The Unit Trust Association of Sri Lanka has announced key tax-related provisions concerning Unit Trusts, as outlined in the proposed Bill to amend the Inland Revenue Act.

Strengthening Transparency Through Income Certification

Currently, Unit Trusts are regarded as pass-through vehicles for income tax purposes under the existing Inland Revenue framework, with income taxed in the hands of unit holders. To enhance transparency and assist investors in accurately fulfilling their tax obligations, the proposed Amendment Bill mandates that Unit Trusts issue detailed income certifications to investors.

These certifications will detail income earned, exempt amounts, withheld taxes, and other information as specified by the Commissioner General of Inland Revenue. The certification must be issued within five months following the end of the relevant assessment year.

Shehani Paranavitane, Partner – Tax at EY Sri Lanka, highlighted that in the absence of such certification, the Bill proposes treating the Unit Trust as a company for income tax purposes. This measure aims to encourage consistent disclosure and strengthen tax administration.

The new requirement is expected to take effect from April 1, 2025.

Updated Capital Gains Tax Framework

The Amendment Bill also suggests revisions to the capital gains tax applicable to investment assets held by various investor categories, including Unit Trusts.

According to Shehani Paranavitane, investments in quoted equities held by Unit Trusts are expected to remain unaffected, as the broader exemption for listed equities remains intact.

The Unit Trust Association believes that the Capital Gains Tax treatment for other asset classes within a fund will remain unchanged, provided that Unit Trusts maintain their pass-through status. The Association will continue to engage with relevant stakeholders to seek clear guidance ahead of implementation, ensuring no adverse impact on unit holders within the funds.

Supporting Market Development

The proposed measures aim to align tax treatment with broader fiscal policy objectives while promoting clarity, consistency, and good governance within the Unit Trust industry. Unit Trusts play a vital role in expanding access to capital markets and supporting long-term investment in Sri Lanka. The Unit Trust Association of Sri Lanka will continue collaborating with regulators, policymakers, and industry participants to ensure the smooth implementation of the proposed changes and keep investors adequately informed.