Features

Homeowner’s nightmare: The looming tax on imaginary rent

Published

2 years ago

2024/07/30

Sahan Weerasooriya

Imputed Rental Income Tax

by Sherika De Silva

LLB (University of London)
Bachelor of Commerce (Special) Degree in Business Technology (University of Kelaniya)
CIMA – Passed Finalist
Tax Analyst at KPMG

Sri Lanka is set to introduce a new tax on homeowners as part of a wider effort to boost Government revenue. This levy, known as the Imputed Rental Income Tax (IRIT), will extend to both owner-occupied and vacant residential property. The tax burden will be determined by the deemed rental income these homeowners could generate if they rented out their homes.

While the IRIT is expected to bring in new revenue for the Government, whether this will translate into significant revenue generation is still uncertain. The IMF Staff Level Report, published recently, recommends seeking the Parliamentary approval of revenue measures for the 2025 Budget ahead of the Presidential Elections. Additionally, it emphasizes the need to expedite preparatory work for the IRIT’s implementation before the beginning of the tax year, April 2025.

Sri Lanka’s housing policy strives to achieve shelter for all by 2025. However, the proposed IRIT may inadvertently create a disincentive for homeownership, potentially undermining the very goal of the housing policy. Hence, the IRIT brings about a clear contradiction between Sri Lanka’s housing policy and tax policy.

What is IRIT in General?

Sri Lanka’s tax system adheres to the principle of taxation on realized income. This means that taxpayers are generally liable for taxes only on income they have actually earned, not on potential future earnings. Exceptionally, the tax laws outline specific instances where income tax applies to unrealized income.

The concept of “imputed income” is the focal point of IRIT, which mandates the payment of taxes on income that may never materialize. In simpler terms, taxpayers would be liable for taxes on a fictional/ hypothetical income, not on actual earnings they receive. Taxation ideally reflects the economic realities of income generation. If income isn’t received, the burden of taxation on such “imputed income” can create a significant financial strain for taxpayers.

Income tax operates on a clear principle: individuals receive income and contribute a share to the State through tax payments. However, the IRIT introduces a novel concept – taxation on “imaginary income”. The potential disconnect between this imaginary income and the taxpayer’s financial reality sparks debate about the fairness and equitability of the IRIT.

It is worth noting that a similar tax (Net Annual Value concept) was previously included in the Inland Revenue Act. No. 10 of 2006. Under this regime, the “net annual value of not more than one place of residence, owned by and occupied by or on behalf of an individual” was exempt and the assessed values for rating purposes were used to determine the base. The concept of Net Annual Value extended to land and improvements thereon.

Is IRIT a Common Concept in the Global Tax System?

The concept of taxing the potential rental income, or “imputed rent,” on owner-occupied properties is rare, and it is only implemented by a select few OECD nations: Denmark, Greece, the Netherlands, and Switzerland.

According to Swiss tax law, a resident taxpayer owning a house or an apartment and living in this house or apartment is generally taxed on the deemed rental value of this property, which will be added to the individual’s taxable income.

In order to determine the imputed rental value of a home, Swiss authorities consider several factors such as the property value (including land and construction costs), living space, age, and location. The tax administration in the Canton of residence then compares or estimates how much rent a similar property costs. Generally, the imputed rental value falls between 60% and 70% of the potential rental income.

While both Greece and Sri Lanka faced economic challenges necessitating IMF intervention, their approaches to taxation differ. Greece imposed an imputed income tax on luxury living such as private cars with large engine power, airplanes, helicopters, swimming pools as well as private yachts/boats exceeding five meters. In contrast, Sri Lanka is set to implement IRIT primarily targeting homeowners.

Understanding the Rationale for IRIT in Switzerland and other similar nations

The rationale behind the IRIT implemented in Switzerland centres on achieving tax parity between homeowners and renters.

Traditionally, renters pay tax on their income but cannot deduct their rent payments, a significant expense. Conversely, homeowners can deduct mortgage interest and maintenance costs from their taxable income, reducing their overall tax burden. This tax system that favoured homeowners over renters, created a disparity. The introduction of the IRIT aimed to rectify this imbalance by imposing a tax on imputed rental income of homeowners.

As a means of achieving the objective of creating tax parity, when IRIT was introduced, homeowners were allowed to deduct certain expenses such as maintenance costs and mortgage interest expenses in order to offset the imputed income charge.

Is there a Rationale for IRIT in Sri Lanka?

Given the absence of deductions for mortgage interest and maintenance expenses for homeowners in Sri Lanka, unlike Switzerland that has introduced IRIT, the rationale behind Sri Lanka’s implementation of IRIT becomes questionable. Maybe if IRIT is to be implemented, policymakers should provide a deduction for mortgage interest and maintenance expenses to Sri Lankan taxpayers.

Sri Lanka’s tax landscape regarding deductions for expenses incurred by homeowners, has undergone several changes over the years, with amendments to income tax laws. The previous Inland Revenue Act (No. 10 of 2006) allowed deductions for capital repayments and interest payments on approved housing loans obtained before 01 April 2011. The subsequent Inland Revenue Act (No. 24 of 2017) introduced an expenditure relief for interest on housing loans. However, this relief was abolished in December 2022. Consequently, the current tax system in Sri Lanka offers no deductions for either housing loan interest or any other housing-related costs.

Unlike countries like Switzerland, since there is no deduction currently available for homeowners in Sri Lanka, there is no disparity between homeowners and renters. Therefore, implementing IRIT in Sri Lanka without allowing deductions may end up creating a disparity and this would discourage the concept of homeownership, and favour living in rented houses.

Therefore, to mitigate potential inequities arising from the implementation of IRIT in Sri Lanka, policymakers should consider establishing an allowance for deductions such as mortgage interest, maintenance cost and similar expenses as referred to above. This would ensure a level playing field and achieve true tax neutrality for homeowners. Without such deductions for mortgage interest and maintenance costs, homeowners would shoulder a disproportionate tax burden.

First House Exemption

Recent comments made by policymakers in Sri Lanka in relation to the implementation of IRIT as per the IMF Report, suggests that the focus of IRIT is on high wealth individuals, and not on average income earners. Further, policymakers have indicated that an exemption would be granted for primary residences.

The “Net Annual Value” concept in the IRA 2006, is criticized in the IMF report for its reliance on exemptions (such as exempting the primary residence) and the use of assessed values. The IMF report also states that IRIT would be implemented with an exemption threshold and a graduated tax rate schedule, which would make this tax highly progressive. However, there is no indication whatsoever in the IMF report with regard to the “first house exemption.” Nonetheless, it is very likely that a first house exemption would be included when the law is being passed.

Granting a first-house exemption, while potentially appealing to some taxpayers, may undermine the revenue targets associated with the IRIT. The IMF report estimates that the IRIT should contribute 0.15% to Sri Lanka’s GDP. However, a broad exemption for primary residences could significantly reduce the IRIT tax base, posing a challenge for the Government in achieving its projected revenue goals.

Despite the ambiguities surrounding the implementation of the IRIT, the use of fictional income for taxation would surely create a significant change to the existing taxing mechanism used in Sri Lanka’s tax framework. Moreover, this approach will impose a substantial financial burden on taxpayers as they will be taxed on imputed, rather than actual earnings.

(Views expressed in this article are personal.)

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Features

Proactive peacemaking becomes a paramount need

Published

43 mins ago

2026/06/4

Sahan Weerasooriya

Wasting wars: Some war-displaced people in Lebanon. BBC

It may be some time before the full impact of food inflation is felt in the West. Until such time the world would continue to keep itself in suspense over whether the Trump administration is in earnest when it seeks to convey the impression that it is backing a negotiated solution in West Asia.

As is usually the case, consumer stress would be one of the final determinants of political change. To the degree to which the average US consumer somehow ‘muddles through’ and puts the food on the table, to the same extent would the Republican sections of the US public in particular be tolerant of the Trump administration’s inconsistent handling of the West Asian war and the main issues stemming from it. That is, there would be no grave popular disaffection and a demand for political change in the short term.

However, the indications are that the Trump administration’s support base is suffering some erosion in the wake of the current economic crisis. While reports indicate that Democratic sections are firming-up their opposition to the political centre, Republican support for Trump is also showing signs of waning, we are given to understand.

The above developments are probably why Trump is on record as having given Israeli Prime Minister Benjamin Netanyahu a ‘dressing down’ recently on his seeming intransigence on the question of giving negotiations a chance in West Asia. The show of displeasure could be really aimed by Trump at containing the impatience of the American public.

However, the current ground situation in the Middle East, particularly the uncontained bloodshed, is likely to impress on the thinking sections of the world that more than temporary political change is needed in West Asia and the US.

A well thought out political solution that addresses all the contentious issues at the heart of the Middle East conflict is what enlightened opinion would demand, and very rightly. Right now, the ‘peace efforts’ initiated by the Trump administration give the impression of being piecemeal solutions at best.

There have been, of course, numerous initiatives in the past aimed at bringing permanent peace to the Middle East. These failed mainly because they did not address in full the root causes of the conflict.

At bottom the Middle East conflict is mainly about race and religious hate bred by socio-economic and material inequalities. For instance, if the Palestinian people were not displaced and deprived of land occupied by them at the time of the founding of the Israeli state, ethnic enmities would not have grown to the current unmanageable proportions.

When addressing the above questions, though, it must be remembered that the Israelis too were a displaced people who were entitled to land and a state of their own in the Middle East. Basically, out of these seemingly irreconcilable and conflicting demands have grown the Middle East imbroglio.

Middle East peace is considerably about reconciling these demands and arriving at a solution that would ensure the creation of two states that would opt for peaceful co-existence thereafter.

As long as the US does not see the need for a non-partisan solution that addresses the needs of both ethnicities and religions and goes all-out, as it were, to have it implemented, the Middle East would continue to bleed.

However, staunching the blood flow through the creation of two states would be only half the job done, though a very important part of it. More pernicious, pervasive and difficult to remedy are the inter-ethnic and inter-religious hatreds that have been unleashed over the decades.

However, if substantial, long-lasting peace is to be fostered in the region the latter ‘demons’ would need to be exorcised from the hearts and minds of the communities concerned. No doubt an uphill task but one that must be undertaken by those who wish the region well.

The UN would need to put its ‘best foot forward’ in such undertakings but it is time that it dawned on the international community and other caring quarters that Middle East peace, and all other such uphill challenges, require proactive peacemaking on the part of all civilized sections for their effective management. That is, public involvement in peacemaking too is a must.

Since hatreds are harboured in the human consciousness the enmities embedded in the latter need to be managed and defused judiciously alongside other undertakings in a peace process. In the case of West Asia, such enmities could be even spread globe-wide besides being multi-dimensional. For instance, it ought to be thought-provoking that Iran is insistent on a peace initiative that would also include Lebanon.

Besides security considerations it is also ethnic and religious affiliations that account for Iran making this demand. For instance, the Shias are a numerically important religious community in Lebanon and they provide a significant number of Hizbollah fighters, who are in a vital sense carrying out a ‘proxy war’ for Iran. It also needs to be factored in that Iran is a Shia-majority country.

Thus trans-border religious affiliations could add to the complexities and enormity of ethno-religious conflicts. However, the task of managing centuries-long enmities needs to be launched and prodded on with by peacemakers since a downing of arms alone would not guarantee substantive peace.

It is not realized sufficiently that the process of ending hatreds begins with mutual apologies by antagonists to a conflict for the harm inflicted on each other. This would be anathema in some ears but there is no getting away from the requirement. It is the vital first step to permanent peace anywhere.

In fact there could be no reconciliation worth speaking of without such mutual apologies. It is a point worth re-iterating in these times when even the government of Sri Lanka is voicing the need for national reconciliation. Well, without the words, ‘I am sorry’, there could be no permanent end to enmities – they would do well to remember.

The above requirements may not go down very well with governments, but they resonate in the hearts and minds of most people, since they are inheritors of religious traditions of some kind.

This is a principal reason why peacemaking works well when publics too are involved in them. The effectiveness of such campaigns increases several fold when they have a Mahatma Gandhi or a Jawaharlal Nehru at their helm. A strong proactive involvement by the public in peace could lead to the emergence of such leaders at some point in these campaigns.

Features

Dialog Brings Sri Lanka’s Largest Digital Vesak Experience to Matara

Published

44 mins ago

2026/06/4

Sahan Weerasooriya

From left to right: Hon. Saroja Savithri Paulraj, Hon. Sunil Handunnetti, and Lasantha Theverapperuma experience the Dialog 5G Ultra-powered VR tours.

Official Digital Partner of the 2026 ‘Dakshina Prabha’ National Vesak Zone

Dialog Axiata PLC, Sri Lanka’s #1 connectivity provider, collaborated with the Ministry of Buddha Sasana, Religious and Cultural Affairs to bring one of Sri Lanka’s largest and most technologically advanced Vesak experiences to the ‘Dakshina Prabha’ National Vesak Zone. The three-day celebration, in Matara attracted more than hundred thousand visitors, who engaged with a series of innovative digital activities powered by Dialog 5G Ultra, including Artificial Intelligence (AI) and Virtual Reality (VR) experiences, digital pandols and a Data Dansala. The opening ceremony was attended by Hon. Sunil Handunnetti, Minister of Industry and Entrepreneurship Development and Hon. Saroja Savithri Paulraj, Minister of Women and Child Affairs, along with distinguished guests and Dialog’s senior management.

One of the key attractions at the venue was the Dialog 5G Ultra-powered Virtual Reality (VR) experience, which attracted more than 35,000 participants. The activation enabled devotees to virtually visit and pay homage to sacred Buddhist sites, including the Jaya Sri Maha Bodhi in India and the Atamasthana in Anuradhapura, directly from the Vesak zone in Matara.

Visitors receive complimentary mobile data through Dialog’s QR-powered Data Dansala.

Dialog also conducted an AI Digital Vesak Greeting Card Competition from 21 May to 01 June 2026, attracting numerous entries from across the country. The shortlisted designs were showcased across 20 large LED screens throughout the venue and across Matara City, and were also made available for download via mobile devices. Further, through the use of AI, traditional Jathaka Katha were reimagined in a digital format, demonstrating how technology can be used to preserve and enhance cultural and religious heritage. Together, these initiatives blended traditional Vesak celebrations with emerging technologies, offering visitors a unique and immersive way to engage with Vesak traditions.

Extending the spirit of Vesak through connectivity, Dialog conducted a special Data Dansala powered by its QR Reload platform, enabling visitors to receive complimentary mobile data by scanning QR codes placed across the venue. In addition to the Matara National Vesak Zone, similar Data Dansala activations were also conducted at the Gangaramaya and Bauddhaloka Vesak zones in Colombo.Visitors also had the opportunity to create personalised Vesak-themed digital photos through an AI Photo Booth, generating AI-enhanced portraits using their own photographs and adding a contemporary digital element to the Vesak celebrations.

Visitors watch AI-generated Jathaka Katha

Commenting on the initiative, Hon. Sunil Handunnetti, Minister of Industry and Entrepreneurship Development, said, “The 2026 Dakshina Prabha Vesak Festival marked the first time AI-powered digital innovations were incorporated into a National Vesak Festival in Sri Lanka. Presenting Buddhist stories and teachings through technology created a new and engaging way for visitors to connect with these traditions. We thank Dialog for supporting this initiative and for working closely with us to bring our vision to life. Their contribution played an important role in making this first-of-its-kind event a reality.”

Lasantha Theverapperuma, Group Chief Marketing Officer of Dialog Axiata PLC said, “We thank the Government of Sri Lanka for the opportunity to support the 2026 Dakshina Prabha National Vesak Festival and for embracing technology as part of this year’s celebrations. As the Official Digital Partner, we were privileged to contribute through our Dialog 5G Ultra and AI capabilities, creating new ways for visitors to engage with Vesak traditions while preserving their cultural significance for future generations.”

Beyond supporting the National Vesak Zone in Matara, Dialog also enhanced the Gangaramaya and Bauddhaloka Vesak zones through a range of digital activations during the Vesak season. The company additionally continued its sustainability initiatives, including the Thirasara Aloka Poojawa, which illuminated rural places of worship through solar-powered lighting solutions.

Features

Beauty, elegance and talent…for women

Published

45 mins ago

2026/06/4

Sahan Weerasooriya

Universal Woman is an international pageant focused on “beauty, elegance, and talent” for women, positioning itself as a platform to shape global ambassadors. The 2026 edition will be held in Cambodia, and Sri Lanka will be there, as well.

According to reports coming my way, contestants, at the international event, will work with industry trailblazers, under international standards.

Sri Lankan supermodel, runway and pageant trainer Chulpadmendra Kumarapathirana, is the National Director for Universal Woman Sri Lanka 2026.

With over two decades in the industry, Chula was crowned Miss Sri Lanka 2006, and has since shaped the next generation of titleholders through her Colombo-based Chulpadmendra Catwalk Studio, widely regarded as one of the country’s leading modelling academies.

The team behind Universal Woman Sri Lanka 2026

A former host of Derana Miss Sri Lanka for Miss World 2008 and a judge for Miss Universe Sri Lanka 2025, Chula now serves as National Director for Universal Woman Sri Lanka 2026, leading the franchise’s search for Sri Lanka’s delegate to the international final in Cambodia.

Applications for Universal Woman Sri Lanka 2026 are being taken, via WhatsApp: 077 659 4994, says Chula.

The judging panel for Universal Woman Sri Lanka 2026 includes Senaka De Silva, Pageant Aesthetic Advisor & Chairperson of the Judging Panel, Angela Seneviratne, Caroline Jurie, Rozelle Plunkett, and Suraj Mapa.

Universal Woman Sri Lanka 2026 officially began its journey with a first round of auditions, held in Colombo, marking the start of an exciting new chapter in Sri Lanka’s pageant industry.

Launching the first round of auditions

The platform aims to empower women while selecting an intelligent, confident, and inspiring representative to compete at the Universal Woman International Pageant 2026 in Cambodia, this September.

Universal Woman Sri Lanka now moves forward with the vision of creating one of the country’s most prestigious and empowering pageants while preparing to crown a queen who will proudly represent Sri Lanka on the international stage.