Sri Lanka has agreed with the International Monetary Fund to raise the withholding tax on deposits from 5 percent to 10 percent, while providing exemptions for lower-income brackets while increasing income tax rate for businesses in the betting and gaming sector, as well as for manufacturers, importers, and traders of liquor and tobacco from 40% to 45%,,
As per the decisions communicated to the media, this change, part of ongoing negotiations with the International Monetary Fund (IMF), aims to provide relief to middle-income earners who have been significantly affected by recent tax hikes.The revised tax structure will offer reduced rates for various income brackets.
Under the new proposal, the annual tax-exempt limit will remain at Rs. 1.2 million, while adjustments will be made to the first tax stratum and each subsequent stratum up to the fifth by an increase of Rs. 220,000.
For instance, those with a monthly income of Rs. 150,000 will see a 14% reduction in their tax rate, while individuals earning Rs. 1,000,000 monthly will benefit from a 6% reduction.The existing tax rates from 6% to 36% will remain unchanged.
These amendments are designed to gradually meet Government revenue targets while alleviating the financial burden on middle-income earners..
Deputy Minister of Industries and Entrepreneurship Chathuranga Abeysinghe states that there is no possibility of reducing taxes within this year, as the government is required to collect 15.1% of the Gross Domestic Product (GDP) in taxes in accordance with agreements reached with the International Monetary Fund (IMF).
“A reduction in indirect taxes, in particular, will have to be implemented gradually. We cannot expect a tax reduction this year. It is necessary to collect the required amount of taxes amounting to 15.1% of GDP, as stipulated by the IMF. However, once we emerge from this process and revenue collection efficiency improves, it will be possible to extend concessions to products from various industries,” he stated.
Furthermore, he emphasized the government’s long-term objective of providing tax concessions, particularly for technological investments in the banking sector and industries.
“The upcoming budget, scheduled for February 17, will outline these initiatives. The government intends to offer the necessary facilities and support to industries, aiming to create a conducive environment for industrial growth in the coming years,” he added.
Deputy Minister Abeysinghe also revealed plans to introduce a new tax policy for industrial imports.
“We are implementing a new tax framework known as the ‘Tariff Policy’. Under this policy, we aim to reduce or eliminate taxes on production inputs. Every industrialist now has a clear understanding of the imported inputs required for their production processes. This is the essence of the tariff policy,” he explained.
Addressing concerns within the industrial sector, he highlighted challenges posed by tax-free imports and undervaluation of invoices.
“Despite the efforts of local industries, certain imports enter the market at significantly low prices without paying the necessary taxes, sometimes with manipulated invoice values. To counter this, we are introducing protective measures under the anti-dumping policy, which will provide support to the industrial sector,” he added.
He further clarified that tax policies may vary across industries, but an overall reduction in taxes cannot be expected in the forthcoming budget.
