Sri Lanka’s new Inland Revenue (IR) (Amendment) Bill 2026 is attracting scrutiny for its potential repercussions on businesses, taxpayers, and the broader economy. Following the March 30 deadline for Supreme Court challenges, the Ceylon Chamber of Commerce (CCC) has outlined concerns regarding the legislation, emphasizing the need to maintain a fair and balanced tax framework.
The Chamber’s Tax Steering Committee conducted a detailed evaluation of the bill, focusing on provisions affecting financing, investor confidence, compliance, and the competitiveness of Sri Lankan businesses. Through consultations with policymakers, regulators, and the private sector, the CCC has highlighted amendments that, if implemented without adjustments, could inadvertently hinder business operations.
A central issue involves the Thin Capitalisation Rules, where the CCC warns that including negative reserves in debt calculations could impose undue tax burdens on struggling companies. The Chamber also advocated for allowing finance costs on all genuine commercial borrowings, aiming to protect legitimate business financing arrangements.
Strict compliance timelines are another point of contention. The bill requires taxpayers to submit evidence within six to nine months a rule the Chamber believes could be unfair in complex cases. Flexibility, the CCC argues, is essential to balance administrative efficiency with fairness to taxpayers.
Penalties for minor infractions have also raised concerns. CCC officials caution that overly punitive measures, including imprisonment, could undermine business confidence. Instead, reliance on existing recovery and enforcement mechanisms is recommended to maintain compliance without deterring investment.
Insurance companies are likely to be affected by Section 67, which could tax policyholder distributions and create confusion under IFRS 17 accounting standards. The CCC has called for further consultation before implementation to avoid disrupting the sector and its customers.
The discretionary powers of the Commissioner General are also under review. The CCC stresses that clear guidelines and transparency are crucial to prevent arbitrary enforcement, ensure consistent decision-making, and maintain public trust.
Overall, the Chamber reiterates that a predictable, stable, and investment-friendly tax framework is vital for Sri Lanka’s economic recovery. Constructive engagement with the government is ongoing to refine the amendments, ensuring they support growth while safeguarding revenue objectives.
For citizens and businesses alike, the effectiveness of the new tax policy will depend on how well the government balances enforcement with fairness. Missteps could affect taxpayer confidence, business investment, and ultimately, the nation’s economic stability, highlighting the delicate interplay between taxation and public trust.
