To reduce tax in Sri Lanka, individuals and entities can utilize various deductions, credits, and allowances that are legally available within the tax system. Here are some ways to potentially reduce tax liability:
- Foreign Tax Credit: If you have paid tax on foreign income, you may be eligible for a foreign tax credit against your Sri Lankan tax liability. However, it’s important to note that the credit is calculated on a “source-by-source” and “asset-by-asset” basis, and any excess foreign tax paid cannot be refunded or carried over.
- Qualifying Payments: Donations made in money to approved charitable institutions can be deducted from taxable income, subject to certain limits.
- Transfer Pricing Adjustments: If a transfer pricing adjustment has been made to the price of goods or services transferred to or from a related party in a Treaty Partner country, you may request the Sri Lankan Competent Authority (CA) to reduce or withdraw the adjustment to prevent economic double taxation.
- Tax Identification Number (TIN): With the implementation of the TIN system, compliance with tax regulations may become more streamlined, potentially offering more clarity on how to manage tax liabilities effectively.
- Tax Compliance: Ensuring accurate and timely filing of tax returns can help avoid penalties and interest that would increase your tax liability.
It is advisable to consult with a tax professional or refer to the Inland Revenue Department for specific guidance tailored to your circumstances. Additionally, staying informed about changes in tax laws and policies can help in planning and reducing tax liabilities.