By: Staff Writer
November 03, Colombo (LNW): The Government’s decision to double the Withholding Tax (WHT) on interest income to 10 percent effective April 1, 2025, has begun tightening the noose around the life savings of thousands of retired citizens who depend almost solely on bank deposit interest to live.
Inserted in the Inland Revenue (Amendment) Act No. 2 of 2025, the new tax law will make it mandatory for all banks and financial institutions to withhold 10 percent of interest income as advance, irrespective of the amount of annual income of the depositor.
The government has asked the citizens receiving less than Rs 1.8 million to give a declaration to banks and financial institutions not to deduct the 10 percent and the financial institutions are doing it
However, citizens getting more than 1.8 million up to Rs 4 million are the ones who are affected as WHT of 10% is more than the tax payable and since they are receiving more than 1.8 Mn cannot sign the declaration.
.While intended to strengthen revenue collection, the measure has unintentionally hit those least able to bear the burden, several senior citizens living off modest savings complained. .
They urged the government to
A senior with Rs. 3 million in fixed deposits now earns around Rs. 300,000 annually as interest, but faces an automatic deduction of Rs. 30,000 under the new system, they pointed out.
After applying the standard Rs. 1.8 million personal allowance, the actual tax payable may be less than Rs. 10,000.
Yet the Inland Revenue Department (IRD) holds the full Rs. 30,000, leaving the retiree to navigate a complex refund process that can stretch for months.
This system, taxes people beyond their true liability and expects them to beg for refunds later,” lamented Senaka Samaraweera a retired engineer from Galle . “For someone in their 70s, filling forms and visiting tax offices is not practical. Many of us just give up.”
Sri Lanka’s fiscal authorities are under immense pressure to raise revenue. The tax revenue has reached Rs. 3,400 billion by the fourth week of September, driven largely by new taxes and higher collection efficiency, finance ministry data shows.
As officials prepare the 2026 Budget, these disgruntled senior citizens called on President Anura Kumara Dissanayake provide some redress for their financial difficulty. With over a million elderly depositors contributing to government coffers through interest taxes, even a modest reform could restore faith and fairness in the system
A large group of retired public servants has appealed to the finance ministry to take corrective steps in the 2026 Budget. They recommended establishing a simple exemption declaration for low-income seniors at bank level and introducing automatic refund credits for overpayments within 60 days.
The group argued that “a fair taxation policy must balance fiscal need with compassion for ageing citizens who have contributed to the nation’s growth for decades.”
According to Census data, Sri Lankans aged 60 and above now account for nearly 18 percent of the population about 3.9 million people. Of these, analysts estimate around one million elderly depositors are currently subject to WHT deductions.
For many, this tax is not merely a fiscal inconvenience but a direct reduction in essential income used for food, medicine, and utility bills.
A national advocacy group for the elderly, has voiced deep concern over what it calls “a policy that taxes the vulnerable to fill budget gaps.”
In a recent statement, the organisation noted that the WHT revision “creates refund barriers so high that thousands of seniors will effectively pay more than their fair share.”
Economists and social policy experts are calling on the Government to urgently revisit the policy before the upcoming Budget.
A high official of the finance ministry, noted that withholding tax systems are intended to simplify compliance, not punish low-income savers. “When interest earnings form the only income for many seniors, automatic deductions without regard to thresholds distort the equity of the tax system,” he said.
In response to mounting public pressure, the Finance Ministry has introduced a special fixed deposit scheme offering an extra 3 percent interest rate for citizens over 60 with deposits up to Rs. 1 million, funded through a Rs. 15 billion state allocation.
However, this initiative only applies to new deposits and provides no immediate relief for those already over-taxed under the WHT regime.
