The Social Security Contribution Levy (SSCL) is a key component of Sri Lanka’s tax framework, introduced with the aim of contributing to national social security initiatives. Enacted by the Social Security Contribution Levy Act, No. 25 of 2022, the levy became effective from October 1, 2022. It applies to businesses engaged in importation, manufacturing, providing services, and wholesale/retail sales, based on their liable turnover.
What is SSCL and How Does it Work?
The SSCL is charged at a flat rate of 2.5% on a portion of a business’s turnover, known as “liable turnover.” The percentage of turnover considered liable for SSCL varies depending on the nature of the business activity:
- Importers: 100% of turnover
- Service Providers: 100% of turnover
- Manufacturers: 85% of turnover
- Wholesale & Retail (including importation and sale): 50% of turnover
- Registered Distributors (of local manufacturers): 25% of turnover
Businesses are required to account for the levy on an accrual basis and make monthly payments by the 20th of the following month. Quarterly returns must also be submitted by the 20th of the month after the end of each quarter.
“Introduce readers to the Social Security Contribution Levy (SSCL) as a key tax introduced to fund Sri Lanka’s social security programs.”
Recent Key Changes to SSCL
To adapt to the evolving economic landscape and refine the tax regime, significant amendments have been introduced to the SSCL, particularly with the Social Security Contribution Levy (Amendment) Act No. 15 of 2024 (certified on March 20, 2024). The most notable changes include:
Reduced Registration Thresholds (Effective January 1, 2024):
The threshold for mandatory SSCL registration has been significantly lowered. A business is now required to register if:
Its quarterly turnover exceeds Rs. 15 million.
Its aggregate turnover for any four consecutive quarters exceeds Rs. 60 million.
This is a considerable reduction from the previous thresholds of Rs. 30 million per quarter or Rs. 120 million per year. This change aims to bring more businesses under the SSCL net.
Cancellation of Registration:
The amending act also clarified provisions for the cancellation of SSCL registration. A registered person can now apply to the Commissioner-General to cancel their registration if their aggregate turnover for a period of consecutive four quarters does not exceed Rs. 60 million, for any period commencing on or after January 1, 2024.
Important Exemptions
Certain goods and services are exempt from SSCL to support specific sectors or ensure essential services remain affordable. These exemptions include, but are not limited to:
- Goods: Exported goods, fertilizer, petroleum, LP gas, pharmaceuticals, certain equipment for differently-abled persons, imported motor vehicles subject to Excise Duty, and locally manufactured rice.
- Services: Electricity generation and supply (with specific conditions), medical services, water supply, passenger and goods transport, life insurance, and services provided by government entities and the Central Bank of Sri Lanka.
Why These Changes Matter
The reduction in registration thresholds signifies the government’s intention to broaden the tax base and increase revenue collection. For small and medium-sized enterprises (SMEs) in Sri Lanka, these changes necessitate a careful review of their turnover and compliance obligations. Businesses that previously fell below the threshold may now be required to register, collect, and remit SSCL.
Staying informed about these amendments and ensuring accurate calculation and timely submission of SSCL is crucial to avoid penalties and maintain good standing with the Inland Revenue Department. Engaging with tax professionals can provide invaluable guidance in navigating these evolving tax requirements.