What is APIT Tax in Sri Lanka
Advance Personal Income Tax or APIT is the taxation on personal income generated by individuals working in Sri Lanka. This method of taxation came in place of the earlier PAYE tax with the formal amendments to the Inland Revenue Act, No. 24 of 2017 and came into effect from April 01, 2020. APIT is important to payroll since employees have the choice of allowing their employers to deduct and remit APIT to the Inland Revenue Department (IRD) on behalf of them.
(If you have employees who are liable to pay APIT, congratulations! you are one of the bigger employers in Sri Lanka)
There are 7 tax tables that apply to the income of your employees. These tax tables will be applicable given that the conditions that are relevant to those tax tables are satisfied. Several tax tables can be applicable to one individual, hence an individual might have to pay tax amounts calculated according to several tax tables.
The employee is relieved from APIT up to an income of Rs. 3,000,000, once he/she exceeds Rs. 3,000,000 per annum or Rs. 250,000 per month, is liable to income tax from employment income.
Tax amounts need to be remitted before 15th of each month to the Inland Revenue Department. You will have the option of remitting the dues via online or check payments. However, for you to be able to deduct and remit APIT on behalf of your employees, they have to express their consent.
APIT Tax Tables (previously PAYE Tax Table)
Here’s a summary of each of these tax tables. I will explain how to implement these tax tables later.
|1 – Monthly Tax Deductions from Regular Profits from Employment||This is the most commonly used tax table. There are several tax brackets that will apply to you depending on your income. You will be taxed as soon as you exceed the income of 250,000 rupees and the tax percentage differs according to the tax bracket.|
|2 – Rates for the Deduction of Tax from Lump-sum Payments||This tax table covers the income generated through Lump – sum payments. Lump sum payments include bonus, leave encashment, medical expenses reimbursements, salary arrears due on service reinstatement, the market value of shares at the time of allotment under an employee share scheme|
|3 – Rates for the Deduction of Tax from Once-and-for-all Payments(Terminal Benefits – All Employees)||ETF, All Provident Funds and all employees to retain amounts in lieu of Income Tax of Employees|
|4 – Tax deduction from any profits from employment of non-resident employees who are noncitizens in Sri Lanka||This tax table applies to non residents who are also non citizens. There is a lump sum payment for those people|
|5 – Deduction of Tax on Cumulative Gains and Profits from Employment||If the Salary is less than 250,000 per month but cumulative gains and profits from employment exceeds 3million this tax table applies|
|6 – Tax on Tax Rates||Tax on tax arises in the following instances:i. When an employer or any other person settles income tax liability of an employee,without being deducted from his salary,ii. Reimbursement by the employer of Income Tax already deducted from employee’ssalary.|
|7 – Rates for the deduction of Tax from the Second Employment||This table applies to Tax on the Second Employment if any|
How to apply Tax Tables
An employer who makes a payment during a year of assessment to an employee, in respect of that employee’s employment, the employer must withhold (if the employee granted his consent) an amount from such payment in accordance with the relevant tax tables
Tax table no.1
This is the most frequently used tax table where tax from regular profits from employment payable to every employee who is resident or non-resident but citizen, during a calendar month.
Regular profits from employment include:
i. Wages, salary, commission, overtime pay, travelling allowance, and other allowances, fees, pension or such other profits from employment that arise in any pay period,
ii. Payment on housing, conveyance, electricity, telephone bills and entertainment, etc.,
iii. Payment on medical bills and insurance policies (other than discharge or reimbursement of the person’s dental, medical, or health insurance expenses where the benefit is available to all full-time employees on equal terms),
iv. Payments or transfers to another person for the benefit of the individual or an associate person of the individual;
The table below explains how tax should be calculated under each tax bracket.
Tax table no.2
Table no.2 specifies the taxation on lump sum payments. Payments such as bonus, leave encashment, medical expenses reimbursements, salary arrears due on service reinstatement, the market value of shares at the time of allotment under an employee share scheme are considered lump-sum payments.
Here, First, compute the Estimated Gross Aggregate Remunerations (EGAR) from employment during the year of assessment including the Lump-sum payments. For this purpose you should calculate 3 figures,
(A) – Ascertain the aggregate gross monthly remunerations already paid to the employee during the year of assessment up to and including the month the lump-sum payment is made (excluding any Lump-sum payment/s paid);
(B) – Ascertain the aggregate gross monthly remuneration payable to the employee during the year of assessment from the succeeding month the Lump-sum payments is made (excluding any Lump-sum payment/s payable);
(C) – Ascertain the aggregate gross Lump-sum payments already made up to now including the Lump-sum payment being made now, and such Lump-sum amounts payable during the year of assessment (excluding monthly remunerations already counted under above (A) and (B);
Then you should Compute the Estimated Gross Aggregate Remunerations (EGAR) including the Lump-sum payments during the year of assessment by aggregating the amounts computed under above (A), (B) and (C).
Then, the appropriate tax rate applicable for Lump-sum payment being made now should be selected from the tax table, Thereafter, the amount of tax deductible on Lump-sum payment being paid now should be computed giving credit for any amount of tax previously deducted,
Tax table no.3
This tax table specifies rates for the deduction of tax from Once-and-for-all Payments or in other words terminal benefits.
Employees trust Fund, all provident funds and all employers are instructed to adhere to the following guidelines
- The amounts of the Once-and-for-all payments to which this guideline applies are,
- Any sum payable in commutation of pension
- Any sum payable as retiring gratuity
- Any sum payable as compensation of loss of office or employment
- Any sum payable from ETF
- Any sum payable from EPF
- Any other payments or benefits made in respect of retirement
- Any amount paid from a provident fund approved by the commissioner general of inland revenue or regulated provident funds
- Capital sums paid to a person as compensation or gratuity in relation to
- Personal injuries suffered by the person
- The death of another person
- Pension or any retiring benefit paid by the government of sri lanka or a department of the government of Sri Lanka
2. If the aggregate amount of the following payments exceeds Rs 5,000,000 you are required to retain 12% on the excessive amount.
- Amount payable in commutation of a pension
- Amount payable as retiring gratuity
- Any sum payable as compensation of loss of office or employment
- Any sum payable from ETF
3. You are required to retain 18% on any following payments or benefits
- Compensation for loss of office or employment under a scheme, which is not approved by the commissioner general of inland revenue
- Payment from other than regulated provident fund which has not been approved by commissioner general of inland revenue
- Any other payment
- Retirement non-cash benefits (To be valued at the market price)
You should retain the total amount mentioned in paragraph 2 or 3 as the case may be instruct the retiring employee to obtain a direction within 90 days of the date of retention, from the PAYE Audit branch, Nawam mawatha, colombo 02. Once you received the direction, please act accordingly.
If you have not received a direction before the expiry of 90 days, please remit the retained amount to the commissioner general to the credit amount No.2 Peoples bank, Union place branch
Tax table no. 4
Tax deduction from any profits from employment of non-resident employees who are noncitizens in Sri Lanka is addressed in table no.4. Similar to resident employees they too will be taxed under the two categories of regular gains and profits from employment and lump-sum payments
- Regular gains and profits from employment
- lump-sum payments
Following steps should be followed in computing the tax liability on the lump sum payments
Tax table No.5
In deducting tax from monthly regular taxable gains and profits from employment, Tax Table 1, 4, 6, or 7 should be applied, appropriately. This table should be applied in respect of employees (residents or citizens) whose monthly regular gains and profits from employment is less than Rs. 250,000/-, but cumulative gains and profits from employment up to any month in the year of assessment exceeds Rs. 3,000,000/- due to payment of higher regular gains and profits from employment in certain months.
Also, in the case where an employee commences employment or retires during the year of assessment (earn regular gains and profits from employment for a period less than 12 months), Tax Table No. 05 should be applied for deducting tax on employee’s gains and profits from employment.
Tax deduction should start from the month in which the cumulative gains and profits up to that month exceeds Rs. 3,000,000/-. Thereafter, tax deductions should be made monthly until the end of the year of assessment, applying this table.
Tax table no.6
Tax on Tax Rates
01. Tax on tax arises in the following instances:
i. When an employer or any other person settles income tax liability of an employee,
without being deducted from his salary
ii. Reimbursement by the employer of Income Tax already deducted from employee’s
Computing tax on tax where applicable, in respect of the tax liability is done on monthly emoluments of the employee for any month.
Tax table no.7
This tax table specifies the rates applicable to the second employment. Here tax is deducted from gains and profits from employment of any employee who has not furnished the primary employment declaration, or in respect of gains and profits from employment of any employee employed under more than one employer.
There are two categories that individual are taxed under this table,
- Resident employee
- Non-resident employee
When a resident employee grants his consent to the employer by declaration to deduct taxes from such profits, income of primary employment as the employee stated is applied
Non resident employee
Similar to any instance where a non resident employee is concerned the tax should be deducted regardless of his consent. Concerning second employment gains and profits a flat rate of 18% is deducted from the monthly remuneration from the second employment.
10. Remittance of Tax Deducted
You are encouraged to handle your tax payments via the online portal of the Inland Revenue department.
i. Tax deducted from employment income from every employee during a particular month
should be remitted to the Commissioner General of Inland Revenue on or before the 15th day
of the month immediately succeeding that month.
ii. Payments should be made to any branch of Bank of Ceylon, using specified remittance
forms issued by the Inland Revenue Department.
iii. Employers are required to read the instructions on the overleaf of the remittance form.
iv. Employers should keep the third copy of the remittance form after making the payments.
What are the Gains and Profits from Employment Liable to Tax?
Tax liability arises on total remuneration received or received by an employee in any form as
described below in cash or kind, for services performed or value of any benefit arises from prospective employment.
Salary, wages, leave pay, overtime pay, fees, pensions, commissions, gratuities, bonuses, and other similar payments;
Personal allowance, including any cost of living, subsistence, rent, entertainment or travel Allowance;
Payments providing discharge or reimbursement of expenses incurred by the employee or an associate of the employee;
Payments for an individual’s agreement to conditions of employment;
Payments for redundancy or loss or termination of employment;
Retirement contribution made to a retirement fund on behalf of the employee and retirement
payment received in respect of the employment; Payments or transfers to another person for the benefit of the employee or an associate person of the employee;
The fair market value of benefits received or derived by virtue of the employment by the employee or an associate person of the employee;
Other payments, including gifts, received in respect of the employment;
The market value of shares, at the time allotted, under an employee share scheme, including shares allotted as a result of the exercise of an option or right to acquire the shares, excluding the employee’s contribution for such shares;
What are the Gains and profits excluded from employment?
Exempt amounts and final withholding payments;
A discharge or reimbursement of expenses incurred by the individual on behalf of the employer;
A discharge or reimbursement of an individual’s dental, medical or health insurance expenses where the benefit is available to all full-time employees on equal terms;
Payments made to or benefits accruing to employees on a non-discriminatory basis that, by reason of their size, type and frequency, are unreasonable or administratively impracticable for the employer to account for, or to allocate to the individual;
The value of a right or option to acquire shares at the time such shares are granted to an employee under an employee share scheme;
Contributions made by an employer to an employee’s account with a pension, provident, gratuity or savings fund approved by the Commissioner-General.
Exempt Gain and profits from employment
Compensation or gratuity paid in lieu of personal injuries or death;
Pension received from the Sri Lankan Government or from a Department of the Government;
Amounts paid on retirement from any Provident Fund approved by the Commissioner General of Inland Revenue;
Amounts paid on retirement from any Pension Fund or the Employees’ Trust Fund, representing investment income earned for any period commencing on or after 1 April 1987;
Income derived by an individual entitled to privileges under the Diplomatic Immunities Law and other specified conventions;
Benefits derived by a Government employee, from a road vehicle permit granted to such employee.
What is the primary employment declaration?
An employee can furnish the employer a declaration where that employer is recognised at his or her primary source of income. Here, the monthly regular profits from such primary employment exceeds or deemed to exceed Rs.250,000 per month or Rs. 3,000,000 per year of Assessment. Whether the employment in question is his/her primary or secondary employment will be considered when implementing the 7th tax table (Rates for the deduction of Tax from the Second Employment)