Wednesday, July 24, 2024

Latest Posts

Sri Lanka plans property tax reform amidst economic stabilisation efforts

June 18, Colombo (LNW): The Ministry of Finance, Economic Stabilisation and National Policies of Sri Lanka has clarified details regarding the implementation of a proposed property tax, described as an imputed rental income tax within the context of the International Monetary Fund (IMF) supported Extended Fund Facility (EFF) programme documents.

In response to misconceptions, the Ministry emphasised that Sri Lanka faces a profound economic crisis primarily due to a significant decline in government tax revenue, leading to substantial budget deficits and unsustainable levels of public debt.

To address these challenges, rigorous fiscal consolidation efforts have been undertaken aimed at increasing government revenue from a low of 8.3% of GDP in 2022 to 15% of GDP by the end of 2025.

Regarding specific fiscal measures, the Ministry outlined that progressive reforms in corporate and personal income taxes were implemented in 2023, followed by Value Added Tax (VAT) reforms in 2024.

These reforms are on track to meet the revenue target of 13.5% of GDP by the end of 2024, with further gains expected to achieve the 15% target by 2025. A key component of these measures includes the introduction of a wealth tax focused on property.

The Ministry underscored that details of the envisaged property tax, aimed predominantly at high-wealth individuals rather than average income earners, are still under design and will be subject to legislative amendments.

Initial estimates suggest the tax could contribute 0.2% of GDP by 2025 and 0.4% in subsequent years. The tax structure will include mechanisms to prevent double taxation and minimise economic distortions.

Furthermore, the Ministry highlighted that property taxes are common globally, including in developing countries like India, and are considered efficient, progressive, and non-distortive revenue sources for funding public services.

The proposed tax is anticipated to be enacted by April 2025, pending legislative processes and improvements in valuation mechanisms and databases.

It was clarified that similar imputed income calculations have been included in Sri Lanka’s existing tax framework, such as the “Net Annual Value” under the Inland Revenue Act No. 10 of 2006.

Moreover, the Ministry noted that property in Sri Lanka is already subject to local authority rates and stamp duty, establishing a precedent for the proposed property tax.

The Ministry concluded by asserting that enhancing government revenue and reducing budget deficits have been instrumental in stabilising the economy, contributing to lower interest rates and currency appreciation, which benefit all citizens.

Failure to achieve the necessary revenue levels, however, could risk a resurgence of economic crises with severe implications for the country.

Latest Posts


Don't Miss

Stay in touch

To be updated with all the latest news, offers and special announcements.