Unit Trust Association of Sri Lanka (UTASL) has outlined key tax provisions affecting unit trusts under a proposed amendment Bill to the Inland Revenue Act, calling for measures aimed at improving transparency and administrative clarity.

Under the proposed framework, unit trusts would be required to issue detailed income certifications to investors. These certifications must specify income earned, exempt amounts, withholding taxes deducted, and any additional information required by the Commissioner General of Inland Revenue. Commissioner General R.P.H. Fernando has stated that the certifications must be issued within five months from the end of the relevant year of assessment.

At present, unit trusts are treated as pass-through vehicles, with income taxed in the hands of unit holders rather than at the fund level. The proposed certification requirement is intended to enable investors to meet their tax obligations accurately while strengthening disclosure standards.

EY Sri Lanka Partner–Tax Shehani Paranavitane said that if certification is not provided, the Bill proposes Unit Trust to be treated as a company for income tax purposes, to encourage consistent disclosure and strengthen tax administration. The requirement is expected to apply from 1 April.

The Amendment Bill also introduces revisions to capital gains tax for investment assets held by different categories of investors, including unit trusts. According to Paranavitane, investments in quoted equities held by unit trusts are not expected to be affected, as the broader exemption applicable to listed equities remains unchanged.

The report further noted that the treatment of capital gains tax relating to other assets will remain unchanged despite the proposed amendments, as unit trusts will continue to maintain their pass-through status. The proposed measures are intended to align tax treatment with broader fiscal policy objectives while promoting improved governance and transparency in the sector.