Economic Service Charge (ESC) has been administered since 1st of April 2006 under the Economic Service Charge (ESC) Act No. 13 of 2006, as amended by Economic Service Charge Amendment Acts No. 15 of 2007, 11 of 2008 , 16 of 2009.11 of 2011, 11 of 2012 and 06 of 2013. Prior to this, it has been administered under Finance Acts 11 of 2004 and 11 of 2005 from 01.04.2004 up to 01.04.2006. ESC is allowed to be deducted from the income tax payable in that year of assessment and any ESC which cannot be so deducted is carried forward and deducted from the income tax payable, to the extent that it could be deducted in the succeeding four years of assessments. ESC thus operates as an advance payment of income tax in respect of any person whose liability to income tax exceeds the ESC liability and such person bears no burden of the ESC.
A person whose contribution to income tax do not exceed ESC liability, for instance in the case of a loss making business, ESC has to be paid and no deductions can be effected elsewhere. With effect from 01.04.2012, ESC is payable only by any person or partnership who or which enjoys tax exemption or has taxable losses.
Tax LiabilityEvery person or partnership which carries on a trade, business, profession or vocation except Cooperative Societies, non resident aviation and shipping companies, local Government bodies and Government Departments, any distributer, any dealer in lottery, any unit trust of Mutual fund, or Central Bank of Sri Lanka will have to pay Economic Service Charge whether such person or partnership liable to pay income tax or not.. BaseShould register for ESC if the turnover of a quarter commencing from 01.04. 2011 is Rs. 50 million or more. The maximum economic service charge to be paid for a quarter is limited to Rs. 30 million. Even if the tax payable by you for the relevant quarter exceeds Rs. 30 million as per your turnover, you will have to pay only Rs. 30 million.Grace PeriodA grace period of 36 months from the commencement of the business in respect of manufacturers was there from 1/4/2007 to 31/3/2009. Accordingly, during that period the turnover was not liable even if the turnover exceeded the above limits. However, this was removed from 1/4/2009.TurnoverThe amount due from every transaction whether actually received or not. But following are not included to the liable turnover.
VAT Proceeds from sale of capital assets. Bad debts
For the period from 01/01/2009 to 31/12/2009 the following receipts are also not to be included to the liable turnover.
Receipts from export of goods. Receipt from supply of goods by manufactures to exporters for export. Receipts from the operating of Tourist Hotels approved by the Tourist Development Authority of Sri Lanka.
Payment of Tax
ESC is payable on self assessment basis in four quarter. Payments should be made using the specific form and the period of tax should be correctly indicated. (Ex. 30/06/2013 Quarter 13101)1stQuarter - on or before the 20th July2ndQuarter - on or before the 20th October3rdQuarter - on or before the 20th January4thQuarter - on or before the 20th AprilSet off of Tax
ESC paid can be set off against the Income Tax payable for the relevant year of assessment. A balance, if any can be brought forward and set against the 4 subsequent years of assessments. Furnishing of Returns
Due date :Return of ESC should be furnished annually on or before 20th day of the month immediately succeeding the end of that year of assessment.
Submitted to :ESC Branch which is in the 10thfloor.