Micro, Small and Medium Enterprises (MSMEs) are considered to be the backbone of the economy due to their significant contribution to employment generation, GDP, and overall development.
The Micro, Small, and Medium Enterprises (MSMEs) sector is an essential part of Sri Lanka’s economy. It is estimated that MSMEs contribute around 50% to the country’s GDP and provide employment to nearly 52% of the workforce. The Sri Lankan government has taken several initiatives to promote and support the MSME sector, including introducing laws and regulations that govern MSMEs. In this article we present the latest legal aspects and acts pertaining to the MSMEs in Sri Lanka.
The Economic Service Charge (Amendment) Act, No. 6 of 2013 had a significant impact on micro, small, and medium-sized enterprises (MSMEs) in Sri Lanka. The reduction in the ESC rate from 1.5% to 0.25% for companies with a turnover of less than Rs. 50 million per annum provided much-needed relief to MSMEs in Sri Lanka. This reduction in the ESC rate allowed MSMEs to retain more of their profits and invest in their businesses, which in turn could help them to grow and create more jobs. The exemptions provided for certain businesses, including those in the agriculture, fisheries, and handicraft sectors, also helped MSMEs in these industries by reducing their tax burden and thus helped to promote growth and development in these sectors and supported the livelihoods of small-scale producers and entrepreneurs.
The Inland Revenue Act No. 24 of 2017 is the primary tax law in Sri Lanka that governs the taxation of individuals and businesses. The Act provides tax incentives and concessions for MSMEs, including a reduced tax rate for businesses with a turnover below a specified threshold. The Act also requires MSMEs to maintain proper accounting records and file tax returns on time.
The National Policy Framework for SME Development is a government policy document that outlines the vision, mission, and strategies for promoting and supporting the MSME sector in Sri Lanka. The policy framework identifies key challenges faced by MSMEs, including access to finance, technology, and markets, and provides recommendations for addressing these challenges. The policy framework also encourages the adoption of sustainable practices and innovation in the MSME sector.
The Companies Act No. 07 of 2007 requires all businesses, including MSMEs, to register their businesses with the Registrar of Companies (ROC) to operate legally. The Act outlines the registration process and requirements, including submitting the necessary documents and paying the registration fee. The Act also requires businesses to renew their registration annually.
The Microfinance Act No. 6 of 2016 regulates microfinance institutions and microfinance business in Sri Lanka. The Act aims to promote the development of the microfinance industry and protect the interests of microfinance borrowers. The Act requires microfinance institutions to obtain a license from the Central Bank of Sri Lanka and comply with various regulations, including disclosure requirements and interest rate caps.
MSMEs in Sri Lanka are required to comply with various environmental laws, including the National Environmental Act No. 47 of 1980 and the Central Environmental Authority Act No. 47 of 1980. MSMEs need to ensure that their operations do not harm the environment and comply with all applicable regulations.
The Value Added Tax Act No. 14 of 2002 is the primary law that governs the Value Added Tax (VAT) system in Sri Lanka. The Act requires businesses to register for VAT if their turnover exceeds a specified threshold. MSMEs with a turnover below the threshold can voluntarily register for VAT to avail themselves of the input tax credit.
The Intellectual Property Act No. 36 of 2003 provides legal protection for intellectual property rights, including patents, trademarks, and copyrights. MSMEs in Sri Lanka can protect their innovations and brand by registering their intellectual property with the relevant authorities. The Act also outlines the legal remedies available to owners of intellectual property rights in case of infringement.
The legal aspects and acts discussed above are essential for MSMEs in Sri Lanka to comply with to operate legally and take advantage of various incentives and benefits provided by the government. MSMEs should consult with legal experts to ensure that they are aware of and comply with all relevant laws and regulations. By complying with the legal requirements, MSMEs can operate efficiently and effectively, contributing to the growth and development of the Sri Lankan economy.
This content was facilitated by CeFEnI/COSME and prepared by the University of Sri Jayawardenapura, Kotte
