, any clarifications may be obtained from the Commissioner General of Inland Revenue in advance. References I.R. (Amd) Act No. 10 of 2002 |
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